In the first of a three-part series on the state of the condo market, we look at the recent rebound in sales and who's buying up available units.
Molly Olmstead and her fellow sales associates are still shocked by unit absorption at The Ascent, a 49-unit condominium community in Avon, Colo., acquired via foreclosure by Louisville, Colo.-based real estate investor and turnaround specialist Condo Capital Solutions (CCS). The property had its grand re-opening on December 23, and “we ended up having to have a lottery,” says Olmstead, the property’s official listing agent. “We had over 20 contracts with numerous contracts on specific units that required a lottery. We just looked at each other and said, ‘In this market? Really? Okay, great!’”
Olmstead credits the sales success at The Ascent to curb appeal value-add investments made by CSS and deep reductions from the prices sought by the property's original developer. “The property benefited from cosmetic improvements and was brought back onto the market at a 55 percent price reduction, with units for sale from the mid-$300,000s to $1.1 million ... hence the success.”
Nationally, condominium sales saw a slight improvement in 2010. Even with the expiration of the first-time homebuyer tax credit on April 30 of last year, price reductions and low interest rates continued to compel consumer purchasing, and investors have returned to the sector in search of a market bottom, though the numbers vary significantly by market. (See "Condo Winners and Losers" below for more information.) “For the year, condos did eke out an increase, with a total of 599,000 sales in 2010, up from 590,000 in 2009, which works out to a gain of 1.5 percent,” says Walter Maloney, spokesperson for the Washington, D.C.-based National Association of Realtors (NAR). “We think a lot of that was driven by bulk purchases by investors.”
Turn and Burn
Indeed, investors looking for opportunistic returns are beginning to find success in flipping distressed condo deals, particularly those that pass a highly amenitized, great location Real Estate 101 litmus test.
“Calling it a rebound is probably too strong of language, but what we are seeing is that there is opportunity in the distressed debt on buildings that can be purchased at a price that is a once-in-a-lifetime opportunity for investors and for end-buyers to get something at prices they couldn’t possible see in a normal market,” says Jack Rodgers, an executive with Ironshore Capital, a Ft. Lauderdale, Fla.-based investment firm specializing in all-cash acquisitions of distressed real estate.
In January, Ironshore completed the purchase and turnaround of the remaining 12 units at the Water’s Edge, a seven-story, 17-unit oceanfront condominium community in Jacksonville, Fla., that already has three hard contracts and is working on five additional offer sheets. “We’ve had 400 people through the building, and the price opportunity is what is driving that interest,” Rodgers says. “Sales are a function of location and discount to peak, which runs anywhere from 40 percent to 60 percent, and discount-to-peak is where you need to be to get consumers to move.”
Overall, condo prices in 2010 were down 2.2 percent to a national average of $171,000 per unit, according to NAR, and oversupply is expected to continue to challenge a broader recovery, despite the anecdotal bright spots. “To be in a market balance between buyers and sellers you want to see the supply numbers get down to the three- to seven-month range, and the condo sector is still at a ten-month supply,” Maloney says. “So the market is clearly favoring buyers, who, in many cases, are investors doing all-cash deals.”
Real Demand Rebounds
At the Riverview Club in Yonkers, N.Y., sales agents just eclipsed the 50 percent sold threshold and are seeing steady improvements in both prospect traffic and offers, primarily from first-time homebuyers and single-family down-sizers.
“Our prices range from the low $200,000s to mid-$300,000s, so the people that qualified for the first-time homeowner tax credit benefited from what was a good-sized chunk [of equity] to motivate sales,” says Randi Kahn of Yonkers, N.Y.-based River Hill Residential, which purchased the property in 2008 for an undisclosed price as a conversion from rental. “After the tax credit went away, sales deteriorated again. So I think what we are seeing now is real fundamental demand, not demand merely driven by government incentive."
Units at Riverview benefit from amenities such as a pool, gym, concierge service, parking, and water views, but have also seen price discounts on average of 15 percent from their peak. “Units are well-priced now compared to two years ago; the market has obviously come down,” Kahn says. “Sales are never easy, and we battle for every contract, but at least we are moving in the right direction.”
With some mitigation to volatility, but basically flat pricing, NAR expects true condo sector recovery to initiate in 2011 but to see a broader rebound the following year. “We expect to see condo sales activity picking up this year, but without changes to aggregate pricing,” Maloney says. ”In 2012, we are looking for more meaningful improvements to the market.”
Condo Winners and Losers
|The five best and five worst performing condo markets by change in pricing (in thousands).|
|Market||Average Sales Price, Q4 2009||Average Sales Price, Q4 2010||Change|
|Source: National Association of Realtors|