Residential Industry Pushes “Pause” on the Condo Market
- Aug 20, 2007
Although some reports have suggested condos are faring better than most residential projects in the housing slump, a recent Washington Post article says nearly 20,000 condo units in the past 12 months have been removed from the construction schedule in the DC area alone — disheartening news.
Also discouraging: Developers have abandoned plans for 22 local condo projects, the Post reported.
That’s not exclusive to Washington.
* Charleston, S.C. has seen a number of housing projects stall. Housing 2000 Inc. put its 314-unit Daniel Island project on hold, partly due to market forces, president Fred Morgan told the Post and Courier.
Another development planned for 400 Meeting St. was put on hold for a second time in March while its investors wait for a market turnaround, the Post and Courier reported. And the owner of Wild Dunes Resort has pushed the already-delayed second phase of its Village condominium project back to mid- to late 2008.
* In Grand Haven, Mich., a proposed 170-unit residential development received a one-year deferment recently to begin construction, according to the Grand Haven Tribune. The Township Board approved a town Planning Committee decision to unanimously give the 67-acre project an extension, which the Watermark Place condo developer requested around the time the groundbreaking should have been taking place because of the slow real estate market.
Another project — a Grand Haven subdivision development — was given an extension earlier this year. And the Ballpark Village project, slated to be a 1,200 condo development, has been converted into a hotel plan instead.
* Two downtown San Diego condo projects have been put on hold; five projects with development permits are up for sale or recently sold.
What’s going on?
Part of the problem is funding. Developers could get loans even during the real estate boom if they presold only a quarter of their units — but when sales slowed and people backed out of contracts, banks raised that number to 50 percent to achieve funding, real estate lawyer Peter Antonoplos told the Post. Some lenders, he said, also want the developers to front more of their own money instead of relying heavily on investors.
Market hesitation is another issue. The last six months of industry reports have not been favorable — and developers are rethinking proposed buildings planned more than a year ago. With sluggish condo sales — nationwide, they’re down 6.6 percent from 2006, according to the National Association of Realtors — and buyers dropping out of deals, some developers are getting understandably jumpy.
And who wouldn’t with news spreading about situations such as Florida’s Costa Verano development? The project’s developers said that as the market declined, some buyers walked away from their condo contracts — and their 20 percent, six-figure deposits, Shorelines reported. (Costa Verano was able to resell the units, but some might not be so lucky.)
What’s unclear is whether the projects being cancelled are ones that have truly been tested and aren’t selling because price points are too high or market demand is too low — or if developers are (and somewhat understandably) calling off new projects because of continued nervousness as the residential market continues to plummet.
The good news? Well, some projects are just being put on hold — and many of the construction extensions being granted are just one year extensions, implying an underlying faith that industry will turn around in the next 12 months.
And some condo projects, such as an 83-unit building on New York City’s Upper East side, which has already sold 30 percent within weeks of its approval, are rolling along. These strong sellers show hope for the industry.
But the bad? There’s uncertainty. And it’s likely to continue. How long the housing slump will last — and how many ambitious projects that were announced in recent years it will swallow — remains to be seen.