Developers Nix or Delay Condo Projects

July 31, 2006, 7:03PM
By DEBORAH YAO AP Business Writer
© 2006 The Associated Press

PHILADELPHIA — In a city cluttered with condominium construction, Old City 205 aspired to shine as an ultramodern residence for the well-heeled with its zinc and glass facade, loft-style homes and windows that span floor to ceiling.
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Too bad no one will get to move in now: The $40 million project in Philadelphia's Old City neighborhood won't break ground after the housing market softened and increasingly picky buyers balked at its price tags from $400,000 for a studio to over $2 million for a three-bedroom penthouse.

Brown Hill Development, the company behind the project, noticed slower traffic and decided it didn't want to be left with unsold units, said partner Greg Hill.

From coast to coast, developers are nixing or delaying condominium projects as home sales decelerate, construction costs soar and lenders start to balk at financing units that might not sell. What's making it worse is the glut of high-priced condos and too few people who can afford them.

"We've gone through the biggest real estate boom in the last eight or nine years and some of these projects haven't started yet. Do you think they're going to start building now?" said real estate executive Allan Domb, dubbed Philadelphia's "condo king."

In Las Vegas, projects nixed include high-profile developments such as Aqua Blue, a $600 million, 825-unit luxury condominium-hotel resort that counted Michael Jordan as an investor; the $3 billion, 4,400-unit Las Ramblas resort, backed by George Clooney; and Ivana Las Vegas, a $700 million, 945-unit tower named after Donald Trump's ex-wife.

Related Las Vegas, one of the two developers for Las Ramblas, had cited rising construction costs and slowing sales for the cancellation.

In South Florida, canceled condo developments include 1390 Brickell Bay and ICE in Miami, and Fort Lauderdale's The Waves Las Olas. WCI Communities Inc., a luxury home builder based in Bonita Springs, Fla., said in June that new orders for its high-rise condominiums fell by 84 percent in the second quarter. The company will now go forward with only three to five condo projects in 2006, down from as many as 15 to 17, mostly in Florida.

With housing looking increasingly anemic, it's not surprising that developers are bailing out.

Domb said he's gotten about half a dozen phone calls over the past four weeks from developers asking if he would like to buy their properties.

In May, the volume of apartment-to-condo conversions plunged to $334 million from $1.65 billion a year ago, said Gleb Nechayev, senior economist at Torto Wheaton Research, a real estate research firm in Boston owned by CB Richard Ellis. The all-time high was $4 billion, hit last September.

Builder confidence, as measured by the National Association of Home Builders/Wells Fargo Housing Market Index, fell in June to its lowest level since April 1995. Confidence took a hit due to rising mortgage rates, high home prices and investors and speculators fleeing the market.

The index surveyed builders of single-family homes, where the sales decline hasn't been as severe as for condos.

Jack McCabe, chief executive of McCabe Research and Consulting in Deerfield Beach, Fla., said desperate developers with finished condos are offering plenty of incentives in South Florida.

Freebies range from one year's free mortgage to the use of a yacht or upgraded kitchen packages. McCabe thinks some developers might even sell units at cost if condo sales continue to weaken.

McCabe considers the condo market, especially the luxury end, at risk of a crash. Over the next few years, he sees prices falling by double-digit percentages.

The luxury condo surplus is to blame. McCabe said about 25,000 condos are under construction in Miami-Dade County, with two-thirds costing $700,000 or higher; another 25,000 units have gotten building permits and 50,000 have been announced for future construction.

McCabe said the median household income in the county qualifies local buyers for a $225,000 home, so the luxury units are targeted mainly toward affluent, out-of-state buyers.

Meanwhile, speculators have driven up prices by flipping units, he said. But they're now leaving the market _ driving down demand _ and putting up for sale properties they own, adding to the glut.

Aside from Miami, he said areas at risk include Boston, San Diego, Las Vegas, Seattle, Chicago, Orlando, Fla., Washington, D.C., and Manhattan.

A big part of the problem is that many condo projects are priced high, in part because developers have to recoup the high prices they paid for land. But most buyers can't afford it.

"The sweet spot of the market is probably $250,000 to $700,000," Domb said. "That's what the majority of the population can afford. Many condos are priced higher. That's part of the problem."

Tell that to The Donald. Real estate mogul Donald Trump told The Associated Press he's going ahead with his 45-story waterfront luxury high rise called Trump Tower Philadelphia.

"It's doing fine," Trump said. "It's been intense. So many people want to move there."

He added interest has been high for the project, which he said doesn't surprise him because his name sells.

Houston's single-family real estate breaks records

Real estate sales in the Houston, Texas, market climbed for the ninth straight month in June, as single-family home sales and prices hit new highs, the Houston Association of Realtors reported today.

Total property sales, which include single-family homes, townhomes, multifamily homes, country homes, high-rise properties and lots listed on the MLS, totaled 9,166 in June, up 14.1 percent from June 2005.

Sales of new and existing single-family home sales set a record last month with 7,588 transactions, up 13.4 percent from last June's 6,694. The overall median price of single-family homes also nailed a record at $156,000, which was an increase of 7.2 percent compared to a year ago. The median is a typical market price where half of the homes sold for more and half sold for less than

"This market just continues to amaze all of us with each passing month. Our members are reporting that they have never seen it as busy as it has been so far this summer," said Lorraine Abercrombie, HAR chair and marketing director for Greenwood King Properties. "With interest rates also on course to rise during the coming year, this may be the best time for someone looking to buy or sell a home in the greater Houston area."

The number of available homes (active listings) at the end of June was 44,442 properties, which was a decrease of 2.1 percent versus last June and the 10th consecutive month with a year-over-year decline. The figure was an increase of 944 properties from last month though, which shows there are still plenty of available homes for purchase.

The months inventory of single-family homes, which estimates the number of months it will take to deplete current active inventory based on the prior 12 months' sales activity, came in at 5.4 months for June, unchanged from the previous month but down from a year ago. This statistic signals more of a seller's market and also shows that demand is more than keeping up with the available supply of homes.

The Houston Association of Realtors also reported:

* For the month of June, existing single-family home sales totaled 6,587, which was a 13.2 percent increase from June 2005. The median sales price for existing homes in the Houston area was $150,000, an increase of 8.3 percent compared to the same period last year.

* The number of townhouses and condos that sold in June increased substantially compared to last year's sales, with 856 units being sold last month, versus 708 properties in June 2005, or a 20.9 percent increase in year-over-year sales.

* The overall median price in the townhouse/condo segment in Houston was up 4.7 percent year-over-year in June, with the median sales price registering $125,000.

The Multiple Listing Service of the Houston Association of Realtors includes residential properties and new homes listed by 22,000 Realtors throughout Harris, Fort Bend and Montgomery counties, as well as parts of Brazoria, Galveston, Waller and Wharton counties.