Developers! Developers! Developers!

Reporter Aubrey Cohen and the Seattle PI are at it again, this time pimping new development in Columbia City.

A Seattle developer has proposed a mixed-use project in Columbia City aimed at providing homes typical workers can afford to buy, while another developer also has condo plans in the up-and-coming South Seattle neighborhood.

The 63-condo development, called Columbia City Place, would be built on a vacant former auto lot at 5201 Rainier Ave. S., and units would cost between $200,000 and $400,000 -- plus whatever inflation tacks on in the two years before the project is completed, said Scott Shapiro, managing director of Eagle Rock Ventures LLC.

Shapiro said he and partner Murray Kahn are keeping prices down by using more basic finishes and wood construction for the upper floors, rather than concrete and steel, by installing above-ground parking and by building in Columbia City, where land is cheaper.

"It's a huge risk because no one's done condos of this scale in Columbia City," Shapiro said. "I could be in the right place at the right time or I could be three years early."

Or maybe three years too late?

"We've already explored heading north," he said. "We can't go east and we can't go west. Continued development going down the Rainier Valley is going to be a foregone conclusion."

While other developers are thinking about building in the area, Shapiro's project is "pioneering," Gardner said. "I think he's on the leading edge, definitely."

More like bleeding edge!

Columbia City is "a little neighborhood with a soul," said Denny Onslow, Harbor's chief development officer.

Projects such as these would have been "unthinkable" a decade ago, said Darryl Smith, who bought his Columbia City home in 1994 and became a Windermere Real Estate agent there the following year.

Smith said the projects would create new housing opportunities for people who cannot afford a house or those who might want a smaller home within walking distance of shopping and services. He also praised Harbor officials for saying they want to work with community members on their project and respect Columbia City's character.

Does anyone else call BS on this? If you need to sell something, simply cite affordability or the environment (or both!) and it's in the bag! Evidently Columbia City is the new Ballard.

Check out some of the comments on PI's blog:

"Face Reality" said "What this really means is that land and housing in Ballard, Fremont, Cap Hill, etc has become so expensive that even most developers can't afford to build because housing there is now beyond the reach of even the most affluent. ...Say goodbye to affordable housing in Rainier, hello to gentrification. As has already occurred in the “real” Columbia City."

"heebie_jeebies" added "I don't know why we have to accept these monster townhouse cookie-cutter firetraps...I live on Capitol Hill and have NOTHING good to say about allowing development and density that is absolutely killing our neighborhoods."

"financeguru" chimed in with "Wont development increase the property values of people that currently own near the new condo development? YES! I currently own a condo at the edge of Downtown and First Hill…and yes there are many areas that have high levels of drug usage and other things. Im getting my MBA at SU and it would be nice to see some of these abandoned buildings in the Capital Hill area cleaned up…"

(Aubrey Cohen, Seattle PI, 04-20-2007)

Vulcan Ridiculous @ 2200

Ah, the joys condodebtorship.

When Jerry O'Leary, 54 and retired, put down over $100,000 dollars toward a new million-dollar condominium in February 2005, he thought he was buying his way into an innovative downtown lifestyle proposed by Vulcan Inc. Vulcan Real Estate's $200 million 2200 project on two and a half acres at Westlake Avenue...

However, on March 26, 2007 O'Leary filed suit...after a series of delays and construction disputes left him with a condo that...was "substantially [different] from the scope, nature, and extent of the project as it was described"...O'Leary recounts, "The quality, as promised, sounded great." Instead, he describes the building to The Stranger as "basically a Motel 6."

Oh, snap!

...some of the problems include irreparably damaged door and window frames; a poured concrete deck that sloped toward his apartment, causing leaks in the unit below; mounting construction delays; and unmet expectations. ...O'Leary is not the only person to encounter problems with 2200.

...tenants have dealt with minor annoyances such as low water pressure and leaky shower doors and pipes, as well as major design flaws like incorrectly positioned halogen lights that threatened to ignite kitchen cabinets. The problems were compounded, they say, by promises of room service from in-house restaurant Marazul, a rooftop "garden"—which according to a third resident is nothing more than "a big cement area with a couple of trees stuck in it,"

As of press time, several real-estate websites list 38 condos being resold in the building, and Craigslist reveals at least a dozen units available for rent or sale. ... according to John L. Scott Real Estate agent Ben Kakimoto, the number of units being flipped by investors "seem[s] like a lot" when compared to other condo projects of similar scope. Some of these units have sat unsold for months, with several of the pricier units remaining on the market even after $100,000-plus price reductions.

While Vulcan would not release information on its vacancy rate, anecdotal evidence hints that 2200 currently isn't the bustling urban utopia it was supposed to be. Resident Chris Tanaka notes that he "never see[s] that many people" in the buildings, and Dierst remarks that "the building is not full."

Matt Goyer, the operator of Seattle condo blog Urbnlivn and a program manager at real-estate website Redfin...believes the problem is oversaturation. "It feels like they're overbuilding in the higher-end market.... Goyer faults vacancies at 2200 to "people trying to make a fast buck. A lot of [these] people [have] unreasonable expectations."

Huh? What's so unrealistic about purchasing overpriced downtown condos during the peak of the greatest real estate asset bubble in history and expecting to flip them for an easy buck?

...units [at 2200] for sale have seen price reductions ranging from $1,000 to $175,000. And one seller is even throwing in a 42-inch flat-screen TV to sweeten the deal.

Is that 1080i or 1080p?

Addressing the O'Leary lawsuit, Jeffries states, "I don't know why Mr. O'Leary feels like that's something he needed to go to the media about." She would not respond to anonymous complaints about the development (nor did she return several calls after a few residents put their names by the complaints). "We're doing everything we can to take care of our homeowners. The vast majority of people at 2200 are really happy," she originally told us. We asked Vulcan to put us in touch with some of those tenants, they did not respond to the request.

On a recent Saturday night, as 2200's three concrete and glass towers loomed in the night—the downtown skyline to the southwest...many of the windows were dark, save for the glow of several flat-screen TVs large enough to be viewed from the street.

During 2005 in downtown San Diego, I noticed much the same. At the time I just assumed that everyone was simply still working at 10pm each night, desperately trying to make their $4500 mortgage payments.

When I am ready to purchase my next house after the crash, it certainly won't be a condo. I probably won't buy anything made after 2000 as they've likely been built of balsa wood and bailing wire.

While it's difficult to tell if Seattle will be hurt as badly as other bubbly areas such as San Diego (and this is only the beginning), it certainly won't be pretty. Be patient - a sixteen year speculative bull market in housing doesn't land quickly - and certainly not "softly".

As they like to say on HB, "got popcorn?"

(Jonah Spangethal-Lee,The Stranger, 04.12.2007)

"Re-Sales Galore" in Local Condo Projects

Local condo enthusiast Matt made an interesting observation in a post on Urbnlivn Tuesday. Apparently in many of the recently-opened Seattle condo projects there are, in Matt's words, "re-sales galore." 33 units at 2200, 19 at Cosmo, and 5 (of 48) at Meritage. Plus, anyone who bothers to spend a little time searching on Craigslist can see quite a few more units in these projects up for rent.

I thought that all these projects had "strict limits" requiring that units be owner-occupied, which would supposedly eliminate flipping. It would appear that these rules are being disregarded.

So much for all the alleged protections against speculation in the local condo market...

(Matt Goyer, Urbnlivn, 04.03.2007)

Condomania in Tacoma!

Tacoma: Your mission, should you choose to accept it, is to sell 1,500 high-end condos in 14 months:

Hundreds of new, pricey condominiums exclude young singles needed for a thriving city core, according to the author of a study analyzing the downtown housing market.

Builders and developers say land costs and water views push prices beyond the mid-$200,000 range generally considered doable for the first-time buyer. And even though the number of unsold units remains high in some neighborhoods, they say demand is strong for high-end condos. Tacoma’s average new condominium price, according to the study, was $348,893 at the end of last year.

The 149-page report, finished last week, identified three kinds of future condo buyers: female baby boomers, young professionals, and married folks with no children at home. It recommended adding edgy lofts and more small spaces that Generation Y buyers can afford.
...
As of December, all six neighborhoods surveyed averaged 14 months of condominium inventory, which measures how long it would take to sell everything built and approved.

A healthy market for new construction tends to be in the six- to 12-month range, said Deanna Sihon, the study’s author.
...
Since 2004, nearly 400 condos have been sold downtown with another 525 for sale and about 1,500 proposed, according to the study.
...
A year ago, a hot market meant condo shoppers had to make rapid buying decisions, said RE/MAX real estate agent George Pilant.

Not so now.

“Buyers have so many choices they don’t feel a sense of urgency,” he said.
...
As in any type of residential real estate, demand is driven by population and job growth, said Paul Turek, an economist with the state Employment Security Department.

But condos are a niche product that at higher inventory levels, he said, raise this question: Will good-paying jobs needed to sell such downtown housing continue to be created?

“I suppose that’s where the gamble is,” he said. “In the Tacoma area, we have some high-paying jobs. Whether there’s enough to support the building of the condos remains to be seen.”

Good luck with that. Seriously.

(Devona Wells, Tacoma News-Tribune, 03.25.2007)

Condomania in Everett!

Better be careful the next time you drive through Everett, you're likely to get burned, the condo market there is so hot!

On paper at least, downtown Everett is poised for explosive growth.

Nearly 800 new downtown condos and apartments are in various stages of planning.

There's a good chance some of the projects scattered across a dozen development sites will not get off the ground, officials acknowledge.

Still, long-term growth, a property tax subsidy and a strong local economy, buoyed by jet sales at the Boeing Co.'s Everett factory, work in the city's favor.

...

The condo market in the Puget Sound area remains hot, in spite of a wave of foreclosures and slumping housing sales creating jitters and sliding prices elsewhere.

Developers in Everett talk about "pent-up demand" and say they aren't deeply concerned their projects will create a glut of vacant condos for sale, as is the case in Las Vegas and parts of Florida.

"I think the local market is way stronger than people realize," said Joe Zlab, who plans to break ground on Rockefeller Square, a 40-unit condo building on Rockefeller Avenue, north of Everett Avenue, this spring.

...

It's only a matter of time before Everett begins to resemble more affluent Seattle suburbs, including Bellevue or Kirkland, said Anthony Aversano, a Mountlake Terrace remodeling contractor.

"Seattle is overpriced, Bellevue has access problems and is also too expensive," Aversano said. "It's not a place where people can go unless you're working for Microsoft and have been there for a long time."

Gus Boutsinis, a Mill Creek developer working on a 130-unit condo project on 41st Street and Colby Avenue, agrees.

"We think Everett is ready," he said. "It's where Seattle was 15 or 20 years ago.

Yow! Smokin!

(David Chircop, Everett Herald, 03.25.2007)

Bubble Link Roundup

It's time to clear out all the news alerts in my inbox again. Here's another round of local real estate links from the past few weeks:

• Seattle definitely appears to be "special" in one area: real estate websites. Ms. Rhodes reports on ForeclosurePoint; the latest to join the fray.
• Bremerton: up and coming? If you say so...
• Steve Tytler of the Everett Herald repeats his prediction that appreciation will be flat this year.
• Mark Trahant points out that the Pacific Northwest isn't all that special when it comes to consumer spending and the economy.
• Mr. Cohen at the P-I:
  • kicks off a series following a newly-minted real estate agent,
  • reminds us that "Seattle-area houses still are appreciating faster than most,"
  • and gives a few local condo projects some free advertising.
• Up in Bellingham, the housing market may continue to cool.

Did I miss anything else worth noting?

Latest Condo Conversion: Smith Tower?

If the owner of the Smith Tower gets what they want, you can add yet another condo to dozens already planned for downtown's future. Walton Street Capital is hoping to convert the Smith Tower into condos:

Ninety-three years after Pioneer Square's Smith Tower was built as an elegant business address, its new owner hopes to turn the 38-story landmark into residential condominiums.

Chicago-based Walton Street Capital filed papers with the city Wednesday to begin what could be a months-long process of getting approval to redo the tower as housing.

It seems that living in old buildings is more charming — and practical — than working in them.
...
"We bought it, frankly, as an office building, and it wasn't until we found out we would lose the two largest tenants in the building that we really looked carefully at what our options were," [Walton Street representative Michael] Allmon said. "We've just become excited about the possibility of changing its use.

"It's important that all possible current and future uses be explored in the preservation of this iconic tower," he added.
...
Allmon believes a condominium-ized Smith Tower would have little trouble competing with the dozen or so swank condo developments under construction in downtown Seattle.

"I think this really is a category unto itself," he said.

I personally think it would be pretty awesome to live in the Smith Tower (that is of course if I worked anywhere near downtown). It's always been one of my favorite buildings in Seattle. I made a crude LEGO model of it (crude compared to this one), and it is featured prominently in the only painting my wife and I own.

On the other hand, they'll most likely be ridiculously expensive luxury condos, far out of reach for most people, and besides that, does downtown Seattle really need yet another tower full of condos, on top of the 49 others in the works? Really?

(Amy Martinez & Elizabeth Rhodes, Seattle Times, 02.22.2007)

Ask Seattle Bubble: Just Bought A Condo

Here's a question I recently received from a reader that I will call "Jack":

I'm 26. From L.A., recently moved here. Saved for a year, and moved with about 30k, (made 110k in '06) I was on disability for a year before after I almost died in an accident, so my previous savings were depleted. We are renting and working in Bellevue. Our rent for a 2 bed / 2 bath is $1,175. It's a pretty nice place outside of downtown Bellevue

I just closed on a 2/2 in Issaquah off of W. Lake Samm. Blvd. and I-90, for $219,950. Got good rates (I deal with loans of a different kind, so I did my homework). Anyway, my payment all in is $1,600, including approx. $140 in tax and $218 in HOA dues. Looking at the comps over the last 6 mos. I didn't steal the place, may have overpaid a couple of grand. I plan on living there for 4-5 years.

I've been well versed in med. emergencies, and work on commision, and am very worst case scenario oriented. My all in, PITI, and everything else is around 30% on the worst month i've had in a year, and around 12-15% on a good month, with plenty in reserves...

What is your HONEST opinion on this one?

Here's what I said to Jack:

My opinions on buying real estate right now are pretty simple. In general, I don't think that now is the best time to buy. However, those that do choose to buy will come out all right as long as their payment is affordable and they would be able to and wouldn't mind staying put if the price dropped to less than what they paid. Be aware that if price drops do come, it could take 5 to 10 years before prices come back up to their previous highs. By "affordable," I mean no more than 30% of gross income is going to mortgage, insurance, taxes, and HOA. Certainly there are exceptions to every rule, but it's always best not to start off with something that you can barely afford (approaching 50% of gross or more), because if a job loss or medical emergency crops up you could be in a tight spot very quickly.

So generally, I would say that if you're happy with your home, you're not stretching to make the payments, and you have a reasonable plan in case of financial problems, then more power to you. Enjoy your place.

What advice do you have for Jack, now that he has bought the condo in Issaquah?

Buy A Downtown Condo RIGHT NOW!

Many of you pointed out the latest in a series of paid advertisements masquerading as reporting in yesterday's Seattle Times. The apparent purpose of the "article" was to convince the reader that 2007 is a great year to buy a condo in downtown Seattle, at any cost.

[Condo developer David] Thyer insists that Seattle isn't like other cities, where developers are struggling with an oversupply of new condos. There's a demand for condos in downtown Seattle, he says, drawing a contrast with the speculative buying frenzy that has led to a boom-bust scenario elsewhere in the country.

On Friday, political and business leaders met over breakfast at the Westin Hotel for an annual review of downtown Seattle. Real-estate economist Matthew Gardner shared Thyer's optimism, telling an audience of about 700 that demand for new places to live downtown will remain "very positive."
...
Developers say the new condos will sell, but will they sell at the prices developers want?
...
In Miami and Las Vegas, developers have had to drop their prices after condos outnumbered buyers.

Part of the problem is that many buyers regarded their new condos as investments and had no intention of living in them.
...
[Dean] Jones [president of Realogics, a local condo-marketing firm] estimates that speculators accounted for 30 percent or more of all new condo purchases in Miami and Las Vegas, compared with "no more than 15 percent" in Seattle. Now, developers require buyers to disclose if they intend to live in their new condos in an effort to limit speculators, Jones said.

Ada Healey, a vice president at Vulcan Real Estate, said speculators represent a "very modest minority" of its buyers. Thyer, president of R.C. Hedreen, said he tries to limit speculators to no more than 5 percent.
...
[Seattle real-estate agent Brett] Frosaker counts at least four projects where a significant portion of the condos sell for $1 million or more. Never before, he says, has downtown seen so many ultra-expensive condos come online at the same time.

"A lot of research shows there's a market for them," he said. "But it hasn't been proven yet."

So, a bunch of condo developers, condo marketers, and real estate agents all say that "it's different here." What a shock. And what evidence, pray tell, do they have to support that assertion? Estimates, intentions, efforts, and (I'm just guessing on this one) a sprinkle of pixie dust.

Matt Goyer, proprietor of the local condo enthusiast blog Urbnlivn also had some critical thoughts about this article that are well worth reading. Considering that he is already a condo believer, it is commendable that he takes these cheerleading articles with such a large grain of salt. Kudos, Matt.

(Amy Martinez, Seattle Times, 02.11.2007)
(Matt Goyer, Urbnlivn, 02.11.2007)

Condo Shoppers Lie Low

This article appeared on the front page of the Puget Sound Business Journal early this month. While typically not read by the general public, "Biz Journals" are widely circulated throughout the business community. Local businesses use the publication to keep tabs on their customers and competitors and to stay abreast of local business news.

I've posted the entire article with permission as it's currently only available to subscribers of the Journal. Enjoy!

Puget Sound Business Journal
February 2, 2007
by Justin Matlick

Walk into the "Trio" condominium project's Belltown showroom, and it looks like many other glitzy condominium projects rising in downtown Seattle. Many of Trio's units, when they're completed this fall, will feature bamboo floors and faux-granite countertops. Tenants will share a roof deck just a block from the new Olympic Sculpture Park.

But there's one key difference between Trio and some other recent projects: It isn't selling.

With a median price of $405,000, the project opened for presales in December 2005 and, as of Jan. 7, had sold just 28 of its 116 units, according to the Fat Report, a monthly newsletter that chronicles local condo sales.

Trio is among a growing number of struggling condo projects in Seattle. A downtown Seattle high-rise project at Fifth Avenue and Madison Street has sold about 52 of its 126 unfinished condominiums since September 2006 [sic]. Lumen, a 94-unit project in Seattle's Lower Queen Anne neighborhood, started selling in June 2005, and roughly a third of its units are still up for grabs. In Ballard, a project dubbed Hjarta, which started presales in October, had sold seven of 79 units as of Jan. 7, according to the Fat Report.

The stagnant sales could pick up once the projects are completed, and don't mean Seattle has been dragged into the condo tailspin now affecting markets in Las Vegas, Boston and other cities -- some recent local projects have sold out within days. Still, many local developers and real estate watchers agree that Seattle's condominium market is decelerating for the first time in years.

The reason: With thousands of local condos slated to go up in the next few years, buyers believe the recent period of rapid price appreciation is disappearing, and it's taking away the buy-now urgency that fueled the local boom with it.

"Buyers have a lot more to choose from and are playing a bit of a waiting game," said Mark Schuster, president and chief executive officer of the Schuster Group Inc., a Seattle-based real estate development company.

Nationwide, the condominium outlook is bleak in cities such as Washington, D.C., where a rush to build left the market oversaturated. In the fourth quarter of last year, developers in the Washington metro area switched roughly 5,900 projected condos into rental apartments, while plans for another 2,500 new condominiums were shelved, according to Delta Associates, a research firm based in Alexandria, Va.

While the Puget Sound region's housing market is slowing -- in King, Pierce and Snohomish counties, the Northwest Multiple Listing Service has reported falling home sales and rising inventories since last summer -- none of the real estate professionals contacted for this story were aware of any local projects being canceled or postponed, and most economists agree that the local market is well-insulated against a dramatic decline.

According to Dick Conway, co-publisher of the Puget Sound Economic Forecaster newsletter and Web site, the ongoing Boeing boom, a Microsoft hiring spree and strong demand for the region's exports from Asia set the stage for an ongoing population inmigration that should keep housing demand steady.

"We have very strong fundamental demand for housing because of population growth," Conway said.

The critical question facing local condo buyers: whether supply will outstrip that demand. While it's nearly impossible to predict how many condos are too many, it's apparent that the region's developers remain in the throes of a condo-building spree.

Developers in King, Pierce and Snohomish counties filed permits to build 8,300 units of multifamily housing, including apartments, condominiums and townhomes, in 2005, according to Conway. That number rose to 11,200 last year.

Meanwhile, developers are converting apartments into condos at a rapid clip. Roughly 7,000 apartments were transformed into condominiums in 2006, or were scheduled to hit the market soon, according to Dupre + Scott Apartment Advisors in Seattle.

The bevy of new projects "has probably put a little rain on the sales parade," said Lin Shih, a Seattle real estate agent who specializes in condos at Coldwell Banker Bain. "Buyers think that, with all these new developments coming up, they can be picky."

Another factor: a widespread belief that the days of rapid price gains are over. "When the market was hot, people knew they were buying today for ready-made appreciation," said Brett Frosaker, owner of Columbia Real Estate in Seattle and publisher of the Fat Report. "Now they're starting to wonder if today's condos are listing at tomorrow's prices."

According to Frosaker, a project's sales typically accelerate once it is completed, in part because buyers feel more comfortable seeing the actual units instead of showroom mock-ups.

Nonetheless, some projects have sold rapidly in the presale phase, especially lower-priced developments targeted at first-time buyers. The 251-unit Moda project in Belltown, for instance, came on the market for presales last summer and sold out within days, according to Frosaker. Many of Moda's condos were small units priced under $300,000.

Looking ahead, Frosaker believes this summer could be a ripe time for condo buyers to get good deals, especially as the bigger projects get closer to completion and their developers feel a greater sense of urgency to fill them up.

"With all these projects fighting tooth and nail," Frosaker said, "summer might turn into a great buying opportunity." Schuster believes demand will remain strong enough to support current price levels. "I don't see price drops being part of the equation even if there were a significant slowdown," he said.

What do you think? Pretty objective, no? Why aren't we getting this "fair and balanced" type of reporting from most of our friends over at the Times or PI?

What makes this article unbiased in regards to residential real estate is the fact that 100% of its advertising is B2B related.

From my own personal experience, the B2B world (especially in the business networking community) have little use for the B2C crowd (i.e. real estate clerks and mortgage brokers). Since B2C types are usually dealing exclusively with consumers, it can be difficult for them to provide B2B referrals, and, worse yet, they often attempt to solicit business from their fellow networking partners.

Newspapers such as the Seattle PI and Times are co-conspirators to the REIC as they rely heavily on residential real estate advertising for their revenues, often leading them to distort the truth.

(Justin Matlick, Puget Sound Business Journal, 02-02-2007)

Bubble Link Roundup

It's time for another link roundup: a list of links that are worth posting, but not each as their own post. Some of these are Seattle-specific, some aren't.

• Keith at Housing Panic provides a concise history of the housing bubble.
• Calculated Risk expects a recession in '07 and explains what would change his mind.
• The state legislature might take a short break from the important business of neutering the initiative process and imposing an income tax to pass a bill "protecting" renters from condo conversions.
• Matt Goyer points out some of the problems Vancouver, BC is facing thanks to the condo boom there.
• Blogging Realtor Susan Ryan takes Bill Fleckenstein to task for not providing data, yet utterly fails to provide any data of her own.

Seen any other good snippets lately?

Hello Again, Condo Anecdote

This is at least worth a brief mention. Another unit has come up for sale in the condo complex in my neighborhood that was the subject of my first anecdotal post. Actually, it's not "another unit" but rather the same unit that sold just over a year ago.

In December 2005 Unit #6 was bought for $300,000. It is now on the market for $350,000, a 16.7% price increase. Given that the most recent county-wide data (pdf) shows condos up 21% from a year ago, perhaps the asking price is too low?

Since county-wide data is based on an ever-changing data set of new homes, remodeled homes, sub-divided lots, condo conversions, and so on, same-unit sales are the best way to gauge the actual appreciation in the market. It will be interesting to see how long it takes to sell this condo, and what the eventual sales price is.

Slowing Condo Market? Not Here! Not Here!

The New York Times yesterday ran a story about the struggling condo market in many parts of the country, and with as much attention as it received, you just knew the local news couldn't let it go unanswered. Enter Aubrey Cohen of the Seattle P-I with Seattle bucks trend on slumping condos.

Seattle's market was not to blame for a recent decision to change a planned 34-story downtown building from condominiums to apartments.

Rather, the slumping condo markets in cities such as Washington, D.C., Las Vegas, Miami and Boston affected the national firms that fund such buildings, said John Schwartz, northwest regional director of Keller CMS, which is managing the Terry Avenue Apartments project.

"There was quite a bit of skittishness," he said. "I think the Seattle market clearly has a little different story to tell, but a lot of the big equity players, they take a wider view."

The frenzied condo market in many cities has collapsed since the middle of 2006, dragging down prices and scuttling projects -- or at least forcing them to change, according to a New York Times report Tuesday.
...
Seattle's housing market has fared better than those in other parts of the country in recent months, with continued year-over-year price increases, despite increasing inventory and falling sales, according to the Northwest Multiple Listing Service. The area's condo market, meanwhile, has been stronger than the market for other types of homes.

Seattle real estate professionals and economists agree that the city's job creation, relative lack of speculators and the fact that its boom never rose as high as other places kept its housing market healthy.
...
A Boston real estate consultant cited about 600 condo projects in the city's metropolitan area, with about 49,000 units in various stages of development, according to the Times story. Seattle has fewer than 9,000 condos in the works, according to Williams Marketing Vice President Warren Ballard.

"We don't have anywhere near the volume of construction that some other markets have," Ballard said. "You cannot go anywhere in Seattle and find a finished, brand-new condo to buy."

Really? I guess Mr. Ballard hasn't bothered reading Urbnlivn lately, where Matt has been tracking dozens of condos coming (and sometimes sitting around) on the MLS.

Let's see how this article holds up to the standard "our market is magically stronger than all others" type of article. Prominent mention of continued appreciation: check. Citing job growth as keeping housing strong: check. Un-supported claim of fewer speculator purchases than elsewhere: check. Looks like we've got all the makings of the classic Seattle real estate fluff piece.

Plus, as a bonus, Mr. Cohen threw in the odd comparison of the Boston "metropolitan area" (population 4.4 million) with just "Seattle" (population <600,000). So the Boston metro area has seven times the population and five times as many condo projects as the city of Seattle. Go figure. Also, it is made apparent later in the article that the 9,000 condos figure doesn't include apartment conversions, which numbered 7,000 (this time in the entire Seattle metro area) just last year.

In any case, direct numerical comparisons with other markets seems rather pointless to me. What really matters is whether there are more condos coming online in the next few years than there is demand. Maybe demand for condos in Seattle is just a lot lower than other cities, and 9,000 will push us over the edge. Who knows? It's not like we can count on Aubrey Cohen to actually do some serious investigative reporting on condo demand.

(Aubrey Cohen, Seattle P-I, 01.17.2007)

Update: Over at Seattlest, Michael van Baker compares Cohen's reporting to the Titanic's claim of being "unsinkable."
Meanwhile, condo enthusiast Matt Goyer of Urbnlivn says that "this article is just a little too go-go-go, even for me."

Who's Buying Condos in Kirkland?

We're used to hearing unsupported claims that "young professionals" and "empty-nesters" are providing the bulk of the demand for condos. Well, finally we have a first-hand account of who's actually buying condos (in downtown Kirkland, anyway).

Amie Lynn is the community sales manager for Miller Condominium Marketing, which recently opened The Boulevard, a 119-unit condo building at 598 Central Way, and 128onState, a 124-unit building at 128 State St.

She said most of the two-bedroom condominiums — which make up about a third of the stock — sell to empty-nesters who are downsizing into smaller, lower-maintenance places in more urban areas.

"They can afford the higher price points because they had great appreciation in their last house," Lynn said. "More and more people want to spend their weekends not maintaining a home. They want to enjoy what the city has to offer."

Retirees, too, have purchased condos downtown as second homes, Lynn said. They winter in California or Arizona and come back to Kirkland in the summer to visit old friends and family.

The remaining studios and one-bedroom condos go to single people ranging in age from their 20s to their 50s, Lynn said, though the majority are in their 30s.

So it sounds like "young professionals" are in the minority in Kirkland. I can't say I'm surprised that "most" of the condos are selling to people that are actually downgrading their home. When prices spiral upward out of control like they have lately, young people have a hard time buying, and existing homeowners looking to upgrade find that they can't even afford to trade up.

What's not springing up downtown are young families — the condominium units that are big enough for couples with children are typically more expensive than they can afford. But Lynn said that's something that could be changing over the next decade.

Whoops! Looks like the writer let a little bit of truth slip in there. Maybe they figure that they can get away with implying that prices might actually be headed down soon because the King County Journal hasn't got anything to lose.

(Erica Hall, King County Journal, 01.15.2007)

Seattle Bubble Stats: Where are the Condos?

The question was asked on my number-crunching post last week of why I do not include condos in most of the statistics that I post here. Since that is a valid question that other people may be wondering as well, I thought I would post the answer where it will gain more visibility.

I choose to present this particular dataset for the following reasons:

1) SFH prices tend to be less volatile than condo prices.

Since 2001, the YOY change in SFH median price has ranged from 0.35% (Mar-01) to 20.00% (Oct-05), a total spread of just under 20 points. Condos: -5.21% (Aug-02) to 22.08% (Jul-06), a total spread of over 27 points. The maximum month-to-month change in the SFH YOY figure was a 6.32 point drop (April to May '01), with 10 months experiencing a greater than 5 point change from the previous month. Condos: a 21.54 point jump (Dec-01 to Jan-02), with 19 months experiencing a greater than 5 point change.

2) Consistently quoting SFH figures provides an easy comparison.

The monthly reports in the newspaper often seem to cherry-pick whatever statistic supports the "angle" that they chose to take for the story. By picking one dataset and sticking with it, I feel that I provide the readers with a better baseline for what's really going on.

3) Frankly, I'm just more interested in SFH's.

I make no value judgments regarding any person's choice of whether to buy a condo or a SFH, but for me personally, I'm just not all that interested in condos. That is not to say that a condo buyer and a SFH buyer are "not equal in [my] eyes," or that condo purchases aren't "worthy," just that what goes on in the condo market doesn't interest me as much. That being said, I do have a number of charts of the condo numbers in the Seattle Bubble Spreadsheet, which is always available to anyone who bothers to click the link on the sidebar.

Spotlight: Condo Flipper in Greenwood

Found on Ziprealty.com: 633 NW 8th St, Ballard/Loyal Heights (98117)

A developer from California has purchased a 1978 six unit apartment complex and began converting to condos in June. They've been working on a unit by unit basis and appear to be close to finishing unit #201, listed 3 days ago.

There's no image posted on ziprealty, but I've posted a satellite shot here. Note the green barn-like pattern on the North face of the structure.

From Ziprealty.com:

Newbury north in greenwood is nearly complete & now selling! Beautifully appointed 2 bed 1.75 bath unit in a cozy 6 unit bldg in a great location near hip 85th & greenwood ave intersection. Stainless appliances, granite countertops, hardwood floors, fireplace, balcony, and designer paint. 10 minute commute to seattle via i-5, or take aurora ave or 15th ave. Walking distance to greenlake; a bike ride away from ballard and u.W. Don't miss out-quality at this price doesn't come along very often!

Records indicate the property was purchased on 06/23/06 for $800,000. Five of the Six units are 2 bed/1.75bt with 950 sq ft, while one unit is a 1/1 and 650 sq ft.

I drove by this unit a few weeks ago and noticed that they were installing cheap vinyl siding over the original 3-story rectangular 1978 concrete stucco. Property Shark lists the property in "average" condition and judging by what I saw, it requires a total overhaul. In addition, the building is 2 doors down from a self car wash and the overall area looks to be in general disrepair.

Let's be generous and say it'll cost $65,000 per unit, not including holding costs or realtor commissions. That would bring the cost of the project to about $1,190,000.

If the developer is able to sell all 5 units at $275,500, and the 1 bedroom unit for $229,000, that would be $1,606,500 - or a profit of $416,500. Not too shabby.

Comparable units for sale in the area:

8354 11TH Ave NW #2, 98117
$ 284,950 (reduced 10/19/06)
939 SqFt, 2bd/1bt
59 Days on Market
MLS# 26156431

8721 2ND Ave NW, 98117
$ 289,900 (reduced 10/19 - Bank Owned)
1370 SqFt, 3bd/2bt
37 Days on Market
MLS# 26169242

4102 Stone Way N, 98117
$ 229,500 (has been relisted)
Condo Conversion 1bd/1bt
Sq Footage not Shown
MLS# 26177048

On the surface it would appear that the pricing is considerably less (under $300,000) than other condos in the area. However, we're talking a conversion here and as the market tightens one could easily assume that buyers are becoming increasingly picky in their decisions. Still, I think he's got a good shot at turning a profit since these units are priced near the KC Median of $259,700. (down slightly from a high of $269,500 in August)

Questions for readers:

How much do you think the actual cost of a full renovation of this unit would be? Is NW 85th/8th Ave in Greenwood a desirable area? Are people willing to purchase a quickly thrown together conversion at these prices? Where can I find comparable units that have already sold in this area? (I'll add them to this post)

It's hip, cozy and has granite countertops! What more could anyone want?

The Joys Of Condo Ownership

Once in a while, I used to get the crazy idea that it would be fun to own a condo. I was probably attracted to the relatively low price tag (compared to SFHs). However, whenever I looked into it, I was always turned off by the ridiculously expensive Home Owner's Association fees, usually ranging from $250 to as much as $500 per month. "What could be that expensive," I thought... Well, here's a good example of why condo associations frequently have to stockpile so much money: leaky condos and MIA builders.

The owners of 20 Ballard condominiums have fallen victim to the Legislature's good intentions.

The Ballard Square Condominium Owners Association sued the building's developer, Dynasty Construction Co., in 2002, claiming that their recently built homes were riddled with leaks that had caused extensive building damage and asserting that Dynasty failed to meet construction standards.

The problem was, Dynasty was dissolved in 1995, and superior and appeals courts said the owners could not sue a corporation after its demise. But the owners appealed to the state Supreme Court, which heard the case earlier this year.
...
Ballard Square had missed its opportunity. The Supreme Court unanimously dismissed the case.
...
Lara Stack moved into Ballard Square 4 1/2 years ago, several years after leaks were discovered and repaired, and a month before owners found more extensive problems.

"Water was seeping inside the stucco of the building through many different entry points," said Stack, who is the vice president of the association.

Deck structures and wood framing also were starting to rot, she said.
...
In 2000, state Sen. Jeanne Kohl-Welles, D-Seattle, proposed requiring certain guarantees from homebuilders, including five-year protection from defects resulting in water penetration. The bill never got a vote.
...
"I had just been thinking about reintroducing this bill again," she said.

But this is all too late for the residents of Ballard Square, who are spending $1.8 million to fix their building (not to mention legal fees), and are living through renovations that are now halfway done.

"We don't have privacy. There's dust everywhere," Stack said. "We just want to move on and have it complete."

The article discusses the builder tactic of forming an LLC, building the condos, then dissolving the LLC. Apparently this tactic has increased in the past "as the boom hit and [the builders] built so many of the darned things." Under a new state law, condo owners can still sue the LLC for up to three years, but after that you're pretty much out of luck.

Food for thought if you're looking at condos as a way to save you from being priced out forever.

(Aubrey Cohen, Seattle P-I, 11.10.2006)

Time For A Sale

Our local condo enthusiast Matt made a post this morning pointing out an interesting sign of slowing:

For a limited-time, Queen Anne High School is offering a $5,000 BUYER BONUS on all homes under $400,000*!

With its close-to-downtown location, Seattle's perma-hot real estate market, and all the free fawning press that this project got when it opened last month, you would think it would have sold out in record time.

Of course, I'm sure the local real estate cheerleaders would be more than happy to provide me with a plethora of perfectly rational-sounding explanations about the slow time of year, undesirable floorplans, and a "return to normal" for the market. Still though, does anyone doubt that this would have sold out in a week had it opened in September 2004 or 2005?

I'm just sayin'...

(Matt Goyer, Urbnlivn, 10.31.2006)

Kids + Condos = No Way

Here's a tidbit from a Seattle P-I story last week about the lack of families with children downtown. The article doesn't really have much to do with home prices or bubbles, but we have talked at length about downtown condos in the past, so it is at least worth mentioning.

Sure, there's a way to get families to live in Seattle's urban core, but someone needs to go first — and that seems to be the problem.

Parents say they need condos built with families in mind. Developers and families say they need a downtown school. And school district officials say they need to see some demand.

But many local parents leave condos — big ones, in neighborhoods with good parks and schools — because they feel the need for their own yard. So maybe the real problem is an intangible — a cultural bias against raising children in condos. And observers suggest changing that might require gas to become so expensive and affordable houses with yards to be so far away that commuting takes too much time and money.

Oh my, it sounds like such a delightful utopia, doesn't it? After reading this article I remembered how we're always hearing that demand for downtown condos comes from "retiring baby boomers" (old people whose kids have grown up and moved out) and "young professionals" (young people with no kids). If families with children won't move downtown unless they're basically forced to, I guess those two groups would have to be the ones driving condo demand, considering they're pretty much all that's left. That is of course, if you assume that the demand coming from "investors" is negligible.

(Aubrey Cohen, Seattle P-I, 10.16.2006)

Hey! Look Over Here!

Happy Monday.

Feel free to enjoy these two posts, complements of the Seattle PI.

Opportunity is Knocking at Your Next Front Door

"The unfortunate reality here is that good news seems to get buried in the newspapers and it's the negative headlines that get all the attention. What we're trying to do [with the ad] is motivate buyers with the facts. Mortgage interest rates have come down, there's an ample supply of inventory and homes are selling."

New condos: Which one's the tallest of all?

"Developer R.C. Hedreen Co. announced Wednesday that it was adding three floors, pending city approval, to Olive 8 -- a hotel-condo building under construction at Eighth Avenue and Olive Way. That would bring the tower to 39 stories, 455 feet above street level, and make it the tallest residential tower in Seattle when it opens in the summer of 2008.

The three new floors would mean the hotel-condominium project would have to meet city requirements to use environmentally sustainable construction and contribute toward affordable housing."

In sales we call this move "hey, look over here!" (distract the buyer so they won't think about the important questions, such as "how much will those condos be worth next year?")

¹(Marlow Harris, Seattle Real Estate Professionals Blog, 10.08.2006)
²(Aubrey Cohen, Seattle P-I, 10.09.2006)