Downturn impacts landscape for condos
Real estate» Despite price cuts, financing tough to come by for developers, buyers.
By Leslie Mitchell
The Salt Lake Tribune
(Courtesy of Gardiner Properties, LLC.)
Two years into the housing downturn, the condo market in the Salt Lake area is starting to take a real beating.
Sales in Salt Lake County are down a sharp 37 percent in the first quarter, compared with a year ago. Median selling prices are down 8 percent over the same time period, a much larger drop than the just under 1 percent decline in single-family homes.
From Sugar House to downtown and beyond, many condo projects are on hold. Others are moving forward, but their future is uncertain.
This rendering shows that the Urbana on Eleventh condos in Sugar House will feature some two-story units. Prices will range from just under $200,000 to more than $500,000, with the 29 units ranging in size from 750 to 1,762 square feet. (Courtesy of Gardiner Properties LLC)
(Courtesy of Gardiner Properties, LLC.)
Condo markets often suffer more in downturns, but this time around could be worse because of the added scrutiny lenders are giving to such projects.
"Banks aren't crazy about financing projects, and they're even less crazy about giving people money to buy them," said Rick Howa of Howa Capital, who has put a venture west of the State Capitol on hold because of the challenging economy.
Condos historically are considered a higher-risk investment than single-family homes. During downturns, they tend to lose value more quickly.
But Salt Lake City mortgage lender Al Bingham said the subprime lending debacle -- and the huge losses that followed -- have lenders taking an especially hard look at this segment of the market.
"Condos are considered really 'high risk right now,' " he said.
That doesn't mean sales have dried up completely -- creative incentives and distinctive products are still drawing buyers -- but the landscape for sellers certainly is more difficult to navigate.
Lenders already have tightened credit standards across the board, but condo buyers are being put through more steps during the loan qualification process, he said, and in a number of cases are being required to put up more of a down payment than they would for a single-family home.
In a condo development, buyers own the space but share ownership of the building with other owners.
Salt Lake City Realtor Jillinda Bowers said lending challenges have made it more difficult for anyone selling a condo.
"For sellers, it's taking them a little longer to sell, and they're having to lower their price," she said. "We have an overabundance of condos and town homes, compared with the percentage of buyers for them."
Developers of The Metro at 350 S. 200 East have 18 units left to sell in the 121-unit project, which was completed in July 2008.
Andrew Pratt, director of sales and marketing, is offering concessions of $12,000 to $18,000 on the remaining units. That's in addition to the $6,000 state grant available to buyers on new construction.
He said he's noticed how the tighter lending standards have played out. Some earlier buyers in his development put down only 3 percent to 5 percent, but "now 10 percent is the new minimum, and that's for premium borrowers. If you've got anything less than perfect [credit] scores, they're asking for 15 percent to 20 percent down."
Despite the environment, "our phones still ring, and we're still showing units and still selling some ... but even with the low mortgage rates, people are still very much on the fence."
Developer John Gardiner knows the condo market isn't as good as it was a couple of years ago, yet he's proceeding on a 29-unit project called Urbana on 1100 East in the Sugar House area of Salt Lake City.
The project, on slightly more than a quarter of an acre, will feature units priced from just under $200,000 to more than $500,000.
He said 13 of the 29 units will average 750 square feet and have an average price of $241,000. Six one-bedroom units will average 980 square feet with an average price of $308,000. Another nine will be two-bedroom or loft units averaging 1,185 square feet with an average price of $388,000. One live/work unit will have 1,762 square feet and be priced at $532,300.
Whether he'll get those prices when the project is completed remains to be seen.
Gardiner's confident the location so near popular Sugar House amenities will work in his favor, as will the prices, if they hold.
But how low do prices need to be to attract buyers? Marmalade Square condos at 650 N. 244 West are priced from about $145,000 to $185,000. Veteran Salt Lake City Realtor Babs De Lay said that price range, and the fact that the project is "FHA approved," has made it extremely attractive.
Approval by the U.S. Federal Housing Administration means buyers generally have to put down less of a down payment.
"They are selling two to three of those units a week," she said.
The LDS Church isn't counting on low prices to sell the condos in its City Creek development downtown.
Across from Temple Square, prices at the Richards Court 10-story towers, which have 90 units, range from $442,000 to more than $2 million. Both of the buildings are set to open next year.
Prices range from about $300,000 to $1.7 million for units in the 20-story Regent. The 150-unit project is one block to the south, at 35 E. 100 South. Unlike Richards Court, however, the Regent will be completed when enough of the units have been pre-sold, said church spokesman Dale Bills.
Given the uncertain economy, "we're encouraged by the interest we've seen" in the condos, Bills said.
Realtors agree that the project's distinctive location and affiliation with the state's predominant religion is a major selling point.
Back in Sugar House, Craig Mecham doesn't have the church's deep pockets or its location for his planned condos near 1100 East and 21st South.
Mecham's project, which also is projected to include offices and shops, is on hold because of an inability to get financing. Yet next to Mecham's property, California-based Red Mountain Retail Group said it still hopes to begin work this summer on its efforts to overhaul old Granite Furniture buildings and create a mixed-use project with about 300 condos.
A bit to the north of those projects, Gardiner remains hopeful -- not only for his project, but for others, as well. "I think over time, as the economy gets better, these other projects will get done, too."
For now, projects such as Markea Court, between 200-300 South on 600 East, remain on hold.
And, developer Howa appears more doubtful about the prospects for condos in his Marmalade development (not affiliated with Marmalade Square). He originally envisioned a fairly upscale, 90-unit condo and town home development as being a key part of his Marmalade project on 300 West between 500 North and 600 North. Offices and retail shops were also a part of the mix.
The latter two components are still in the works. In fact, construction on the first phase of retail development is nearing completion.
But the condos, which would have been priced at about $350,000 to nearly $1 million?
Howa has an agreement with the city to build condos. But he said he can't get financing. Even he could, he doubts whether there would be demand for the units or whether willing buyers could get loans to buy them.
"Everything is moving forward except the condominiums," Howa said. "We're rethinking condos at Marmalade."
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(Courtesy of Gardiner Properties, LLC.)
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