The selling of Malibu East

Posted on Fri, 05/01/2020 - 12:30pm
High-rise condo marketing invented here

By Ron Cohn

First of two parts.

Dunbar Builders was the pioneer developer of condominiums in Chicago, and their president, Herb Rosenthal, was riding a tide of success in the late 1960s. Sales were going very well at Malibu, his third Sheridan Road high-rise and biggest project to date, but now he faced a monumental decision. Could he build on that momentum and risk everything on a colossal building proposed for the property next door? He had put together the three needed parcels, including the corner mansion previously owned by the Franciscan Fathers. Now it was time to roll the dice.

Dunbar was already voraciously planning new condos downtown. Rosenthal was starting a boutique building at 201 E. Chestnut in Streeterville and had pressed political contacts to help him acquire the former U.S. Court of Appeals for a luxury property at 1212 N. Lake Shore Drive. But this final Sheridan Road tower, a 45-story, $22 million structure, the largest in Chicago, was his irresistible great white whale.

Urgency was added to his decision by the announcement of a competitor’s plans to build East Point, a 41-story condo on a site just northeast of his.

Rosenthal’s deal was finally green-lighted by the pledged participation of three banks, but he had a major hurdle to overcome as soon as that was done. A public outcry was unleashed by the announcement of plans for Malibu East in the spring of 1968. Lou Silverman, Dunbar’s vice president for marketing, appeared at two crowded meetings that summer to face the objections of the Edgewater and the Rogers Park community councils. Area residents were opposed to the “wall of condos” that was shaping up along Sheridan Road. But Dunbar, with zoning and city clout on its side, prevailed, and the project moved forward.

The financing of Malibu East, like that of most condominium projects from 1965 to 2005, required that a percentage of the units – usually from 35% to 50% – be presold before any construction funds would be released. So, unlike apartment projects, which did not start rental activity until three or four months before completion, condos began heavy promotion as far out as a year or two in advance, depending on their size. In the case of Malibu East, the presale efforts were historic.

Start by building models a block away

To sell apartment-homes, as condominiums were often called in promotions in the early days, it was necessary to have furnished models. But if the building wouldn’t exist for 18 months, where do you put them? Dunbar had an audacious solution. They rented the land that is now the small park on the southwest corner of Sheridan and Thorndale and built a glass-walled, two-story building to house four furnished models and a lavish sales center. The cost was around $500,000 in 1969, which is the equivalent of $3.5 million today.

While the sales center was being designed and built, a temporary sales office had been set up at Malibu, and sales were actually quite brisk. Very little advertising was done before the grand opening of the sales center in September 1969, but the new building was supposedly 15% sold before then.

The models occupied the second floor of the sales center and replicated the condos-to-be in every way, including balconies and lake views. The four models, decorated by John M. Smyth, were themed to represent the tastes and lifestyles of the expected buyers.

A four-foot-tall scale model of Malibu East, complete with amenity decks and a sliver of lake, was the centerpiece of the first-floor sales office, which boasted two revolutionary marketing ideas. A nine-minute film had been created, selling the condo concept, the views, location and amenities. It was played continuously in a small-theater setting. A computer was set up in the lounge, programmed for a salesperson to show prospects the tax benefits and equity growth they would realize by going condo vs. renting, and how they would actually be saving money each month. It was called “Com/Check” and was very impressive in 1969.

Elaborate temporary installations for models, sales films and computer demonstrations became the necessary tools and tactics for big-time condo sales, and they started right here.

Sales rate slows; different approaches attempted

Going into the winter following the sales center opening, the momentum that had carried over from Thorndale Beach South to Malibu and, initially, to Malibu East began to slacken. The glamour of lakefront living – playing off the romance of the California beachfront lifestyle – had taken second place to the tax advantages of condo living and the demonstrable fact that you could live in one for less than rent in post-tax dollars. A series of full-page ads that winter combined the benefits under the headline “Tax Shelter on the Lake.”

Advertising outside the real estate sections of the newspapers was employed as a secondary campaign, showing the advantages of owning a condo as an investment based on the documented 14.8% annual appreciation of units in the earlier Dunbar buildings. “Blue sky” promises in investment advertising were not yet illegal and had been rarely, if ever, employed in real estate.

In a city of renters, condos were still viewed as a fad by many, totally misunderstood by others. To widen their market to include those doubters, Dunbar started a “repurchase program,” which guaranteed buyers could sell their condo back at its original purchase price any time after six months, for up to five years. In a volatile interest-rate period Dunbar also guaranteed a specified mortgage rate between the purchase and closing – a tool being used by others in real estate development at that time and now a staple tactic in the mortgage business.

Sales reach 50% and construction starts, bolstering confidence

As had happened earlier with Thorndale Beach South and Malibu, the validation of the building’s existence by its actual rising out of the ground in the spring of 1970 created a sales surge. Pushing dirt around on the site and parking heavy equipment there had been done prior to the actual opening of a construction loan – a ploy that has been adopted as part of the marketing game plan for real estate developments everywhere. Sales reached about 65% near the end of 1970 but had stalled with the onset of winter. Meanwhile, sales at the 180-unit 1212 Lake Shore had steamed ahead unabated and the building was being occupied. Was the Sheridan Road market getting saturated, or were resales from the other Dunbar condo buildings proving to be serious competition? They had started a resale division and were aggressively soliciting listings from their former buyers who were ready to move. A number of them stepped up to Malibu East, giving Dunbar a sale at each end of the transaction.

The main problem was that a market segment they had been counting on was not delivering the sales that had been expected. Suburban empty-nesters moving into the city accounted for 22% of the sales at Malibu, and had been forecast to account for one-quarter of the sales at Malibu East. The actual number so far was much lower. Large ads headlined “How to Escape Suburbia” were run in the fall of 1970, along with promotions for free tickets to Mill Run Playhouse for getting a Com/Check pitch, a contest for a trip to Malibu in California and even free hot-air balloon rides.

Next: How new marketing tactics jump-started unit sales, in Part Two of “The Selling of Malibu East.”

Are you an original or early owner at Malibu East? Your personal recollections of the marketing and sales efforts that brought you here, as well as stories of the early days of the building, would be a welcome follow-up to this article. Anything you can tell the Dialogue would be interesting to our neighbors. Please email the Dialogue editor at Dialogue@MalibuEast.org, with the subject line “Malibu East history,” or leave a note with your contact information at the front desk.