FOR IMMEDIATE RELEASE

Chicago Tribune, Your Place section, 7/8/06

Behind the walls

Buyers must take a careful inside look at the final result of condo conversion

By Jeffrey Steele
Special to the Tribune
Published July 8, 2006

When home inspector Allan Monat conducted an inspection of a suburban condominium conversion unit in February, his initial thought was, "This is really nice."

But when he got around to checking the functional flow of the plumbing system, he discovered not much hot water emerged from the unit's sinks and showers.

"The structure was built prior to 1960, and there were galvanized water supply lines going through the complex," said Monat, owner of Northbrook-based Metro Real Estate Inspections Inc. "Around 1960, some municipal codes mandated that lines be copper, because galvanized corrodes from the inside ... the flow gets lower and lower, and frequently it clogs up."

The result can be no water flow at all, as Monat, a certified real estate inspector, discovered.

When Monat's clients learned of the water flow issue, they promptly backed out of their planned purchase.

The situation he found points up a fundamental truth about buying a unit in a building being converted from apartments to condos. For buyers, it's a time to be wary.

Some developers undertaking condo conversions lavish attention and money on fixing up individual condominium units, but spend little time or cash addressing costly building systems, say home inspectors and real estate agents.

That's why it's critical for buyers, relying on the services of experts, to learn as much as they can about the building as a whole, not just the condominium units they're purchasing.

"Regardless of what you're buying, you want to know what the developer did to the building," said Michael Golden, co-founder of @properties, a leading residential real estate brokerage firm in Chicago.

"There is a wide spectrum of condominium conversions. On one hand, there are conversions where the units are converted as is or there is minimal kitchen and bath rehab--and no work done on the building. On the other end of the spectrum is a complete gut rehab of the building, with all new building systems, new plumbing, new electric, new roof and new windows."

Buyers contemplating the purchase of a condo conversion need to determine the age of the building and understand what has been done "behind the walls," he added.

They need to know, for instance, the condition of the electrical wiring, the state of the heating and cooling system and whether the plumbing is 75 years old or brand new. These, along with windows, roof and tuck-pointing, are among the big-ticket items some developers skimp on when converting apartments to condos, Golden said.

"That doesn't mean you shouldn't buy [the unit]," he hastened to add. "But you need to know what's coming down the road. ... All these things are relative to the price you pay. You need to go in with your eyes open, and understand the expenses you may face--and ensure those are factored in to the price you pay."

What appears to be a great condominium deal may not turn out so if major systems have not been addressed. On the other hand, a price that seems too high at first may be a value if the building has been renovated and set up for long-term health, he said.

Joe Keller was about to sign a six-month lease for a Gurnee apartment in June of last year when he learned about Deer Creek Condominiums and decided to take a look. He soon decided he would be better off buying than renting.

"It ultimately turned out to be something I thought was better constructed" than the apartment building, said Keller, 32, who works in single-family home development in the area. "And for the price I'd be paying, it would also be a lot less per month than it would be to rent. I thought it would be only a matter of time before it appreciated."

He and his new bride, Maria, 22, moved into a two-bedroom, two-bath, third-floor condominium overlooking the forest preserve and walking paths in September. He even helped persuade a friend to buy in the building.

"It was definitely a better value," he said. "It's very well built."

Prospective buyers can inspect condominiums for a few basic problems on their own, Monat said. For instance, they can turn on taps and check water pressure, examine appliances to ensure they're operational and in good condition, and open and close all windows to check for smooth operation and no cracked or broken glass.

Beyond these readily observable facets of a condo's condition, buyers should turn to a qualified home inspector for a far more detailed scrutiny of the property.

For instance, in many condo conversions, builders will install thermopane windows, Monat said. "But it's difficult for the average home buyer to spot a broken seal in the window," he added. "A home inspector should be able to spot that."

Home inspectors also give the electrical system a thorough going-over. Some older buildings feature obsolete 60-amp service running into the units, Monat said. Inspectors can check to ensure there are no signs of overheating in the main electrical panel.

"If there is burned insulation on the wires, that would indicate overheating," he explained. "I did an inspection of a brand new condominium building a couple weeks ago, and found overfusing in the main panel, and two outlets that were non-operational."

Many condo conversions suffer from potential electrical safety hazards, agrees Nick Gromicko, chief executive of the Boulder, Colo.-based National Association of Certified Home Inspectors. He has discovered outlets in kitchens and bathrooms sometimes lack ground fault protection, and outlets in bedrooms often lack arc fault protection.

Water leaks and resulting mold problems can also plague condo conversions. Condos are more prone to water and mold problems than single-family homes for several reasons, Gromicko said. First, water may be leaking into a unit from another unit in the building and not be discovered until it does damage.

"A water leak in a tub above you is something you can't investigate," he said. "You don't have complete access to all the water sources that can affect your property."

In addition, because they have fewer outside walls and frequently don't feature forced air heating, condos don't benefit from the air exchange found in a single-family house. Lack of air movement prevents evaporation of water leaks, helping breed mold.

Heating systems also merit home inspectors' close attention, noted William Decker, senior inspector with Skokie-based Decker Home Services and president of the Chicago chapter of NACHI. In many of today's condo conversions, the renovated units are each given their own furnaces, air conditioners and water heaters.

"The problem with sticking a furnace and a water heater into a little closet is you don't have enough combustion," Decker said. "Both have flames, which require oxygen, and where are they going to get oxygen? If they install the furnace and water heater correctly, you'll see separate PVC lines for intake air and exhaust air.

"I have literally seen 80 condo conversions where they haven't installed the furnace correctly," he said. "It will become very inefficient and the furnace will die in half the time, or worse, the furnace will begin to produce carbon monoxide."

Decker also warns buyers in buildings being converted from apartments to condominiums to be watchful for an all too typical problem.

"The bait and switch with condo conversions in general, but particularly in Chicago, is the developer getting the condominium association to take ownership of the condo before the work is fully completed, and/or completed properly," he said. "In that case, the condo association winds up buying the liability. That's becoming commonplace now."

Home shoppers should hire home inspectors to examine converted condos before purchasing. For what Monat estimates is an industry average of $250 to $300 per inspection, it's money well spent, he said.

A reason that having an inspection is vital is that "sooner or later, every component of a building will wear out," said home inspector Frank Lesh, of Home Sweet Home Inspection Co., based in Indian Head Park.In Chicago, it is important to look at the exterior stonework of a building, which can be very costly to repair.

"The city has really clamped down on stonework, because there is a risk of injury or death if it falls," he said.

Lesh said an inspector can tell a prospective buyer whether interior remodeling has been done well.

"A lot depends on the quality of the contractor and the workers who did the work," he said.

Additionally, get an inspector to look at the water heater that serves your unit and the heating and air-conditioning systems that serve the building, Lesh said.

"If any of these systems break down, it can cost the owners plenty," he said.

Finally, he said, get the inspector to examine the roof. How old is it? Is it in good condition?

"When you own a unit, the repairs will be up to you and your fellow owners," Lesh said.

Two currently proceeding condominium conversions whose developers report major investments in building and property infrastructure are Deer Creek Condominiums in Gurnee, and 12 Oaks in Schaumburg.

Deer Creek Condominiums features 198 units equally dispersed across three 24-year-old buildings featuring brick and concrete construction. The selection of condos includes one- and two-bedroom units with one to 2 1/2 baths, ranging from 750 to 1,050 square feet, said Steve Rubin, president of Oak Brook-based Midwest Real Estate Equities Inc., the developer. Prices range from $104,900 to $149,900.

Reporting "plumbing and electric were in great shape" in the former apartment community, Rubin said his company has added new roofs, laundry rooms, lobbies and lighting to the buildings. "We're on 33 acres, a much larger site than you need for this many units," he said. "We're adjacent to wetlands and a forest preserve that we can't build on, but that are great for bird watching. Then we have a `Field of Your Dreams,' including a full-size baseball field, football field, soccer field and basketball courts."

Two-bedroom units at Deer Creek Condominiums haven't been upgraded as part of the conversion.

Midwest Real Estate Equities is providing a $10,000 incentive package to buyers of two-bedroom units, allowing them to upgrade their condos or earmark the money for assessments or closing costs. The money could also go to replacing in-unit HVAC systems. The systems are operable, but are being replaced by buyers intent on staying at Deer Creek long term, Rubin said.

In the northwest suburbs, 12 Oaks features 460 units across 10 different floor plans, including manor homes and town homes as well as condominiums. Units feature one and two bedrooms with 1, 1 1/2 and 2 bathrooms. Prices start at $135,000 and range up to $270,000, said Nick Helmer Jr., managing member of B.B. Schaumburg LLC, a condominium conversion marketing company in Schaumburg.

Noting "we got lucky," Helmer reports his company is converting an 18-year-old complex whose buildings just five years ago received new roofs. Approximately 40 percent of the HVAC systems were replaced during the past three years, and B.B. Schaumburg is in the process of replacing the balance. "Each unit has its own hot-water heater," Helmer said. "One third were replaced over the last three years, and we're replacing the other two-thirds. The suburbs have required all-copper plumbing for many years, and that's all in good shape. Electrical is in the same condition."

A big part of the conversion budget is being used outdoors, thanks to a $400,000 allocation for landscaping.

Improvements will include a redesigned pool area, the installation of 45- and 55-foot high fountains, the planting of an assortment of mature and smaller trees and other new landscaping touches throughout the development and around the two-acre lake adjoining the complex.

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