McHenry downtown developments will not be condos/owner-occupied units

Condominiums not getting built post-Great Recession, developers say

The River Place Apartments in downtown McHenry, seen here on Thursday, June 13, 2024, were originally planned as condos before the developer went bankrupt during the Great Recession.

When Shodeen Group LLC pitched its proposal for apartments to the McHenry City Council in February, two council members indicated that they wanted to see condominiums downtown.

Before the City Council indicated Monday night, by unofficial straw poll, that it would not support the proposal going forward, Second Ward Alderman Andy Glab reiterated that he would not support a proposal seeking apartments.

“Cry in your own beer. ... I was up front from the beginning” that he would not support apartments, Glab said.

One resident speaking during the public input portion of the night said he believed possible downtown residents should “have skin in the game” and own their units rather than rent.

“I believe most of our existing residents ... would be more open to these development ideas if the development plans included property ownership. We want new residents to have a stake in the community like the rest of us,” said Dennis Finn, a resident of the Riverwalk townhomes on Waukegan Road.

A condo development is not likely to happen in downtown McHenry or elsewhere, Shodeen President David Patzelt said during his February pitch, because of the 2008 housing market crash and the Great Recession that followed.

“Currently, with the way financing is available, it is almost impossible unless you are on the inner city to finance condominium buildings ... due to the real estate market collapse and a change in bank financing requirements,” Patzelt said.

Specifically, Patzelt said that because of the Dodd-Frank Wall Street Reform and Consumer Protection Act, a builder now needs to sell 50% to 70% of condominium building units in advance to receive bank-backed construction funding.

The Residence of Fox Meadows apartments in McHenry, seen here on Monday, June 10, 2024, have began leasing to tenants. The complex is planned to offer more than 500 units once completed.

To make the 88 units proposed at 1111 N. Green St. a condo development, they would find 44 potential owners willing to make a down payment, then wait to move in once construction is finished, Patzelt said.

“No one wants to give a down payment and get into a condo two, three or four years from now,” he said.

No one wants to give a down payment and get into a condo two, three or four years from now.”

—  David Patzelt, Shodeen Group president

Rich Eisele understands the problems with condos. He bought McHenry’s River Place apartments at 1112 N. Green St. in downtown McHenry a few years ago. The apartments above the first-floor businesses were supposed to be condos, but the original developer went bankrupt before those were completed. The bank sold the building to a company that finished construction before Eisele purchased the development.

“The condo market is dead,” Eisele said, adding that multitenant buildings that were made into condos in the past are converting back to apartments.

There are reasons for those reconversions, including that younger generations are looking for more mobility when it comes to their housing options and have leaned toward apartment leases, Eisele said.

“They are not looking for ownership,” he said.

The demand for apartments includes McHenry County. A 2021 housing study paid for by McHenry County showed both McHenry and western Lake counties do not have enough apartments to meet current demand. Since then, McHenry has added 288 units at Blake Road and Route 31, and the Fox Meadow Apartments at Route 31 and Veteran’s Parkway. When completed, the Fox Meadow complex is expected to have more than 500 units.

Two of the Fox Meadow buildings have opened, and although they have yet to advertise, half of the 90 units have been rented out, developer Brian Cunat said. Of the 2,800 units his company leases in McHenry County, the occupancy rate sits at 98% to 99%, he said.

He agrees with Patzelt that there is not a market for, nor could he get funding for, condo construction. He also agrees with Eisele that younger people may not want the headaches of homeownership.

“I think there is a huge niche in the market of, ‘I don’t want to do lawn maintenance or handle outside stuff,’” Cunat said, adding that that makes apartments attractive.

If the city of McHenry city council were to approve the proposed Green Street apartments, they would be built to condo standards, meaning they could be sold individually in the future, Patzelt said. So could the River Place apartments, Eisele said.

“The market rules the roost” in determining what is built, and that is no condos now, Eisele said.

“They are not going to risk having to come up with the 50% pre-sold [units] that can then sit indefinitely,” Eisele said. “A developer has to see a return on his money.”

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