When Nicholas Gouletas approached basketball star Isiah Thomas in 1988 about investing in his $200-million plan to convert Chicago's Lake Point Tower into condominiums, Mr. Thomas -- a Chicago native who was playing with the Detroit Pistons -- didn't say yes. But he didn't say no, either.
   That was all the encouragement a consummate salesman like Mr. Gouletas needed.

   The chairman of Chicago's American Invsco Corp. finally got the answer he was looking for 11 years later, albeit for a different project. Mr. Thomas, now chairman and CEO of Detroit-based Isiah Investments Inc., recently became an investor in Mr. Gouletas' conversion of the Gold Coast Galleria, a 34-story, 331-unit building at 111 W. Maple St.
    The project is part of a wave of major condo conversions under way in Chicago, a trend that began in the city's core and that's spread to outlying neighborhoods.
   Several factors are contributing to the resurgence: the strong demand for housing, particularly downtown; apartment building owners ready to cash out after a long, slow climb in the values of their properties, and real estate investors eager for a quick return on their money.
   But one factor controls all the others.    "No. 1 is low interest rates for home mortgages," says Mr. Gouletas.
    Condo conversions in the late 1990s never will match the rapid pace set earlier in the decade, when many major apartment towers in the city were sold following a glut of construction. The reason: There aren't many left to convert. But even so, the conversion business has been brisk lately.    "If this is a boomlet, I'd like to see the boom," says Herbert Emmerman, president of Equity Marketing Services Inc.
    Condo conversion sales in the central business district increased 35% in 1998 to 1,019, according to an analysis of major projects there compiled by Chicago-based Appraisal Research Counselors Ltd. Last year's total was the highest since 1988, except for 1994, when 2,424 sales were recorded.
    In addition to the the Gold Coast Galleria, other apartment buildings being converted include:

• The Grand Ohio, a 593-unit, 27-story building at 211 E. Ohio St. recently purchased by a joint venture of Equity Marketing Services and Chicago-based Draper & Kramer Inc. Marketing is starting this month.
• 1122 N. LaSalle St., a 302-unit property that American Invsco acquired last month from an investment partnership managed by Bruce Wexler. Marketing is also starting this month.
• 201 E. Ontario St., a 51-story, 394-unit building purchased last summer by the Equity Marketing-Draper & Kramer joint venture, which began marketing the property in July. About half the units are sold and the sales are expected to close this month.
• CityView, two mid-rise buildings with a total 424 units at 440 and 480 N. McClurg Court, which are being converted by Chicago-based MCL Cos. as part of the $750-million River East development. Marketing began in July 1997 and more than 310 sales have been closed.

Inside look at the process
  Apartment rents have been on a steady climbing since the early 1990s, but not high enough for apartment operators to outbid condo converters as building owners consider the next move for their properties.
   "In the last two years, the vast majority of deals have gone to condo converters," says John W. Guinee, chief investment officer of Virginia-based Charles E. Smith Residential Realty Inc., which is building a 52-story building at 1 W. Superior St., the first high-rise rental tower downtown in eight years. "They are buying buildings at below-replacement cost and they are attracting opportunistic, quick-turnaround capital for the conversion process."
   Mr. Gouletas' Gold Coast Galleria deal offers an inside glimpse at the mechanics of the current condo conversion market.
   He acquired the building from its construction lender, Prospect Heights-based Household International Inc., which took control of the property in 1991. Amid a glut of new apartments, the developer could not obtain permanent financing to replace Household's $55-million loan.
  While many lenders quickly flipped the buildings they reluctantly acquired, Household waited for the real estate market to recover.
  Two investment partnerships managed by Mr. Gouletas paid more than $50 million for the property, which includes 55,000 square feet of commercial space, sources say. One group purchased the residential units, while another group of long-term investors bought the commercial space.
  Mr. Gouletas paid for the property by putting up between 20% and 25% in cash and obtaining a short-term mortgage from Chicago's LaSalle National Bank for the balance. Renovation will add about $1.6 million to the cost.

Race against time
  Condo conversion is a race against time in which the profitability of a project may be determined by how quickly you can complete sales and reduce your carrying costs and marketing expenses.
   "If I could sell out a building in a day, that would be the ideal," says Mr. Gouletas.
   To gain momentum, selling units to a building's rental residents can be crucial. While renters are offered discount prices, those sales cost the developer less money in marketing.
   At Gold Coast Galleria, sales began in early October. Through mid-February, sales of 112 units had closed, generating more than $18.7 million in cash, most of which was used to pay down debt. The entire project may now take less than half the two years that had been predicted.   
  

 Mr. Gouletas expects to gross more than $64 million from sales, with a goal of achieving a rate of return as high as 25%. Then, it'll be on to the next deal. "We're always looking for new buildings," he says.
   But the conversion trend, which has swept through the central city, slows down as it reaches the city limits. In the suburbs, the number of units converted to condos last year increased just 6% to 975, compared with the 1997 total, according to an analysis of major suburban projects compiled by Schaumburg-based market tracker Tracy Cross & Associates Inc.
   "In the suburbs, most of the major properties that have changed hands have been acquired by real estate investment trusts or pension funds with plans to operate them as rentals," says Tracy Cross, the firm's president.
    Apartment buildings in Cook County suffer from higher tax rates. In the collar counties, 42% to 44% of the income an apartment building generates goes toward taxes and operating expenses. But Cook County's oft-criticized property tax classification system raises that percentage to as much as 56%.
   Meanwhile, condo conversion projects are dotting Chicago's outlying neighborhoods.
   "What's happening is that the downtown area is so full of vitality, and it's spreading to the neighborhoods," says Douglas R. "Rick" Woodworth, president of Chicago-based real estate firm Habitat Co. "People who years ago might have been concerned about owning a home in the city are changing their minds."
   Most of the projects are conversions of three-flats and courtyard buildings.
   For example, Chicago attorney Morton Kaplan is converting three 1929 buildings with a total of 80 units at 10901-51 S. Longwood Drive in the Beverly neighborhood on the Southwest Side.
Buying is attractive option
   The largest project outside of downtown is Habitat's four-year program to convert 800 apartments of the 1,500-unit mixed-income South Commons complex along South Michigan Avenue between 26th and 31st streets, which it developed from 1967 to 1971. The company is spending about $20 million to renovate the properties.
   Says Habitat's Mr. Woodworth: " With mortgage rates so low, the rent-buy decision is much easier for renters to make."

A March 1 report on condominium conversions contained two incorrect street addresses. American Invsco Corp. is converting an apartment building at 1122 N. Clark St. And a joint venture of Equity Marketing Services Inc. and Draper & Kramer Inc. is converting a building at 401 E. Ontario St. (printed 3/8/99) > For news headlines throughout the business day, go to: http://www.chicagobusiness.com