High-end condos near top?
By Alan J. Heavens<br />Inquirer Real Estate Writer<br />Thinking about a condo in Center City?<br /><br />So are a lot of other people. Buyers are scooping up available move-in-ready units going for $250,000 to $750,000 each, observers of the downtown real estate market say.<br />”Our office had as many sales [the week of July 31-Aug. 4] as in a week during the hottest part of the market,” said Joanne Davidow, manager of Prudential Fox & Roach’s Rittenhouse office. Most were for $350,000 to $750,000 and were sales of already-built condos.<br />But there’s trouble ahead, too, industry observers say. Rising construction costs and softening demand could deep-six many of the 2,500 condo units still in the development pipeline – especially at the luxury end of the market, where many experts see an oversupply.<br />”For those proposing building units, it is clearly time to be cautious as… it is becoming a buyers’ market,” said Joel L. Naroff, chief economist at Commerce Bank.<br /><br />”Too many developers… want to build luxury from the ground up, and there’s a limit to the market,” said Jon Orens of Orens Bros. Real Estate, which is converting 2200 Arch St. to mid-price condos.<br /><br />Units in that $250,000-$750,000 mid-price range helped propel Center City and adjacent neighborhoods in the first six months of 2006, keeping them just ahead of the real estate slowdown.<br /><br />This, despite the fact that the number of properties (townhouses and detached homes, as well as condos) available for sale in those neighborhoods almost doubled over the last year, and the number of days that homes stayed on the market increased by two weeks, to 34 days, according to Prudential Fox & Roach’s HomExpert Market Report for January to June.<br />The median home sale price in Center City rose 5.1 percent, to $340,000, and sales volume increased 10.2 percent over the same period in 2005, says the HomExpert report, based on Trend Multiple Listing Service data on existing-home sales.<br /><br />Thus far, sales data for 2006 bear out industry concerns about the luxury-condo market.<br />According to the HomExpert report, just eight more existing homes priced at $1 million or more sold in the first half of this year versus the same period in 2005 – 48 homes (17 condos) compared with 40 homes (13 condos) – for an increase of 20 percent, even though the number of high-end homes for sale increased almost 60 percent (185 versus 116 in 2005).<br />HomExpert spokesman James Angstadt said it was difficult to pinpoint how long it took for those homes to sell.<br /><br />”Many Realtors take a million-dollar property on and off the MLS database a few times to make it appear like a fresh listing,” Angstadt said. “In turn, this causes the days-on-market number to be inaccurate.”<br />Rumors are rife about condo projects or plans that have been shelved. Only one – Old City 205 – has been officially canceled. But veteran downtown developers report being approached to take over projects.<br /><br />”Most developers are loath to ever admit they’re going to cancel a project,” said Kevin Gillen, an economist at the University of Pennsylvania’s Wharton School who tracks real estate sales and trends. “So they constantly talk about ‘how things are moving forward behind the scenes,’ when in fact they’re just waiting to see how the market shakes out before deciding whether… to break ground.”<br /><br />But it seems that buyers may not be as patient.<br /><br />”Buyers are saying, ‘I can’t wait five years. I could be dead,’ ” said Allan Domb of Allan Domb Real Estate, who has been contacted by developers about taking over their projects.<br />”Some buyers with deposits on units that were scheduled for completion two or three years from now shifted to luxury rental buildings that are being converted” to condos – such as Dockside (Penn’s Landing) and the Phoenix (1600 Arch St.), Domb said.<br />Lower-price condos, especially those already built, are moving fast, the numbers show.<br />”My sales data show that midlevel projects targeted at first-time buyers in the $150,000-to-$250,000 price range have been moving quite briskly,” Gillen said.<br /><strong></strong><br /><strong><a href=”http://www.fredglick.com”>Fred Glick, president of USLoans Mortgage in Old City</a></strong>, said he’s involved with a developer who is building an eight-condo project at 22d and Pine Streets. “We sold five in the first two weeks, at prices ranging from the low $200,000s to the low $300,000s.”<br />Anne H. Dormeier, a professional in her 20s, said she bought a mid-price condo “because my apartment lease was coming up and I wanted to use my monthly payments to build equity rather than another year of rent.”<br /><br />Dormeier looked at both finished and unfinished units and decided to put in some sweat equity, “which enabled me to get more square footage than I would have been able to afford had the unit been totally rehabbed when I bought it.”<br />But the mid-price market may have a bottom, said Realtor Mark Wade, who sold Dormeier her condo in the spring.<br /><br />”The interchangeability of a dozen new condo projects here in Center City has a lot of sellers going after the same group of buyers,” Wade said. “While I think that this is the best pool of buyers to target, there’s a limit to that pool.”<br /><br />He and others believe that the market will absorb these units eventually but that sellers are going to have to be open to some “reactionary pricing.”<br /><br />As for the high-end, high-rise condo market, observers of the downtown scene say it hasn’t tanked yet. Davidow said her office recently sold two units at the 31-story Symphony House at Broad and Catharine Streets for more than $1 million each.<br /><br />Though some city experts believe that fewer than half the condo projects proposed will be built, many continue to chug along to completion. Isle of Capri Associates is about to open the first two high-rises at Waterfront Towers on Delaware Avenue. All 305 units in those towers, called Regatta and Peninsula, are under agreement, said spokeswoman Karen Brudele. Of the 663 units in the three unbuilt towers, 355 either are under agreement or reserved, she said.<br />Developer Carl Dranoff is launching a low-rise, mid-price condo project a few blocks south of his luxury Symphony House units.<br /><br />”In this market, you need to offer diverse product,” said Dranoff, who also has been contacted by developers with condo projects they no longer want.<br /><br />Some young professionals with not-so-deep pockets are shifting attention to the high-end rental market, which Domb calls “very hot” right now.<br /><br />Chalk that up to a cooling market overall, said National Association of Realtors economist Lawrence Yun: “The current psychology… is pushing a lot of potential buyers to the sidelines to wait to see what happens.”<br /><br />Center City’s condo boom has reduced the number of high-end rental units so much, Dranoff said, that if you want an apartment at his Left Bank in University City, “you’re now looking at January.”<br /><br />Last year, Domb said, he had 55 high-end rentals available; this year, 13. And he says he’s as much to blame as anyone else: “Investors who had held on to condos and rented them out since the 1980s gave them to me to sell over the last three years.”