Condo-Reversion Trend Arrives In Phoenix
Some housing bubble reports from Arizona. “The 43 building projects under way in Tempe outnumber the city’s 40 square miles. It’s a building boom coming primarily in the shape of condominiums. Valley-wide, developers may be overly optimistic about how many people want to live in new high-rise and loft condos. More than 8,000 condo units are planned or under construction. Market watchers say less than a quarter of all the planned projects will actually go up.”
“‘It’s our lack of supply that creates the demand that other areas don’t have,’ broker Tom Tokoph said. ‘You can argue five years from now, when all these buildings are in, there will be a glut.’”
“There are no fewer than eight large-scale condo complexes in the works in Tempe’s core. And there are dozens of others, one as large as 742 units, popping up around the outskirts of downtown and on the shores of Tempe Town Lake.”
“Developers are delaying or dumping plans to convert some Phoenix-area apartment complexes into condominiums. A year after they pulled more than 7,000 apartments off the market, condo converters are finding that buyers in many areas are not interested in paying top dollar for a refurbished rental unit.”
“Apartment experts say some developers got carried away in conversion mania, overpaid for buildings and now must run them as rentals rather than selling fast and getting out.”
“The condo-reversion trend has hit in other areas where too many condos were built too quickly. The turn in the Phoenix market demonstrates how quickly trends come and go in the area’s volatile housing business and the inherent hazards for investors.”
“Developers count on selling some of the conversions to people who already lease the apartments. Yet some of these residents find the prices too high. A woman moving out of the Hawthorne Condominiums said when the complex went condo, she rejected the proposed sales price of $230,000.”
“She said she was a former real estate agent in California and was leery of condo conversions. ‘I’ve been on the downside of a market before,’ she said.”
“There is a twist to how conversions are affecting the rental market. Experts say a lot of the buyers were investors who now have dumped them back on the market as rentals. 27,000 apartments have been announced as conversions since 2004 and estimated that half went to investors, with 70 percent in some projects.”
“‘The condo-conversion market has not been driven by the end user, Joe and Betty Home Buyer,’ he said. Reid Butler, a Valley apartment and condo developer, said a lot of the investor units aren’t reselling.”
“‘Many investors bought five to 10 units in a condo-conversion project and need to hold them for a year so they don’t have to pay capital gains,’ Pete TeKampe, an apartment specialist said. ‘So now, they are hiring management firms and renting them.’”
“Terry Feinberg, president of the Arizona Multihousing Association, said some (investors) couldn’t rent them for as much as they need to cover the monthly mortgage payments. He wonders if those condos are headed for foreclosure.”
“Feinberg believes there were too many unsophisticated investors snapping up condos. He compared their behavior to tech investors in the 2000 stock market. ‘Why did so many people lose money in 2000 when the dot-coms crashed?’ he asked. ‘The investor behavior is the same. Some people get in at the end of a trend. They have bad timing.’”
This report was passed over by most of the press:
‘The seasonally adjusted Arizona Business Conditions Index fell 11.9 percent in May, from 67.0 to 59.1, its lowest level since July 2003. The move dropped the index to a point well below the mid-60s range it has occupied for the last 32 months.’
‘The falter in the local economy may be caused by the cooling housing market, which has helped fuel tremendous job growth over the last few years’
And from KB Home:
‘KB said that new-home orders fell to 9,908 in the quarter from 12,290 a year earlier. The biggest plunge was in its Southwest market, consisting of Arizona, Nevada and New Mexico, where orders plummeted 50%. On the West Coast, which includes California, orders declined 20%, while in the Southeast, orders were off 24%.’
The condos near Tempe Town Lake may actually do OK. That’s a great location, right next to ASU, directly on the light rail to downtown PHX, and very near shopping, entertainment, etc. If they do it right, I could see that project attracting not only ASU people but also people who work in downtown PHX or Mesa. They might also attract some older retiree types who want to live in an active area. Downtown Tempe is an interesting demographic mix. Even on weekend nights you see grey heads among all of the partying college students.
Oh yeah, when I am in my 70s I will be keen to live in appartments next to drunken college students. Party on… Isn’t ASU one of the top party schools?
why, yes - it sure is.
Great location, my ass.
Most of these high rise condos are directly under the flight path for Sky Harbor. 2 flights a minute, nearly 24 hours a day only a 1000 feet or so above your million dollar ‘home’ has got to suck.
This is a good point. That flight noise can drive you batty! Plus car traffic there is usually a mess.
This is a good point. That flight noise can drive you batty! Plus car traffic there is usually a mess.
Amazing how quickly we’re seeing all these condo-reversion stories.
I don’t recall seeing any just 1-2 months ago, now we’re seeing them left and right!
wow.
clouseau
If they priced them fairly they might actually sell them. They would actually be decent housing for starter people. I personally don’t like the lifestyle but ownership is what it is.
It’s funny that they waited to avoid being taxed for gains as regular income. But by the time they finally get to sell those properties, there might not be any gains left.
Waiting for the one-year mark to take advantage of long-term gains tax rates! This is JUST LIKE what was happening with some of the payers in the stock market bubble of 2000! Some of ym friends included. Sadly, goleta, you are right: They fail to see that it’s better to pay 25% or 35% tax on a passable profit than to pay 15% tax on… no profit!
No, better yet, they’ll be like so many late-to-the-game stock investors back then who now get to take off a $3,000 deduction every year for the rest of their lives from the hoard of $$$ they lost by being too slow to bail out of a dying market in 2000.
“‘Many investors bought five to 10 units in a condo-conversion project and need to hold them for a year so they don’t have to pay capital gains,’ Pete TeKampe, an apartment specialist said. ‘So now, they are hiring management firms and renting them.’”
There’s some great spin. Yeah, all of these people are sitting on a sinking ship by choice.
new phoenix record
Phoenix
7/20/2005 10748
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Wow, just a few hundred more and we have hit 50K!
There are two or three condo’s conversions on my drive to play golf at Rolling Hills in Tempe. The signs say they are selling for the mid 100’s. Maybe I’ll stop in and get the scoop.
That condo/hotel thing at Chandler Fashion Center has hit some kind of snag according to an article in the Republic a couple of weeks ago. The problem isn’t with the hotel, but with the two upper floors of condos. I don’t remember what the issue was, but probably had something to do with exactly WHO was going to buy condos on top of a hotel overlooking a mall parking lot. The project looks stalled at the moment–that skeleton has been there for a long time. I may try to get a photo of it this weekend to upload to the gallery.
Something to do with the developer having to shell out big $ for permits to finish the upper levels… Since there are not sold, they apparently do not want to shell out the cash.. Also you forgot to add the view on the other side is the 101 and 202 interchange!!….Now that is what I call a million $ view!!! Who are these brain surgeons???…..
The 101/202 interchange is NOTHING compared to the breathtaking view of Best Buy to the north and Target/Costco on the other side.
Talon
I am still planning the Phoenix housing bubble party for July 9th. Anyone in Phoenix who would like to attend can e-mail me at Kbarrett(at)CSKauto.com or kathy.barrett(at)cox.net. Hope you are still planning to attend. How is your cat?
I think that you are all forgetting about the to-die-for view of that dairy on the south east side, about a mile away. With the proper wind direction, you can smell it too.
Here are some of the apartments converting to apartments in the Chandler-Tempe-Mesa area
Crystal Cove 187 Units Just starting Chandler
Lakeview at Ocotillo 272 Units Just starting Chandler
Lakeside Village 232 Units Just starting Chandler
Palm Trails 221 Units Just Starting Chandler
San Tierra 284 Units Started about four months ago Chandler
Lakeshore at Andersen 299 Units Started about six months ago Chandler
Sierra Palms 320 Units Supposed to be converting Chandler
Fairways 352 Units Potential buyers backed out Chandler
Stonegate Village 232 Units Just started Chandler
Riverwalk 240 Units Just started 202 and Van Buren
Red Rock Villas 360 Units Just started 202 and Van Buren
Belaflora 186 Units Just started 202 and Van Buren
Portofino 440 Units Started about eight months ago Ahawatukee
San Simeon 352 Units Just started Ahwatukee
Santa Rosa 112 Units Just started Ahwatukee
San Riva 280 Units Been going on for awhile Ahwatukee
Mountain Canyon 228 Units Been going on for about four months Ahwatukee
Chesapeake 190 Units Garnd opening one week away Tempe
Meridian Corners 660 Units Sales office just opened. Tempe ($125,000 for a 405 square foot studio)
Dobson Bay Club 166 Units Just starting Mesa
Emerald Springs 194 Units Just starting Mesa
Villas at Sunland 71 Units Sales office just opened
This is just for the following area. Central Phoenix and Scottsdale have a whole lot too
Actually apartmenst converting to condos
Plenty of nice, soon-to-be cheap, homes when it’s time to retire
PTF - What is with the inventory numbers? You trying to make a point here? When the fall buying season finally rolls around, and the hordes of international investors arrive in thier private jets, all that inventory will be snapped up and sellers will settle back in for 30-40% YOY price appreciation. Minimum. Maybe 50%!
Fivefold increase - nope, no bubble here.
Love that scroll action… I was hoping for 50K!
Yeah baby! - a couple of Nostradamus types here on this blog called 50K in June ‘06. I guess some posters must have ESP or something.
Thanks for posting the numbers again, ptf. You’ve inspired me to do the same here on Long Island.
50,000 homes for sale! Wow! About 4.5 times last July’s inventory! Phoenix is set up for a major crash!
Here on Long Island, inventory has been skyrocketing as well. Here’s a summary:
03/31/05 15,524
02/19/06 24,691
03/25/06 26,839
04/03/06 27,143
05/10/06 30,089
05/21/06 31,048
05/24/06 31,272
06/05/06 31,622
06/13/06 31,985
06/15/06 32,541
Just the difference between 5/13 and 5/15 is astounding! That’s 556 more houses listed on the MLS in just 2 days!
The hot spring season is over because it takes 3 months minimum to close here. And this is where the high paying jobs are!
A lot of people are relisting their houses as new and slashing asking prices. Only the very low end seems to be holding up, because that’s the only range where anyone will buy!
Several houses in my area have been on the market for over a year now. Many, many for over 6 months.
15 year carryforward and 3 year carryback (I think). Those of you who sold at a profit in ‘04 or ‘05 can shelter some of your gain from your losses until ‘07 or ‘08. Isn’t that peachy? Or if you hold it for 10 years you can probably get even???
“‘Many investors bought five to 10 units in a condo-conversion project and need to hold them for a year so they don’t have to pay capital gains,’
__________________________________________________
I hope they know they can only deduct up to $3,000 per year of capital LOSSES!!
Or they can offset any future capital gains or prior gains.
“Developers count on selling some of the conversions to people who already lease the apartments. Yet some of these residents find the prices too high.”
SOME? How about, every single resident with an ounce of good sense. If you subtract all the tenants who cannot afford the selling prices plus all the tenants who are smart enough to wait for the crash to near bottom, how many do you have left? Any?
Good articles, but I’m disappointed they didn’t use the term “repartment”.
I like the term “Conpartment’ like a Con job with apartment. How do I trademark it.
The Realtor (Tm) would know doubt will advertise them as apartment for the CONnoisseur
ROFL!
I visited Phoenix once. I spent the better part of my trip trying to go from one air conditioned location to another. At one point I was outside and my life revolved around finding garden hoses to drink from to stay alive.
Too hot!
This has probably already been posted but here goes -According to the Drudge Report, Phoenix residents sweat more(up to one quart per hour) than any other residents; Miami residents put up with sweating as well as higher humidity. Boy , just for me, 110 and low humidity, let’s move to Phoenix. Six more days of spring.
Well on the subject of heat, to each his own. I lived over a winter in New Jersey and know cold. But for most of the last 21 years lived in either the California Desert or Arizona Desert. I dislike humidity. I have the body type where I easily sweat, and I basically am more comfortable in Phoenix in the Summer than in Santa Barbara in a warm spell. I’m a native Californian and love the sunshine of the desert. Call me an exception, I don’t care.
p.s. Phoenix is the 5th largest populated city in the United States. If the heat is so bad and unbearable, it would maybe be the 20th largest.
I love the Arizona heat and spend as much time outside as I can. But I grew up in Houston, Texas and New Orleans where heat and humidity are art forms.
I’ll suggets in three years or so that the major colleges and universities in Phoenix and other western cities purchase some of these condos for student housing as price levels will be more than affordable. A good long therm investment for all of the endowments they have . I will solve many student housing problems .
Some remarks by some mortgage/real estate professionals made me wonder what the benchmarks are for a “normal” market. For example, “months of inventory” seems like the most common metric, but, if I understand it correctly, this combines inventory with a sales rate variable, which makes this very difficult to calculate for a non-realtor without access to sales data.
People have also been mentioning the per capita number of houses for sale in a given area, which seems like a useful estimate of real “need” for housing in an area (although I imagine that it will likely differ for “working” communities vs. popular vacation/2nd home spots).
For San Luis Obispo County, there are about 3100 homes listed on a local MLS. This includes SFHs, condos, and mobile homes; it excludes out-of-county listings as well as any listings (e.g. FSBO) not on the MLS. Population of the county is about 250,000. Average number of persons per house is typically between 2.1 and 2.3 per US Census statistics. Thus, we have about one place for sale here for every 80 residents, or around one place for sale for every 30-35 households.
If these were rental vacancy rates, they would be on what I think of as a “normal” rental market (around 3 percent), a little lower than what I like to see as a renter (I have learned that there is a huge difference in renter choice and bargining power between trying to rent in a market with 1-2% vacancy vs. 4-5%). I have no idea, though, what type of “for sale” ratio to population suggests the proverbial “balanced” market. Or are these type of data at all useful in determining this? Any comments from any of the pros out there?
WAITING FOR the 50K in Phoenix now is like counting down the New Year. 10, 9, 8, … ,2,1 Houston - we have launched.
More like “Houston, we have a malfunction”, or whatever the line was from Apollo 13.