But the city and state make it worthwhile for the wealthy to take the hit and clear the books.
From the Wall Street Journal, December 6:
Wealthy homeowners in the Windy City are selling at a loss—and looking for someone to blame
For nearly a decade, billionaire hedge-fund magnate Ken Griffin and Illinois Gov. JB Pritzker have been locked in a highly public feud. So it came as no surprise when Griffin, after selling a portion of his Chicago penthouse for a dramatic 44% loss last month, was quick to take a shot at Pritzker, blaming “failed political leadership in Illinois” for rising crime and declining luxury real-estate values in the Windy City.
The saga took a bizarre turn, however, when the mystery buyer of Griffin’s 9 West Walton Street penthouse turned out to be none other than Pritzker himself.
The two men haven’t revealed how the deal came together, but the sale highlights a broader issue in the Chicago real-estate market: High-end sellers are losing money, and looking for someone to blame.
Chicago’s luxury real-estate market has seen a precipitous drop in recent years. In the third quarter, there were 28 Chicago home sales of $4 million or more, plummeting 28% from 39 in the same period of 2021, according to data from BrokerMetrics. The median price of those sales was $4.625 million, down from $5 million in 2021’s third quarter.
Luxury condos in Chicago’s downtown and Gold Coast neighborhoods have been particularly hard-hit, local real-estate agents said. The median price of Chicago condos above $1 million dropped 9.1% in the third quarter from the third quarter of 2021, according to a recent report by brokerage @properties.
By comparison, Chicago single-family homes, as well as prices in suburbs such as Evanston and Naperville, haven’t seen those types of declines. The median price of Chicago single-family homes above $1 million in Chicago rose 14% in the third quarter from the same period of 2021. But older homes that need work are lingering on the market, agents said.
Real-estate agents say the beginnings of the downturn stem from 2020, when Chicago was in lockdown at the peak of the pandemic. Following protests related to the killing of George Floyd, the city saw unrest and a dramatic spike in violent crime. There were violent clashes between police and protesters throughout that summer, and mass looting caused stores in the downtown area to be boarded up.
While other major cities like New York and San Francisco have rebounded from periods of strife in the wake of Floyd’s killing, Chicago has seen its overall crime rate remain high. Overall crime in the city has climbed 36% year-to-date compared with the same period 2020, thanks in large part to major spikes in theft and carjackings, although murders in Chicago have declined by 26%, according to statistics from the Chicago Police Department.
The spike in crime—along with higher interest rates—has hurt the market downtown.
“The high-end downtown luxury market has definitely taken a big hit,” said Nancy Tassone of Jameson Sotheby’s International Realty, who worked on the Griffin purchase and sale. “Once [the social unrest] happened, we couldn’t recover from it.”
Chicago developer Jim Letchinger said his friends in the suburbs still ask him, “‘Are you OK downtown?’”
Starting in 2020, fear of crime downtown scared away one of the luxury market’s deepest buyer pools: empty-nesters moving from the Chicago suburbs to Florida, but keeping a place in Chicago as a pied-à-terre, said Compass real-estate agent Jeff Lowe. It has been hard to lure those buyers back.
“People used to sell their giant mansions out there and then they would buy an apartment in the city and a place in Arizona or Florida,” he said. “What happened during the pandemic was they started skipping the downtown part.”
Crime has also caused tension between local politicians and some of the state’s wealthiest residents. Griffin cited crime as a determining factor when he announced that his hedge fund, Citadel, would relocate from Chicago to Miami in 2022, saying that, among other incidents, one of his colleagues was robbed at gunpoint while getting a coffee. Citadel was one of a number of major corporations, including Boeing, Caterpillar and Tyson Foods, to relocate from the Chicago area around that time. Pritzker didn’t respond to requests for comment...
....MUCH MORE
One of the more interesting events was in the second - or maybe it was the third - wave of post-Floyd riots and looting. From October 8, 2021:
HedgeMonster Citadel Talking Of Leaving Chicago As The City Goes Medieval
....And from the August 2020 riot-and-lootathon (this was after the May-June George Floyd riots), an amazing spectacle, raising the drawbridges to keep the rioters out of downtown:
All bridges up in Chicago to prevent access to downtown. @cbschicago pic.twitter.com/KutdT8Nbc6
— Vi Nguyen (@ViNguyen) August 10, 2020
And the Floyd riots:
....Here are the raised drawbridges on May 31, 2020:
Via WGN:
WGN-TV’s Joe Donlon recaps the events of looting and riots in Chicago Saturday nigh
Related:
"Citi Shuts Muni Business That Once Was Envy of Rivals" (plus Warren Buffet gives a class on muni realities)
Can you imagine personally buying a 20-year City of Chicago general obligation bond?
Airports are a bit different because the airport authority is taxing transients who don't vote.
But they are dependent on people wanting to travel to or through that airport so the city's general economy is a factor. The city on the other hand....
Here's Mr, Buffett in the 2008 Berkshire Hathaway annual report, wrapped by a February 2019 post:
Mr. Buffett, through his insurance companies, guarantees a few of the country's municipal bonds. Muni holders are often in conflict with public employee unions and/or public employee pension overseers, especially in the event of a municipal bankruptcy.
These guarantees usually take the form of credit default swaps.
In addition Berkshire Hathaway carries a small amount of munis as an asset on the consolidated balance sheet.Warren pays attention to this stuff. His 2008 Letter to Shareholders is a mini-masters course in moral hazard in the muni biz. Some copied out after the jump...
