Condo owners at Residences at the Grove, 7757 Van Buren, asked village commissioners to alter the association’s Planned Urban Development (PUD) ordinance to allow a higher percentage of owner-owned rental units at a Nov. 28 council meeting. Grove condo owners find themselves in an economic vise as sluggish condo sales keep residents from unloading their units, while new banking regulations discourage condo lending in a development with too many rentals or too many units owned by one entity. Meanwhile, Focus Development, which built the Grove condo and townhouse complex, still owns 39 of the 140 condo units and is renting 36 of them.
“Owners who want to rent their unit might have been transferred for work or face other legitimate hardships,” said Village Administrator Tim Gillian. “It’s just terrible timing for them to sell. If these people are foreclosed or short sell, then that unit just became the comparable [in terms of property assessments] for other units.”
The original PUD stipulated that only 10 percent, or 14, of owner units could be rented. The village was asked for permission to raise the amount to 30 percent, or 42 units. Combined with the unsold Focus units, that would make 78 (or 55 percent) of the condos rentals.
But Andrew Palomo, a loan officer and financial planner in Oak Park said banks shy away from condo complexes with more than 30 percent rentals – even if the units have never sold and are still owned by the developer. “We like to see 70 percent [of a complex] owner-occupied, and no one entity owning more than 10 percent of the units.” Getting a 10- or 20-percent-down conventional mortgage in those circumstances would be “significantly more difficult,” he said.
There’s slightly more flexibility if the development is approved by the Federal Housing Authority, he said, which may make FHA loans possible in developments where up to 49 percent of units are rentals. In the Grove’s case, that would mean 71 owner-occupied units. According to the FHA website, FHA approval status expired for Residences at the Grove on Dec. 7.
Ted Despotes, condo board president, says Grove condo owners are trying to make the best of a bad situation. “We have more people who want to be able to lease their units. We need to accommodate that. We felt it was better for our members to have the capability to lease rather than walk away and not pay the assessments.”
Owners must submit an explanation for wanting to rent, which must show a financial hardship, Despotes said. Each case will be considered individually, but criteria are not yet developed. Owners must reapply every 24 months and must have lived in the unit for at least a year before leasing.
Gillian said the village has no way to punish condo owners who skirt the rules, nor do they wish to, he added. “It’s tough to enforce and we don’t want anyone to be foreclosed.”
Banks view investment property as riskier and more likely to default than primary residences, said Palomo. They also don’t look kindly on developers holding large numbers of units. “Banks think if [Focus] goes bankrupt, who will pay the assessment?” he said. “Are they going to fire-sale those rental units in a bankruptcy?”
Tightened regulations from the federally subsidized Fannie Mae and Freddie Mac agencies mandate that mortgages be risk-proof enough to sell in a secondary market, Palomo said. “Commmunity banks would like to lend in those cases, but federal regulators are breathing down their necks too.” Palomo said successful conventional mortgages for Grove units in this circumstance would probably require a down payment of 25 percent or more.
The 6.3-acre Residences at the Grove development, which includes condos and townhouses, was completed in 2007, just in time for the decline of the housing market. At the time, condos were priced from $181,990 to $258,990 for a one-bedroom and between $288,990 and $442,990 for two- and three-bedroom units. Since then, six condo units and one townhouse have been foreclosed, says Tim Davis, of M&M Property Management.
The village did not vote on the proposal but asked village legal counsel to evaluate it.
Despotes said the measure is temporary until the market for condos improves. He bought his three-bedroom condo in early 2008.
“My wife and I intend to stay here a long time,” he said. “[The Grove] has met all of our expectations. We love it.”