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CHICAGO-A swiftly changing Downtown multifamily market is forcing at least one developer to switch gears to selling a building as a rental property rather than condominium units. That will be the future for Heartland Partners’ 242-unit second phase of its Kinzie Station development.

The move comes months after Heartland Partners enjoyed financial success from the 163-unit first phase in the 300 block of N. Jefferson St. Almost all of the units have been sold, but pre-sales for the 34-story second phase next door have been sluggish.

“It appears to us there are a significant number of ‘for sale’ high-rise condominium units coming on stream in the downtown Chicago market in the near future,” says Heartland Partners President and CEO Edwin Jacobson. “We are also concerned about a weakening of demand for for-sale housing given current economic and political uncertainties.”

Marcus & Millichap’s Kiser Group is marketing the property in hopes of achieving a “forward sale” transaction. An investor will buy the building for a fixed price when construction is completed in spring of 2002.

Meanwhile, buyers of condominium units in the building will receive the their earnest money back as well as a discount on future Kinzie Station “for sale” projects.

The switch to an apartment building is consistent with existing zoning for the property, Heartland Partners adds. It also could capitalize on a dearth of multifamily rental product on the market.

“Chicago has a shortage of modern rental buildings,” Jacobson says. “By taking our Kinzie Station-Phase II building, which is designed and approved, and offering it as a rental building, we believe we can take provide a missing element in the Chicago housing market.”

Last month, Heartland Partners agreed to sell more than an acre for $5 million to Senco, which will build a 60,000-sf food store in Kinzie Station. Construction is expected to begin after the apartment building is completed.

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