Chicago: The Birthplace of the Condo Conversion Movement
- Feb 23, 2012
By Allen Rafalson, Contributor
Chicago—Nearly a half-century ago, two middle-aged Chicago attorneys formed a partnership that would signal the beginning of the condominium conversion movement. One, Joseph Moss, was the son of Israeli parents who settled in Chicago, the other was born and raised in the city. Prior to their meeting at John Marshall Law School, Moss was a hardware salesman and Harold Miller was owner of a South Side piano store.
And so, in 1964, both embarked on a journey that would revolutionize the nation’s real estate market, Chicago becoming the birthplace of condominium conversions. A perfect combination: Miller the man with expertise in finance and Moss the ideal salesman.
Their first project was a three-story, 16-unit building located on the southwest corner of 55th and Everett Avenue in the Hyde Park neighborhood where Moss was a tenant. New carpeting, painting and additional renovations began shortly after the owner agreed to sell the property, receiving a five percent down payment. The remaining balance of the sales price was paid after all the units were sold. The presentation to tenants was simple: buy your own apartment, pay as much or less than your monthly rent and enjoy a tax deduction. The conversion was an immediate success.
“I was told by an officer of the Chicago Title and Trust Company that this would be the first condominium conversion in the continental United States,” said Paul H. Berger, former Managing Officer, Hyde Park Federal Savings and Loan. During this period, Miller and Moss went on the premise that there existed a massive surplus of property held by banks, pension funds, insurance companies and financial institutions. Potential purchasers of these properties were finding it difficult to obtain financing, which demanded high capitalization rates. As a result, institutional owners were unable to sell their properties as rental buildings without incurring significant losses.
“Condominium conversion offers an exit strategy that maximizes value,” Miller said. “It eliminates holding and management costs and rapidly converts underperforming and non-performing assets into liquidity. A conversion can result in a total return that exceeds the property’s current value as a rental building. A string of purchases in Hyde Park followed.
Eventually, Miller and Moss decided to go their separate ways. The split was amicable. Both men continued to specialize in condo conversions. But Miller’s most challenging project was yet to come: the city’s sprawling Near North Side rental development called Carl Sandburg Village.
Meanwhile, by the late 1970s, condo conversions were in full swing throughout the country and building owners, recognizing the profitability of selling, hopped aboard this wondrous bandwagon. Chicago’s Marina City was no exception. The nation’s first urban post-war, high-rise residential/commercial complex, located in the city’s Loop, was sold despite the protests of its tenants. Designed by architect Bertrand Goldberg, the twin towers consisted of nearly 900 rental units, 170,000 square feet of office space, a theater, ice skating rink, bowling alley, several restaurants, and a boat marina.
The controversy over Marina City soon faded and a larger one was to begin two years later. In 1979, Miller’s firm, First Condominium Development Company, paid real estate mogul Arthur Rubloff $105 million for the privilege of converting Sandburg Village’s 2,650 studio, one- and two-bedroom apartments in nine high-rises and 82 townhomes. His partner was wealthy businessman A.N. Pritzker. Miller said it was the largest price ever paid for a rental complex in the U.S. at that time. The surprising move was criticized by consumer groups and city government officials for taking so many rental units off the market. The transaction immediately became a political football.
The announcement took Sandburg renters by surprise and within days a vengeful Tenants’ Ad Hoc Committee was formed. Sandburg immediately became a magnet for the local and nationwide media. Undaunted, Miller held his ground and sold the units in three phases, beginning on April 11 of that year. Within three months, 81 percent of the units were sold to tenants. Eventually, 96 percent was sold. Resale prices later increased substantially.
Miller was also a visionary, predicting condominium conversions of office buildings and hotels. The Plaza hotel in New York, as an example, began selling its rooms starting at $1.5 million. Miller believes the sale of a condo there for $47 million is a record that still stands. The Merchandise Mart and other offices buildings followed.
In March, 2003, Miller was inducted into the 2003 Chicago Entrepreneurship Hall of Fame. Now 91, he gives credit for his success to his wife, Beatrice, who stood at his side throughout the years, taking charge of sales and marketing and becoming his biggest advisor. He, her biggest fan. It’s a love story that began 62 years ago.
Allen Rafalson was the public relations consultant for the condo conversions of Marina City and Sandburg Village, as well as the huge renovation of the Chicago Hilton Hotel in the late 1980s.