Condominiums have a special place in multifamily construction that appeal to a wide range of owners. From a project perspective, they are an attractive option for redevelopment of blighted areas, which helps repurpose all types of existing structures.
A recent study predicted that revenue from the U.S. apartment and condominium construction industry will hit $38.5 billion in 2015, and grow 11% through 2017. That’s 10% below numbers between 2013 to 2015. IBISWorld reported growth slowing for this sector also, but claims there are factors that anticipate strong demand during the next five years. Those factors include the ongoing changes in demographics and increasing relocation to urban centers.
However, apartments and condo construction won’t get spread evenly throughout the country. Topography, land values, and consumer preferences have particular effects on where condominiums get built, and the trend in location is expected to favor the Southeast, West, Mid-Atlantic, and Great Lakes region. The high cost of land in urban areas also encourages the development of properties, which provide multiple income streams and a high occupancy rate. Condominiums fit well into mixed use development. So, for both reasons, large urban areas will attract the majority of condominium projects in the coming years.
The Financing Picture
Another aspect affecting condominium projects is financing. Since the last recession, condo financing has been tight after many banks suffered losses from carrying too much of the construction cost. In Miami for example, it was common for condo developers to leverage 90% of the construction costs.
Today, the workhorses in condo financing are developer’s equity and the deposits buyers put down on units, which can amount to70% cash before closing. In some markets like Florida, New York City, Chicago, and Boston, foreign nationals are actively buying condos. Banks often require foreign nationals to keep large sums in their U.S. bank accounts, and require 40% down payments on real estate. However, sometimes financing isn’t necessary. A National Association of Realtor research study found that 70% of foreign buyers purchased outright with cash.
High End Example
It’s common for condo projects to reuse or reinvigorate old properties like XOCO 325, the condo conversion of an old chocolate factory in lower Manhattan, has taken seven years to get to its current stage of completion where staged units are ready for viewing. There are 21 units on nine floors, with a one-bedroom going for $2.65 million and four bedrooms for $7.65 million.
Unusual Condo Opportunities
While major condo markets seem to favor large projects with high priced units, there are other markets where smaller developments are sought after. In Washington D.C., “boutique” developments are common and sell out quickly. The keys to success include location, thoughtful design, right-sized budget, and the amount of units ranging from 2 to 50. From a financing perspective, local and regional banks continue to show strong interest in condo developments and finance up to 85% for two years depending on the particulars of the project and the developer’s reputation.
Even if you aren’t in one of the major condo markets, you can still find development and construction opportunities. Like those in D.C., there are many places across the country where condo projects are breaking new ground and reinvigorating old sites.
Mixed Use Montana Style
The Old Sawmill District in Missoula, Montana, will feature a 17-unit condo project nestled in with other mixed use development. This is the second set of condos as part of the $200 million redevelopment of an abandoned sawmill site that sits on the Clark Fork River. The earlier set of condos still under construction included ground level retail space, a workforce housing project, a brewpub restaurant, student housing, mixed use retail spaces, and office spaces to round out the development.
Small Town New Jersey
Condominiums are transforming a retail center in Little Falls, New Jersey. The developer is putting in a mixed use project that includes 34 condos and retail shops. This is part of a larger plan to attract residents to the center of town close to retailers. The plans include a section of the development that is strictly catered to pedestrians, which enables them to walk and shop easily without being interrupted by traffic.
Seattle’s Nod to Football
History factors into the Gridiron project in Seattle’s Pioneer Square Historic District. The 107-unit, seven floor project refurbishes a plumbing supply building that’s more than 100 years old. In 2017, units are expected to sell between $800 and $1,000 per square foot. The area has seen much redevelopment including two large apartment complexes and a hotel tower, with plans for an additional office tower down the road.
Nashville Continues to Grow
Apparently, Nashville, Tennessee can’t get enough condos, and city planners are hoping more of the old structures will be converted. The recently completed Twelve Twelve 23-story condo development, sold all 286 units in less than a year for an average square foot price of $500. Ground is set to break on a 71-unit project, while a 180-unit development is expected to be finished in 2018. However, tight bank financing, land prices, and the low supply of laborers are the headwinds.
While the condo market is a nuance of multifamily, it’s still a segment with some of its very own characteristics. Developers and contractors who take the time to understand where condos can work best, will be ready to tackle the next project with ease.