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Chicago's Gold Coast Real Estate Faces Uncertainty: Wealthy Exodus and Mansion Tax Pressures
In the illustrious Gold Coast neighborhood of Chicago, an area once coveted for its historic appeal and affluent residents, times are changing. Notable billionaires have been moving away, listing their luxury properties for sale amidst a broader tendency for the city’s wealthy population to seek modern accommodations in trendier neighborhoods. Among them is Ken Griffin, who after his departure from Chicago, put several high-end properties on the market, including ones in the prestigious Gold Coast.
When Griffin decided to sell his holdings in the Gold Coast, he faced a significant financial hit; one property in Park Tower on the Magnificent Mile and another at the Waldorf Astoria were sold at losses exceeding $3 million each. At No. 9 Walton, where he had spent nearly $59 million in what was the city’s largest residential real estate deal, two apartments were offered but later withdrawn from sale, the remaining two were never listed.
Illustrious individuals like Richard Driehaus' family and Andrew Hall, the co-founder of Chicago Trading Co., have encountered similar financial disappointments. Following Driehaus' death in 2021, his family sold at least one Gold Coast home for less than the purchase price. Meanwhile, Hall had to slash the asking price for his condo by 33% to close a deal at $9.3 million.
These real estate challenges stem from more than just personal choices of the wealthy; they are also a response to increasing city taxes and a general rise in crime, factors which have eroded the neighborhood’s allure. The once thriving historic Gold Coast, known for its century-old mansions and luxury boutiques, now sees properties languishing on the market for extended periods.
In the midst of this downturn, a proposed increase in taxes on home sales over $1 million is stirring heated debate. Known as the “mansion tax,” this measure, if passed during the Illinois primary, would affect even the rich and powerful, like Illinois Governor J.B. Pritzker, who is also a Gold Coast resident.
The tax changes outlined by Shekar Jayaraman, a real estate specialist at Jayaraman Law, spell further complications for an already-stressed market. High-profile areas like the Gold Coast, which is home to multi-million dollar estates, is at a crossroads, and the impending “mansion tax” threatens to make property deals even more arduous.
Griffin’s misfortune in the real estate market was highlighted by his Park Tower penthouse sale, which concluded at an $11.2 million final price. This raw, 8,000-square-foot space sold for $3.8 million lower than its initial price last year. Another property he owned on the 67th floor of Park Tower remains listed. In a similar vein, his five-bedroom condominium in the Waldorf Astoria underwent a significant price cut, selling for $3.1 million less in 2022. Both Griffin himself and his real estate agent have stayed silent despite multiple inquiries for comments on these transactions.
The real estate situation took a twist with Mayor Brandon Johnson's proposal to increase the real estate transfer tax. The progressive Democrat’s 2023 campaign included this taxation strategy as a means to combat homelessness by generating additional city revenue. The proposed taxes would indeed scale with property prices, offering a reduced charge for homes under $1 million, while significantly increasing the costs for those above that threshold. With the mansion tax, a typical $5 million Gold Coast property would witness its transfer-tax balloon fourfold to $150,000.
This proposed tax comes at a time when Chicago is grappling with a homeless crisis. The city's homelessness surged, with more than 68,000 people needing shelter in 2021. Compounded by the arrival of over 37,000 migrants in recent years, and some even being evicted from shelters, the need for additional funding is clear. Johnson’s administration has relied on an economic analysis by the University of Chicago that optimistically projects the tax could bring an average of $160 million annually.
Los Angeles experienced a similar scenario when it passed a measure to increase transfer taxes for properties valued over $5 million in 2022. However, the projected revenue fell short, amounting to a mere $142 million compared to the expected $900 million. Whether Chicago will meet the same fate or manage to surpass expectations remains to be seen.
The uncertainty surrounding the proposed tax places an additional burden on those attempting to sell high-end properties in Chicago’s affluent neighborhoods. According to Zillow, the Gold Coast area alone has 113 homes listed at $1 million or more, outnumbered only by Streeterville. Within the near North Side, which encompasses the Gold Coast and Streeterville, properties above $1 million are averaging a 123-day stint on the market – a figure that almost doubles the citywide average.
Comparatively, in the prosperous neighborhood of Lincoln Park, homes typically spend 85 days on the market. Lincoln Park is another enclave for billionaires like Joe Mansueto, the founder of Morningstar Inc., and owner of the Chicago Fire soccer club.
Maintenance costs and the rise of other neighborhoods compound the difficulties faced by Gold Coast properties. Real estate agent Jennifer Ames of Engel & Volkers Chicago indicated that buyers of Gold Coast homes need to approach their purchase with a “curator mindset” due to the historical nature and required upkeep of these opulent homes. Ames likens it to living in Downton Abbey – a lifestyle that is more fantasy than reality for most modern homeowners.
Yet, the Gold Coast still sees significant real estate deals. Recently, Chicago Trading's co-founder offloaded a 9,000-square-foot penthouse for $9.3 million, which remains Chicago’s priciest residential transaction of the year, despite being reduced from an asking price of $13.9 million.
And it's not all doom and gloom. There are glimmers of opportunity, as highlighted by Cory Robertson of Jameson Sotheby’s International Realty. His firm’s project at 1508 N. State Parkway in the Gold Coast is converting a former mansion into luxury condos. Already, three of the four units have been snapped up by eager buyers.
Close to the tree-covered pathways of Astor Street, the affluent street where Governor Pritzker resides, various multi-million dollar mansions await their new owners, all contending in proximity to the gubernatorial abode. Yet, prospective buyers will find that these majestic dwellings are fetching far less than the whopping $14.5 million once spent by the Hyatt hotel dynasty heir.
Ultimately, Ames predicts that Chicago’s luxury property market, particularly in areas as grand as the Gold Coast, is not ready to support exorbitant sales prices. This sentiment suggests that the real estate market in this storied neighborhood is in flux, and for the foreseeable future, it might not regain its former prestige or price points.
In conclusion, Chicago's Gold Coast, once a beacon of affluence and architectural grandeur, is facing a transformative period. With high taxes, increasing crime, and the consideration of a significant mansion tax on the horizon, even the wealthiest residents are reassessing the value of their investments in this historic neighborhood. With fundamental shifts in preferences and economic considerations, the landscape of luxury living in Chicago continues to evolve, posing challenges and opportunities alike for residents, investors, and policymakers in this renowned Midwestern metropolis.
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