It took more than a year for the owners of The View@Chastain to sell half of the upscale high-rise building's 120 units.
It took less than a day to sell 28 more.
Between August 2005 and November 2006, CJS Construction and Noble Properties — Atlanta -based developers and owners of The View@Chastain—sold 62 one-and two-bedroom units at the property, located in Atlanta's affluent Buckhead district. Then, prompted by the pummeling the condominium market has taken since the beginning of the year, the developers last month put 58 never-occupied loft-style condos, featuring SoHo-style floor plans and 12-foot ceilings, on the auction block. The sale was held on Nov. 14.
It was a fairly unusual move, concedes Daniel M. Christian Yah Parkman, marketing executive for Alabama-based auction house Albert Burney, but one that brought two years' worth of foot traffic through the sales office in just two weeks.
“The auction platform puts the project on a pedestal, head and shoulders above the competitive inventory,” says Parkman. “It polarizes the market and drives sales to the property away from [competing] units.”
“The wise developer who's been through this cycle a number of times recognizes the signs [of a slowdown] in the industry and opts to stay ahead of the curve and exit through their standing inventory before the competition beats them to it,” says Parkman.
CREATIVE APPROACH San Diego condo developer Maisel Presley, which has 18 projects on the market, is moving its inventory by skimping on upgrades and lowering its prices. The firm typically installs granite countertops, stainless steel appliances, and other high-end amenities when it converts apartments to condominiums. But in this depressed market, the company is stopping at new carpet and fresh paint so it can lower prices on some units to as little as $200,000. At one point, the developer advertised online that it would sell condos by dropping the price by $1,000 a day until a unit sells.
Similarly, some developers in Lincoln, R.I., are shrinking their units and lowering their prices to make their condos affordable for the working class, a market segment left somewhat neglected for the past few years during the peak of the now-cooled condo craze. Two-bedroom condominiums at the Village at Spring Green, for example, feature Berber carpet, stainless steel kitchen appliances, and granite countertops, yet they start at just $169,000.
Angelo Grilli of Lincoln-based developer 400 New River Road, who is converting 108 apartments to condos, is keeping prices low by buying building materials in discount-reaping bulk—some directly from the factory—and storing them in huge trailers on the 10-acre condo campus. He haggles over prices with every vendor until the price drops, and he even imported granite directly from India so he could feature it in the kitchens of some units.
His reasoning? Bartenders, police officers, and teachers deserve the same comforts of home as higher-paid professionals who can spring for larger living quarters and more extravagant extras.
Grilli says his company is mimicking the move toward workforce housing that is taking place in Florida, where some multifamily builders have begun targeting working-class buyers as the sales potential for higher-end condos bottoms out.
Nearby, the developers of a new luxury condominium that will become the tallest building in Providence, R.I., have scrapped their plans for a steel skyscraper, saying a concrete structure will allow them to squeeze two more floors—and eight additional units—into the building. The switch could reap developer Blue Chip Properties several million dollars in extra profits, estimates consulting engineer Minhaj Kirmani of Cambridge, Mass.-based Weidlinger Associates, who notes that while the two building materials have similar price tags, steel prices “rise day to day.”
The material switch required the builder to draw up a new design, which delayed construction on the 435-foot One Ten Westminster by four months.
TRIED AND TRUE Developers whose condominium projects came out of the pipeline just as fortunes turned for the overbuilt industry are jump-starting sales by turning to financial incentives, out-right giveaways, and even gimmicks.
About three-fourths of builders who responded to the latest National Association of Home Builders multifamily condo market index say they are using incentives besides price cuts to boost condo sales. Two-thirds of those are throwing in freebies like appliance upgrades and TVs, while a third are paying points for the buyer and two-thirds are picking up closing costs or fees. And half of the developers say they are using agents or brokers to help sell their units. That's up from about 20 percent a year ago.
That's not likely to change any time soon. The same report shows that builder confidence in the condominium market was much weaker in the second quarter, as sales continued to suffer.
“Any time is a good time for an incentive,” says sales agent George Schultz of @properties in Chicago. “They are great when you have any kind of opening.” His firm has offered buyers 42-inch plasma TVs, but Schultz says financial incentives like no closing costs or a reduced mortgage are even more popular with buyers.
Developers nationwide are offering everything from free luxury cars to cuts of up to $40,000 on mortgages. Also popular are free assessments for the first year, financing as low as 4.5 percent, paid closing costs, free upgrades on appliances, free washers and dryers, cut-rate deals on parking spaces, and vacations. A Miami developer is forgiving closing costs ranging from $7,000 to $21,000 for buyers who had signed up for competitors' condos that went bust.
One Virginia builder even gave away a free condo in a bid to drum up sales. As part of its campaign to convince people to buy before the end of the year, Van Metre Homes in Ashburn held a drawing for a townhome-style condominium worth $415,000 on Dec. 31.
RENT TO OWN Still, incentives aren't the only way developers are trying to ride out the real estate recession. In Reston, Va., Comstock Homebuilding Cos. is converting two apartment buildings to condos, but sales are slow. So the builder is allowing would-be buyers to rent their units while they decide if they should buy them. The firm will apply half of a resident's rent toward the purchase price if the person eventually takes ownership. (CEO Christopher Clemente says the program generates revenue for the builder during the conversion.)
That strategy could save the builder from reverting the buildings back to apartments, a back-pocket option that has become reality for scores of condo converters since the beginning of the year.
That trend began in southeast Florida, says housing analyst Jack McCabe of McCabe Research and Consulting in Deerfield Beach, Fla. He estimates that more than 1,700 units have reverted back to apartments just in Palm Beach County, Fla.
“We've entered a new market, a very different market,” says McCabe. “Sellers are going to have to adjust their concept of value. Sellers have to readjust their sights for the market to get moving again.”
THE ROAD AHEAD Indeed, as the market for condos continues to crash, the demand for rentals is beginning to boom. Reversions have become rampant in South Florida, Las Vegas, San Diego, and Phoenix, where up to 40 percent of condos being converted could revert to apartments, reports Marcus & Millichap, a real estate investment brokerage company.
Condo conversions peaked in September 2004, when developers changed 28,000 apartments to for-sale units, reports research firm Real Capital Analytics. By contrast, just 3,354 units were converted in June 2005, about the same as a typical month before the boom's beginning.
For Maryland-based JBG Cos., that back-and-forth comes before the project is built or bought, says Matthew Blocher, senior vice president, who says his firm considers every building a potential rental property first, even if it later converts the place to condos.
John Restrepo, principal of Restrepo Consulting Group in Las Vegas—a city whose failed condos became legendary with a trifecta of terminated projects involving celebrities George Clooney, Ivana Trump, and Michael Jordan—is one who believes in condos. Still, he says the next generation of condos in his market could be attached to hotels and stores. “We still have a market here for high-rise condos,” he says. “It's probably not as large a market as we thought. The dust has settled in with more realistic expectations of what that market is, and the best bet is mixed use.”
Fred Beck, chief development officer for Gastonia, N.C.-based Centra Properities, agrees that the Las Vegas condo market will resurrect—just not downtown. He points to pent-up demand in Sin City's suburbs.
That wait-and-see form of optimism might pay off, predicts William Rich, vice president of Alexandria, Va.-based Delta Associates, a real estate research firm. “We're seeing [developers] delay their decisions, not so much scrapping their plans,” he says. “If it's a site they've been able to hold onto for a while, they're in no rush to build.”
Sharon O'Malley is a freelance writer in College Park, Md.