Earlier today I received an email from 1400 S. Michigan – Tower II promoting recent price reductions with the subject line “Auction Pricing without the Auction!” Basically they are claiming that they’ve lowered their asking prices to the auction levels. Well, if you can buy a unit at the same price as at auction then that’s a pretty good deal because you can do so at a more leisurely pace and without all the auction mania going on. Let’s see if this claim holds water.

Unit 1312, 1 bedroom/ 1 bath and 692 sq ft has been cut from $253,990 to $182,990. That compares with unit 1812, which sold for $182,000 at auction. Well, that’s a higher floor but let’s assume there is some room for negotiation on unit 1312 – though developers don’t usually like to negotiate.

Unit 1508, 1 bedroom +/ 1 bath and 751 sq ft has been cut from $268,990 to $199,990. That compares with unit 2008, which sold for $204,000 at auction, which seems reasonably fair – lower price for a lower floor.

Unit 2707, 2 bedroom/ 2 bath and 1259 sq ft has been cut from $490,990 to $378,990. That compares with unit 2607, which sold for $336,000 at auction. So I would not say that unit 2707 is available at auction prices. This one is much higher.

Oh…and they might want to update their MLS listings. The bulk of their listings that are showing as active were sold at auction. I think that violates some kind of MLS rule.

Let’s assume that after adjusting for all the factors in my earlier post on comparing Chicago condos with different assessments you are still left with a choice between two condominiums that have different assessments. How do you then factor in that difference – especially if the condo with the lower assessments has a higher price?

Let’s start with a simple approach for making that comparison, based upon an example where the difference in assessments is $100/month and your mortgage interest rate is 5%. In that case the extra $1200/year in assessments is approximately equal to the interest you would pay on an additional $24,000 purchase price ($1200/.05). In other words, for the same monthly outlay you could afford a $24,000 more expensive home or buying the home with a $100/month assessment is equivalent to spending an additional $24,000 on a home. In fact, most buyers intuitively take this into account by looking at their total monthly outlay in terms of mortgage, taxes, and assessments.

That’s the basic concept. It gets more complicated (doesn’t it always?)

First, there’s the tax benefit of a mortgage. If your marginal tax rate is 25% then the after tax cost of mortgage interest is really 3.75%. So that $100/month is really equivalent to paying an extra $32,000.

But I’m not done. It gets even more complicated. Really complicated on this round. In fact, it gets downright scary. Let’s say you believe that your assessments are going to go up because of inflation – maybe 3% per year on average. Wellllllll….now that’s equivalent to paying an extra $160,000 (1200/(.0375 – .03)!

OK. You’re not going to believe that and, while it’s accurate, it’s not totally correct so I better explain. The formula I used above is for what’s called a perpetuity. In other words, it assumes you are going to live there forever. Of course, that’s not true. In fact, you will either die (sorry, but it’s true unless you are a teenager in which case you believe you are immortal) or move before perpetuity comes. So what you really need to do is factor in the increases that will occur while you are living there using a technique called discounted cash flow, which is too complicated for me to get into right now but, in a simplified form, it’s actually the basis for all the formulas I’ve been kicking around here. Basically, it averages out the increases you are likely to experience while living in this place and it comes up with a number far closer to $32,000 than $160,000.

But here’s the point: an extra $100/month really adds up over time and the longer you live there the more of a burden it’s going to become. So think twice about buying a place with a higher assessment unless it’s a lot cheaper.

Today I attended the condo auction for 1400 S Michigan Avenue – Tower II held at the W Hotel on Adams St. in Chicago – along with about 300 -500 other people. 43 condos were auctioned off in about 1 1/2 hours at an discount off of the last list price of about 26%. Here are the results sorted by exposure and unit number (you may want to check out the floorplans at the link above):

There are several interesting observations from this auction:

• You will notice that unit 500, which is a studio, actually went for more than the last list price. Regardless of what you think it was worth, we can only conclude that when this unit was on the market people were not aware of its availability. Otherwise the bidders could have bought it then for a lot less.
• I don’t show the auction sequence here but they auctioned off the higher floors first. In several instances the lower floors then went at a higher price – e.g. units 2512 and 2312. I’m thinking that either people incorrectly assumed that the higher bidders would be taken out in the earlier round or they developed remorse that they didn’t get the higher floor.
• It looks like the developer was trying to get about a $3K premium per floor. However, the auction only assigned a premium like that about half the time.
• Unit 2602 seemed overpriced relative to 1203 and in fact the auction gave it a bigger discount.
• I was surprised that the south and west views went for as high prices as they did vs. the north and east views.
• When they say get there an hour ahead of time you should if you want to get free food and good seats.

Quick update: I just spoke with the auction center at 1400 S Michigan and learned something interesting. On the registration cards they ask bidders which condominiums they are interested in. They use this information to sequence the condos for auction, with the most in-demand condos being auctioned first. In other words, the last condos to be auctioned will have the least demand and possibly be the better deals – unless of course all the losers (not meant to be derogatory) end up bidding on the last condos and drive up the prices.

Once again, the auction is this Sunday at the W Hotel on Adams St.

This loft at 1910 S. Indiana( the Engravers Lofts) gets my Way Cool rating. Most of what I see on a day to day basis is so much the same that I can’t usually keep them straight. However, this loft is really neat with some very unique finishes that make it stand out from all the other drivel out there.

The unit is priced at $399,900 plus an additional $30,000 for the parking space and the monthly assessments are $484. It is a 1659 square foot northeast corner unit with 2 bedrooms, 2 baths, and a fabulous view. You get to see a nice mix of high rises, green space, and smaller buildings.

In this photo of the living room you can see that the unit has expansive floor to ceiling windows and a steel ceiling – you don’t see too many of those.

The kitchen island has a polished concrete counter top with a swerve design embedded, supported by a metal pipe – one of the many interesting architectural details in this unit.

The master bedroom has a partially dry-walled ceiling to break up the monotony and you can also see two other unique design elements. All the HVAC ducts are flattened as opposed to the standard circular shapes seen in almost every other loft. And on the left side of the picture you can barely tell that the bathroom door hangs from a metal bar above the doorway and rollers allow it to glide across. I can’t remember if there are multiple types of doors in the unit but I do remember that the front hallway closet door is made of a heavy metal screen.

Check out the interplay of several unique design elements in this master bathroom: mosaic tile wall, circular mirrors, high neck faucets, single wide basin sink, and a vanity supported by a metal pipe.

There are two things people might not like about this unit: 1) The balconies are bright yellow and 2) the ceilings are unfashionably low – not the 17 feet that seems to be irrationally popular. In particular, the clearance can be a bit tight when standing under the duct work. Nevertheless, I think this place is way cool!

The unit is listed by Keller Williams and has been on the market for 90 days now.