‘Untested’ Vertical Living Now A ‘Bust’
Real estate analysts who predicted a boom in condos are now hiding behind ‘construction costs.’ “The glossy brochures promised rooftop gardens and posh European spas. The Las Vegas Strip and billions of dollars of hedonism just past your uniformed doorman. Such is the stuff of high-rise living in the imagined vertical Las Vegas.”
“By most accounts, the skyrocketing costs of materials and labor have toppled some high-profile luxury condominium projects, turning the market skittish. At least six projects have publicly folded or stalled in a little more than a year, a fraction of the more than 100 once proposed, but enough to make some real estate watchers declare a bust to the boom.”
“‘What we’re having here isn’t a demand constraint,’ real estate analyst Richard Lee said of the failed projects. ‘The No. 1 problem is construction costs and lack of skilled labor.’”
“On prime pieces of land across central Phoenix, Scottsdale, Tempe and recently even in the bedroom communities of Mesa and Ahwatukee, signs are going up promoting upscale condominium towers and lofts. But at many sites, those signs will be the only things erected for a while. Maybe ever.”
“Almost 8,000 condos and lofts are planned or under construction across metropolitan Phoenix, more than what went up in the Valley in all of the past 10 years. Many investors who bought units in the first wave of high-rises now are trying to sell.Last year, more than 10,000 apartments across metropolitan Phoenix were turned into condos or bought by investors.”
“At the end of February, 18 of the 90 condos in the Orpheum Lofts were on the market. The historic art deco tower in downtown Phoenix sold out, and now many of the original buyers are turning out to be investors trying to sell. ‘Condo developers are now competing against speculators,’ said Jay Butler”
“Robert Sheridan, a veteran national condo converter who is developing a project in Scottsdale and also leading a fund to buy failed condo-conversion projects on the East and West Coasts, said the conversion craze is over. Though his company converted the Las Brisas apartments in north central Phoenix a few years ago, Sheridan said he wouldn’t do another one in central Phoenix because there are too many in the area. ‘Only the condos in the best locations will sell now,’ he said.”
“Las Vegas, southern Florida and San Diego have seen the most new high-rise and condo development during the past two years, and now these markets are facing the biggest overbuilding problems, real estate analysts say. Early projects sold out quickly, and prices jumped with each subsequent phase. Developers then rushed in with new designs, tied up prime pieces of land and began taking ‘presales’ to test how deep the demand was for vertical living.”
“In San Diego, condo prices are falling because of the number of resales put on the market by early speculators. Some developers also are putting new projects on hold. There are about 6,200 condos for sale, double from a year ago. Already in San Diego, some condo-conversion projects are falling through.”
“In Las Vegas, high-profile high-rise projects that are nearly sold out are being taken off the drawing board. The Icon Las Vegas tower is the latest casualty of the condo glut in Sin City. In Miami, more than 15,000 condos are under construction and another 60,000 are planned. To attract buyers, some developers are offering freebies like plasma TVs.”
“The condo-conversion market is untested in the Valley. Market watchers and owners of these former apartments are waiting to see if values climb enough to let them sell for a profit after a few years. For those who don’t yet own, though, the number of condos on the market may be disconcerting.”
“Real estate agents say some investors are now beginning to walk away, or are considering doing so, from small deposits on high-rise and condo-conversion projects in the Valley. Other potential buyers are concerned a glut of new condos will put pressure on prices and don’t want to buy until the market stabilizes.”
“Most projects without ‘real buyers’ and government approvals aren’t getting financing: Lenders are clamping down on condo deals because of the many speculative projects and gluts in some areas. ‘Now most lenders are very cautious and want most of a development to be sold, really sold, before they will finance it,’ said (developer) Eric Brown. ‘There’s demand for urban housing projects in the Valley, but only a few projects really make sense,’ he said.”
I remember discussing the condo craze with a realtor a few months ago. I was shrugged off with the ‘new urban lifestyle’ routine. As if saying it was so made it so.
I pointed out that it was very convienient that the most profitable angle on developing homes should come into popularity just at the height of a housing boom, as it had in previous booms. It never made sense and now the idea of living in a condo in Arizona will probably not be heard for 20 years. Like the astute apartment renter said when asked to purchase a conversion in Phoenix, ‘Who wants to pay a mortgage on an apartment?’
I have seen some of these coversions and they are depressing as hell. I wonder what the rents will do when the apartments are converted? I lived in the country when I was younger and being couped up in a conversion just stinks
Every time I see a sign-twirler, I feel the urge to invest in one of these >-)
This whole sign twirling thing has really caught on. I don’t remember seeing many of them till recently. I wouldn’t think they would work but they must. One conversion I recently saw reminded me of a prison.
Nothing could beat prison cells with granite counter tops!
Yes, but those prison stainless steal toilets are now “right in style”. Who would have ever thought that prison decor was ahead of the curve?
Ben,
I believe long term fundamentals work more in favor of condos than McMansions in many locales (baby-boomers downsizing to empty-nest living, etc.). Nonetheless, supply has clearly outstripped short-term demand, thanks to flippers and other fools…
GS
There are people who don’t mind these living arrangements, but I’m talking about how we were told that thousands of people who previously lived in SFH were going to embrace this boom. I can hardly think of a single town or city that hasn’t taken up this nonsense. Remember the driving force behind it was the ’shortgage of land’ thing. Even in Montana!
Anyone who ever flew over MT in an airplane would appreciate the absurdity of the idea that MT had a land shortage…
Shortage of land is horsesh@t. It all the laim ass laws we have to prevent from developing it.
We have to protect endangered species of insects and newts. So far, Realtors (TM) have not, to my knowledge, been included on the list of endangered species that are entitled to federal protection under the Endangered Species Act…
I made the comment regarding Dallas, and I’ll say it again; some people like the trendy urban lifestyle, but in most cities, give me a space for a BBQ, a dog, and a slip n’ slide.
I somewhat disagree and can only speak for myself. I’m at the young end of the boomer generation (born in 1959) and my wife wants our next house/home to be BIG. Her thinking is that she wants space so all the kid’s friends can hang out at our house now, bring friends home from college (future), and eventually have space for the kids and grandkids to be comfortable when visiting when we are older. Of course we would “downsize” once we are old and decrepit, but that is a long way off and would probably be an assisted living situation. Also, if all those boomers want to downsize to a condo as you suggest, that sure leaves a LOT of single family residences that will flood already high inventory levels over the next few years. My father in law is 83 and still in the family home (4 br, pool, etc). He wouldn’t leave his familiar neighborhood for anything, and most of his friends have similar feelings.
perhaps blame for all this building and speculation can be placed solely on NAR for saying prices will never go down they only go up.
Yeah, right!
Real estate agent to builder. “if you build it, I can sell it”
Builder to Real estate agent. “how come you haven’t been able to sell it.”
“‘What we’re having here isn’t a demand constraint,’ real estate analyst Richard Lee said of the failed projects. ‘The No. 1 problem is construction costs and lack of skilled labor.’”
If the demand is so great it should be no problem to set prices high enough to pay wages high enough to attract skilled labor.
I wonder what percentage of a home cost is labor? Anyone have break out of estimated:
Labor costs
Marketing
Land cost
Materials
It will difer greatly in each local….I am in Silicon Valley and the labor rates here are VERY HIGH as compared with other areas..material costs are similar…With that said let me see if I can answer your question at least as it relates to my area…
Labor costs; 30%
Soft Costs; 10%
Land Costs; 30%
Materials; 30%
Thanks dave. Interesting numbers. Labor does appear to be a very substantial cost.
You haven’t added in NIMBY costs of 30-40 %.
Nothing could beat vertical living in hurricane country (FL) or earthquake country (CA)…
Almost forgot — Vancouver (= many opportunities for vertical living) is more likely to experience an 8+ magnitude temblor than SoCal…
report from boulder, colorado. spent the weekend viewing real estate with several miami lawyers looking to buy outside of florida. there are hundreds of high end lofts, condos, townhouses in the ground or planned in and around downtown. it’s fair to say that almost all the units are being bought by out of staters, but the prices are just over the top, with one loft under contruction going for $900 per square foot. i get the feeling that when the money dries up from california, this whole party is coming to a screeching halt.
I was going to post this is money and metals but it’s relevant here.
yikes.
China’s forex reserves much too big, offer US cheap financing
My #1 biggest fear, bar none…..
But then they’d have to revalue the Yuan….which will make their US Treasury holdings worth much less to them… I wonder whether they ever thought through the kind of bind they have gotten themselves into…
Some popular google topics
As of 3-5-06:
Peak oil 5,490,000
Impeach Bush 3,680,000
Housing Bubble 3,350,000
That’s really surprising NoBubble. The Housing bubble has finally gone mainstream. To paraphrase Mr. Rogers , “can you say panic”?
Considering that the downturn is occuring even before global credit tightening begins - it’s beginning to look like the perfect storm.
I find this whole housing thing to absurd. In actuality a person can build a 3 bedroom home for about 75,000 which is completely off the grid(i.e. solar and turbine, no more electric or gas bill). These homes are based on strawbale technology, which are much stronger than the average stucco chicken wire homes built today. These homes also take approx. 4 weeks to built and look better then the new housing construction. Why do we have people paying 450,000 for a piece of crap when they could built much cheaper and save thousands in the long run????
I am listening..more info pls
If anyone wants to see examples of these homes , there is a great book called OFF THE GRID Modern Homes and Alternative energy. This book was written by Lori Ryker. In my own research I have foundmany modern and comtemporary homes with all the amenities that were built extremely affordable and are made to last. To build one of these homes is not expensive if you want to know exact cost I can post it. I am currently in this industry and would be more then happy to help any one acquire more info.
The biggest problem people have is they want everything now. Most do not want to live remotely either. They want to be close to all the action in the city. I guess there are areas to do this but a lot of areas have hoa and they make you live like a hermit half the time.
You are right, alot of people want evrything yesterday and they are always in a hurry to get it done. What i’m saying is that you dont have to live remotely , in fact many of these homes are starting to be built in Venice beach , which is not remote at all. The average person never takes time to investigate all their options and if they did they would see that there a quite a few. Affordable housing is not a pipedream but realistic if people ever took the time to find out how and why.
If you have a chance, please post a link to an example that is not remote. Thank you.
Straw bale homes resources to get someone started.
http://www.strawhomes.com/
http://www.strawbuilding.org/
If you don’t mind a little new age stuff there is also.
http://www.earthship.org/
Passive solar, recycled materials self-sufficient homes.
I would like more info. My limited research shows that it isn’t possible to live completely off the grid unless you are willing to do without certain amenities (not necessarily a bad idea). Using battery backup is shown to be pretty costly and a maintenance intensive (and apparently potentially dangerous). Windpower isn’t an option where I will build.
I intend to go off grid to the maximum extent possible but I will not be successful convincing my wife to be without certain amenities. My intention is to load up with solar panels and shoot the excess back onto the grid to hopefully balance out the night time usage as well as high energy appliances. Any info that will enlighten me on products or pitfalls would be appreciated.
Auger-Inn:
No problem in CA or if your state has net-metering rules. If you are going to go solar electric that is the only way to go.
I love this idea. Where is there available land in coastal california to do this? We both work and surf here. I did some research on these houses and they truly are efficient and beautiful. I’m wondering if there was land available, if city council would approve such an adventure? I tried to get my parents to build a house like this on their property in Arizona, but they have no vision. Maybe we could all buy some available property together and start a Straw House Community?
I believe these homes will be the future because of their affordability and abundance of material. People will no longer have to work 80 hours a week to make a payment of 3700 a month. Strawbale homes can be built in approx. 4-5 weeks depends on the kind of plaster or cobb you use, which the home an adobe style look. Another option for solar that my company has been looking at is called a solar tower and this can supply energy to approx. 214,00o homes. There are some very interesting things that are beginning to take shape with the housing industry. http://www.solartower.com
I spent many years off the grid in california. It does not bother me at all. I actually love interacting with nature. We have wild turkeys and lots of deer. I actually get to see the turkeys and deer interact sometimes. We have solar, batteries w/ inverter, generator for well and charge batteries. I do forestry management so lumber is usually easy to find. My dad has a sawmill that can cut some very nice beams. I love that lifestyle but also like the city. I think i’m very fortunate to have lived both ways.It is about an hour drive into the main city. Whenever I want to get away and be away from it all I go there. Solar and alternative energy are the future of this country!
I have that book and love it
If anyone is interested have alook at this site http://www.enviromission.com this is one way you could built communitites and supply them with enough energy to function as normal housing communities on the grid do.
accroyer, Does the company you work for provide services such as locating buildable land, permits, etc…? I would like more information. If it is doable, I’m all for it.
There are buildable permits in Arizona,New Mexico, Colorado,Utah,Oregon,Washington,Montana,California
I am aware of some residential zoned land available in Huntington Beach. It is only 2800 sq ft. I wonder if that would be a large enough space? Do you have a company web-page?
2800 square feet is plenty of space, company website is http://www.accroyerdesigns.com or you can email me at emilebigranger@yahoo.com. Keep in mind i’m not on here by any means to advertise, but when people are looking to purchase affordable housing with a conscious, then I am more then happy to show or build for them.
No wonder people are disenchanted with the mainstream media these days.
Let’s say I’m a reporter, and a builder suddenly changes their tune from “let’s build all we can to meet demand” to “it’s too expensive to build.” Isn’t the very first question to ask: “How much did you cost increase? What specific cost elements?” Second question: “Have you considered raising your prices?” Third question: “Did you anticipate your demand to be so price-elastic?” (I.e. Don’t tell me you didn’t know they were all speculators, you fool.)
Worse, why aren’t more people calling the media out? Clearly, the pieces in this article are fluff.
To top it all off, the media’s sloppiness doesn’t only surface when covering the housing bubble…
“‘What we’re having here isn’t a demand constraint,’ real estate analyst Richard Lee said of the failed projects. ‘The No. 1 problem is construction costs and lack of skilled labor.’”
Only the supply side matters in the imaginations of these idiots. Never mind that flipper demand was phantom demand …
“Almost 8,000 condos and lofts are planned or under construction across metropolitan Phoenix, more than what went up in the Valley in all of the past 10 years. Many investors who bought units in the first wave of high-rises now are trying to sell.Last year, more than 10,000 apartments across metropolitan Phoenix were turned into condos or bought by investors.”
This is what I call a planned crash…
Yeah, “new urban lifestyle”…whatever. When I was looking to buy my condo in Irvine a few years ago they had one mid-rise condo already built near the John Wayne Airport (called the Metropolitan I believe). They always had a bunch of listings in there because those type of condos weren’t in high demand. I remember the realtor telling me “you don’t want those” at the time. Now they have all these new condo projects going on in the IBC (Irvine Business Complex) and these units are much more expensive. I think when things cool off this lifestyle of urban living will be a thing of the past. Maybe not in areas like downtown LA but certainly in Irvine. If they were uncool 5 yrs ago they can be uncool again!
I don’t know how cool it will be in LA either. There is a new project finishing soon downtown called The Axis adjacent to Union Station, at the intersection of Alameda and Cesar Chavez (what Sunset Blvd becomes downtown). I pass by it every day on my way to work. There is graffiti all around the area, there are homeless who live at the area bus stops (and use them as urinals), and you can often see people walking down the street in their white jumpers who were just released from the nearby prison in the afternoons and evenings. 640 sq ft Studios start in the $400s. Sign me up.
That’s scary. Yeah, it will take time to clean up that area but I think long-term those condos can be a good investment. At least better than in Irvine, IMO. Especially if more high-paying jobs migrate to the downtown area. Some people will put up with the grittiness just so they don’t have to get on a clogged freeway. It’s definitely an area in transition though.
I went to my favorite Kabob place on Friday and noticed a condo developer had paid to advertise on the drink coasters. For a while condos were selling out in days not they need to adverstise and in northern virginia there are 14000 more in the pipeline.
“Robert Sheridan, a veteran national condo converter who is developing a project in Scottsdale and also leading a fund to buy failed condo-conversion projects on the East and West Coasts, said the conversion craze is over.”
I personally will not consider the conversion craze to have ended until the last sign twirler stops twirling…
It ain’t over till the fat twirler sings!
The rise and fall of the sign twirler
The only good thing about all these condos is once they fall in price they will make decent housing for the elderly who don’t go out much and need to be close to medical care, shopping, etc. The ones that have services within walking distance and have public transporation near by will do OK. My Grandmother lived in a rent controlled retirement tower right until the end. For those that refuse nursing homes these will be a godsend.
Good pint Mo and it may have some merit…
yeah, and they can get mugged and raped for no extra cost!
And the elderly people purchasing them will be able to get them for a fraction of the cost that the original FBer paid. God bless America.
The Donald speaketh with forked tongue
http://tinyurl.com/qgtr6
I can see it now. Glut of 50,000 units in Miami, but throw in a plasma TV, and that should solve the problem. . .
Yeah, maybe that, and throw in some of the crack they’re smoking.
“By most accounts, the skyrocketing costs of materials and labor have toppled some high-profile luxury condominium projects…”
“Almost 8,000 condos and lofts are planned or under construction across metropolitan Phoenix, more than what went up in the Valley in all of the past 10 years.”
“Many investors who bought units in the first wave of high-rises now are trying to sell.”
“Condo developers are now competing against speculators…”
“Some developers also are putting new projects on hold. There are about 6,200 condos for sale, double from a year ago. Already in San Diego, some condo-conversion projects are falling through.”
“In Las Vegas, high-profile high-rise projects that are nearly sold out are being taken off the drawing board.”
“Real estate agents say some investors are now beginning to walk away, or are considering doing so, from small deposits on high-rise and condo-conversion projects in the Valley.”
“Most projects without ‘real buyers’ and government approvals aren’t getting financing: Lenders are clamping down on condo deals because of the many speculative projects and gluts in some areas.”
******************************************************************************************************************
I am speechless. What words does one use to adequately describe the absolute disaster that is developing here?
How many of these condo developments are going to be see through? How many partially finished towers are going to be staring at us for years? What will 80% of the owners do to fill the gap for the 20% empty units? Is it as simple as just paying a higher HOA? And the empty store fronts on the ground level because there aren’t enough condos occupied to support the businesses?
What if only 50% of the units are occupied?
Obviously, lots of empty condos will be rented and that should put severe pressure on rental rates as the supply soars. What do you call that….deflation?
It is utterly impossible to imagine just how bad this will be. But it will be historic!
Fasten your seat belts!
Orange County, CA only completed high rise condo project, The Marquee Park Place on Michelson in Irvine is interesting. Developer started closing sales in Jan 2006 and has probably closed 150or 175 ior so of the 232 units in the development. Of the units that have closed, 46 are back on the market and available for sale in the MLS and 21 are available for rent. Most appear to be vacant. Original prices were 600K to over 1,000,000.
Carrying costs can get challenging, especially with vacant units and $1,100 monthly association fee.
Will be interesting to see how this plays out with so many sellers trying to flip (46 for sale) at the same time.
$1,100 a month in HOA fees? On top of $6K a year in property tax (at a minimum) and whatever madhatter loan the buyer is paying interest on? Those loans should be called Logan’s Run loans because when those interest rates reset, the owners will be running…where to? I don’t know….
How can this not get ugly?
For a condo to be attractive, it has to be in a real urban area, and cheaper (though smaller) than a comparable home.
One good thing to come out of the bubble has been the revival of many urban areas of the country. I hope that this revival will not be undermined by 50% profit margins followed by a collapse. Then again, home prices, expecially on the exurban fringe, may collapse more.
It would be nice if condos in NYC were selling at reasonable prices psf when my kids are going and I’m ready to sell my home.