Fixing your "broken" condo building

It has become a common scenario. At the height of the real estate market years ago, zealous real estate developers converted hundreds of dated and neglected apartment buildings into condominium developments. Real estate investors, both experienced and newbies alike, were attracted to promises of heathy investment returns and ease of resale. The recession hits and the developer can no longer complete the originally intended construction, much less continue to sell the remaining units in the building. What’s left is the classic busted condominium project and the investors who already closed on their units are left holding the bag.

Fast forward to the present time and those investors who still own their units in these projects and didn’t already lose them in foreclosure are starting to see a way out of this investment gone wrong. It is through the deconversion process pursuant to the Illinois Condominium Property Act (765 ILCS 605 et. seq.; the Act) and if you’ve paid much attention to the local real estate markets lately, you’ve probably noticed such deconversion transactions popping up quite a bit.

As Millennials continue to occupy a large percentage of the population, multi-family development continues to be a preferred investment asset for many investors—and deconverting a broken condominium into a profitable apartment building has been very popular over the past few years.

The mechanisms for completing a deconversion transaction have always existed under the Act; however, such a transaction can be quite challenging and complicated and having the right team of experts to help one, on either the buyer or seller side of the table, navigate through all the pitfalls is critical. From negotiating a meaningful and effective purchase and sale agreement, to properly documenting unit owner meetings and voting results, to identifying and addressing difficult issues during the transaction such as underwater mortgage and owner/occupant issues, seeking counsel from an attorney experienced with these types of transactions will be money well spent.

This Chuhak & Tecson, P.C. communication is intended only to provide information regarding developments in the law and information of general interest. It is not intended to constitute advice regarding legal problems and should not be relied upon as such.

Client alert authored by: K. Shaylan Baldwin, Principal

This alert originally appeared in the Winter 2017 Real Estate Focus newsletter.