Some Luxury Condo Developers Finally Dropping Prices

Another great story in the Seattle Times today by Eric Pryne: Bellevue Towers, other new condo projects cutting prices

The developer of the region’s tallest luxury condo towers says it’s cutting prices an average of 20 percent in hopes of kick-starting sales.

Only 43 of the 539 units at Bellevue Towers in downtown Bellevue have sold since closings began in January, according to county records. “We’re trying to respond to the marketplace and to what our buyers have been telling us for the last four to six months,” Mark Edlen, a principal with developer Gerding Edlen, said Monday.

Bellevue Towers is one of more than a half-dozen high-rise, high-end condo projects in downtown Bellevue and downtown Seattle that have recently been finished or are nearing completion.

Sales or presales at all have been anemic. Gerding Edlen’s announcement is perhaps the most dramatic response so far to the realities of the new, chillier marketplace.

In Seattle, a spokesman for Vulcan Real Estate said prices of all 136 units at its almost-finished Enso condominium in South Lake Union also are being reduced, but would not say by how much.

Most other developers have been reluctant to cut prices across the board. But some have been quietly settling for far less than list price on a negotiated, case-by-case basis, said James Stroupe, a Windermere Real Estate agent who specializes in condo sales.

You may recall that Bellevue Towers was the subject of some lousy reporting by a different Seattle Times reporter back in February.

Of course, not everyone thinks that price reductions are necessary to move the ridiculous oversupply in the high-end condo market…

At Olive 8 in downtown Seattle, county records indicate only 28 of 229 units have closed. But David Thyer, president of developer R.C. Hedreen, said his firm has no plans to cut prices.

“We’re not inclined to discount the product to generate sales,” he said. “We’re long-term players. We have the support of the hotel [a new Hyatt occupies Olive 8’s bottom 17 floors]. We’re going to wait this out.”

At Escala, another luxury downtown Seattle condo tower near completion, Eric Midby, of Lexas Companies, said the developer has no intention of reducing prices.

For those that don’t remember, Escala is the development that employed the ingenious strategy of raising prices to entice buyers back in April of last year.

(Eric Pryne, Seattle Times, 07.13.2009)


About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.

32 comments:

  1. 1
    Softwarengineer says:

    EXCELLENT PRAGMATIC FACTS TIM

    There’s a book on the Best Sellers List called “Common Sense”; I’d encourage everyone to read it, even us bubble brains need to prime up on it too, lest we get tempted to join the dark side.

    Some folks in the RE industry would sell their soul for a sale, apparently.

  2. 2
    singliac says:

    I forgot about Escala’s raising prices idea. That cracks me up. Did he get an MBA from University of Phoenix online?

  3. 3
    Asela says:

    And yet, the piece includes this rediculous, unattributed piece of pure puffery:

    “Some observers have maintained that sales will pick up soon because savvy buyers will recognize supply is limited. After the current crop, few, if any, additional new condo projects in downtown Seattle or downtown Bellevue are scheduled for completion before 2012.”

    Who are these observers? Isn’t all supply limited? Wouldn’t a savvy buyer realize that value will be set by the differences between the limited supply and limited demand?

  4. 4
    Niz Monkey says:

    News like this gives me a bit of hope that Seattle will once again dwell in the realm of the sane. However, this statement from the April ’08 article referenced above fills me with dread:

    “We look at the underlying fundamentals and see a different picture than those that have been scared off by the national trends,” John Midby said. “It doesn’t match the psychology that’s pervasive in the market, even in Seattle.”

    What psychology might he be speaking of? Sounds to me like developers feel there is an inexhaustible supply of suckers round these parts. That scares me. I am a fan of the overall economic outlook and statistics subscribed to on this website, but I think there is no accounting for the “X” factor that is mass ignorance. There is way too much money focused in too few powerful hands in the Seattle area. I think that will make this downturn long, slow and painful if it happens at all. Rant complete. End of line.

  5. 5
    Acerun says:

    What will happen to these places in a few years when they are less than 50% full?

    I pretty much think that condos are the new mobile home parks. As soon as you buy one you lose significant value, especially in suburban areas. I have been tracking a certain development that my wife liked. They originally sold in 2006 to 2007. There have only been a handful of resales and they range from 15 to 30% below original price. Not to mention the ones I see for rent on craigslist that can not possibly cover mortgage and association fees.

  6. 6
    singliac says:

    By Niz Monkey @ 4:

    …Sounds to me like developers feel there is an inexhaustible supply of suckers round these parts. That scares me. I am a fan of the overall economic outlook and statistics subscribed to on this website, but I think there is no accounting for the “X” factor that is mass ignorance…

    I couldn’t agree more. I’m constantly amazed by how many people still think that I should snatch up a house before I get priced out. One thing I’ve learned about Seattlites since I moved here is that they LOVE bidding wars.

  7. 7
    gameboy says:

    I would seriously consider Bellevue Towers if the price drops another 20%. Even at new prices, I doubt that they will move much.

  8. 8
    The Tim says:

    The thing I don’t get about the appeal of buying a condo in general is that you never finish paying for it. At least when you buy a house, you will eventually pay off the mortgage and all that’s left is taxes and insurance. With a condo, on top of taxes and insurance, you’re also paying monthly association dues in perpetuity.

    If you were to buy the cheapest Bellevue Towers listing on Estately, you’d be paying ~$2,660 a month on principal + interest (generously assuming 20% down), plus ~$890 in property tax (based on 1.78% of a $600k assessed value), plus $817 a month in dues for a total payment (excluding insurance) of $4,367!

    Even once you fully pay off your mortgage, your payment will only decrease by about 60%, still leaving you with a monthly obligation of $1,707. In reality it will be even more than that, since over the life of the loan your property tax will go up and the monthly dues are likely to go up as well. Even if you assume just 2% yearly growth in property taxes and association dues, at the end of your 30-year mortgage, your payment will still be over $3,000.

  9. 9
    gameboy says:

    Owning a home is no walk in the park. I have to replace following over the next 5 years; exterior paint, roof, water heater, etc. Between that and landscaping, you can easily average more than $800/month.

    I grew up in apartments. I like high rise condos. If the listing you linked was a 2 bedroom with a decent view, I would seriously consider buying it.

  10. 10
    Kary L. Krismer says:

    RE: The Tim @ 8 – Well a lot of the association fee is just maintenance expenses–replacing a roof for example. And your share of something like that would likely be less than your having to re-roof an entire house.

    The problem is you don’t control the timing or the decisions regarding those items (I’d highly recommend becoming part of the board), and your finances are tied up with those of others (which is something that will probably play out more in the next couple of years than any other time in our history–at least locally).

    There are some very nice condo complexes that I’ve seen. But there are also others that are horrible. I wrote a piece on the latter a few months ago: http://blog.seattlepi.com/realestate/archives/152734.asp (Don’t Let Your Condo Complex Turn Into a Dump).

  11. 11
    Kary L. Krismer says:

    RE: gameboy @ 9 – At my first condo I replaced the carpet and installed a shower door. Oh, I painted a few times too.

    In contrast, with a house anytime you go to Lowes you can end up with a $300 bill–especially stuff for the yard. Of course, most of that is optional.

  12. 12
    Jillayne says:

    The Tim,

    You never stop paying for a house either. I have been a condo owner in the past and a homeowner now and it’s always something. We could create a list a mile long.

  13. 13
    Darby Blake says:

    I see the market for condos, homes, apartments, all real estate as a falling knife at the moment. There is a large shadow inventory on the bank’s books, wages are falling, unemployment rising, it’s a brave new world people. My guess is we are in for a Japan style long drawn out grind downward. On the bright side since we (the US) are fundamentally different from Japan, I predict our “long” decline won’t be 15+ years like Japan’s has been but more like 5 years.

    That’s my thought for the day,

    Darby

  14. 14
    Redmondjp says:

    By Jillayne @ 12:

    The Tim,

    You never stop paying for a house either. I have been a condo owner in the past and a homeowner now and it’s always something. We could create a list a mile long.

    See Kary’s comments (#10) above. KEY difference is one of control. I own my house (well, owe less than $75K on it now), and I’m looking forward to the day when I “only” have to pay the fixed monthly cost of KC property taxes (my “rent”, if you will). If I decide that I can live with the 1970s popcorn ceilings, or the single-pane aluminum windows, then it doesn’t cost me a cent to “fix” these items. I have full control on when and how much I choose to spend. Not so much in a condo unit. I know of one person who lives in a condo in Redmond that was forced into moving out for several months while major exterior and roofing repairs were done that resulted in a mandatory $100K+ assessment PER UNIT! Ouch! No thank you . . .

    On my own home, I chose to “extend” the life of the original roof by several years, with a few hours’ worth of my time and two 5-gallon buckets of black goo from Home Despot (not that I recommend doing this, BTW!). But the point being, it was my own choice and I happen to like that freedom.

  15. 15
    Mark says:

    I looked deeply into the Lumen financials prior to the auction. For Lumen, the professional Property Management + Concierge + Prof Expenses (lawyers and such) totaled 424K per year. For either of the three townhouses M214-M216 at about 1260 sf (and $800-816 total dues/mo), this amounts to about $550/mo (the rest covers the maintenance, cable, internet, hot water, gas for cooking, insurance, landscaping, etc.). That is $550 /mo that you avoid when you are your own manager and concierge for your home. You also have the option to do your own landscape maintenance, etc. for further savings. It all comes down to what you value, and as someone mentioned, control.

    I also saw some red flags in the Lumen financials, and heard rumors that the current $0.63/sf monthly dues are going up. to maybe $0.63/sf next year. The concept of large special assessments also looms large – but that may be for smaller, poorly-managed complexes.

  16. 16
    Mark says:

    Correction – dues going up to $0.66/sf next year.

  17. 17
    Lake Hills Landlord says:

    RE: Darby Blake @ 13

    I’m curious as to what you think the fundamental differences between the U.S. and Japan are and why you think it will result in a 5 year downturn instead of a 15 year downturn.

    I do agree there are differences (e.g. U.S. has little manufacturing, exports, or savings), but they aren’t very positive ones and in the key area of how we are handling the credit bubble collapse, we seem to be following exactly in Japan’s footsteps (i.e. paper over each crisis one at a time so that investors won’t know what will blow up next).

  18. 18
    Esol Esek says:

    Sure, maybe houses and condos even out in the monthly fee dept, but I dont HAVE to fix everything on a house, and I dont have to worry about noisy neighbors (at least right above my head) or through paper thin walls. As a person who uses the space of a house for things like building and studios and storage, there is no contest. Plus I get my own yard that isnt five foot wide. The Escala is a great-looking building in a great location with huge balconies. That would be worth owning, but not at the prices they want. Ownership isn’t really ownership when you’re tethered to a large gang of others with speculative agendas. Buy a hotel room when you want to stay downtown. I cant believe that developers would ask as much for a downtown condo in Bellevue of all places (the trader vics shut down, OH NO) when for 4-5k a month you could literally be living on the lake. That is just rank greed, and I hope they all cry their way into the poorhouse.

  19. 19
    MacAttack says:

    ” I pretty much think that condos are the new mobile home parks. As soon as you buy one you lose significant value, especially in suburban areas. I have been tracking a certain development that my wife liked. They originally sold in 2006 to 2007. There have only been a handful of resales and they range from 15 to 30% below original price.”

    Good call, that. Those of us who’ve been around a while (most of us, probably) will remember when condos appreciated LAST, and were first to decline. Many years ago when I was in the market, a condo was all we could afford, but we went to buy it while holding our noses (and actually ended up moving to a lower-cost area, instead).

  20. 20
    tomtom says:

    By Esol Esek @ 18:

    Ownership isn’t really ownership when you’re tethered to a large gang of others with speculative agendas.

    Also known as the city, state, and federal governments.

  21. 21
    wreckingbull says:

    RE: tomtom @ 20 – A good reason to buy way less home than you can afford, but enough home to be warm, dry, and safe. Taxes are going to go through the roof in the next decade. Small house = small(er) tax bill.

  22. 22
    Sniggy says:

    By Esol Esek @ 18:

    Bellevue of all places (the trader vics shut down, OH NO) when for 4-5k a month you could literally be living on the lake. That is just rank greed, and I hope they all cry their way into the poorhouse.


    Where can you live on the lake ( Washinton for $4-5K a month besides maybe the southend near boeing? It’s really loud on the southend of the lake.

  23. 23
    mukoh says:

    RE: wreckingbull @ 21 – Assessments are coming down 10-15% at the moment on the new notices that I have seen. Don’t see them going up really in many places.

  24. 24
    wreckingbull says:

    RE: mukoh @ 23 – Re-read my two-sentence comment if you have the time. This is a long-term prediction. Take a look at our state and county budgets and see the writing on the wall.

  25. 25
    Kary L. Krismer says:

    RE: mukoh @ 23 – Assessments can go down and taxes go up. And your assessment can go up without your taxes going up. The assessment only determines your relative share of the tax burden.

  26. 26
    gameboy says:

    Personally, I like being able to walk to restaurants and shops. And if I really wanted to, I can even walk to work if I lived Bellevue downtown. Add great school district on top of that and it is a very attractive proposition for me.

    The best thing about high rise condo is that you don’t get much noise from above or below, most of the noise is from the same floor.

  27. 27
    voight-kampff says:

    I have always owned/lived in downtown condos.
    I think many here see condos as the cheap version of a house( which there are plenty of those ). I choose highrise condos simply because you cant buy a house downtown. I dont own a car and dont want to, I walk ,work, eat live downntown and love it. If some one builds houses on the few parking lots that are left, maybe Ill consider a house :-)

    oh,
    I owned/lived in the seaboard building condos downtown at 4th and pike, and the construction was incredibly robust ( better than most houses ive seen), I never heard a single noise or neighbor…ever.

  28. 28
    David Losh says:

    RE: gameboy @ 26RE: voight-kampff @ 27

    I agree that a concrete and steel building down town is an excellent purchase. Here in Seattle you could never count on appreciation, but many people live in a unit for life or after retirement.

  29. 29
    gameboy says:

    It looks like we have a new established comp for Bellevue high rise!

    http://www.johnlscott.com/propertydetail.aspx?GroupID=202461955&ListingID=32350279

    This condo is in Lincoln Square, which is still the best condo in downtown Bellevue. This was a plush unit located on the 33rd floor with a SE view (Mt. Rainier). This is a better condo than 99% of what is available out there and it just sold for $880,000, which comes out to be about $488/sqft.

    That says that most of the units in Bellevue Towers is still grossly overpriced and needs to come down 30% to 40%.

  30. 30

    […] buyers waiting for price drops were “reading the local market wrong.” Held the line through 2009, but were finally smacked with a clue-by-four in 2010 and decided to join the rest of us in […]

  31. 31
  32. 32

    […] flashback comes from… just over a year ago. July 2009: Photo by Flickr user […]

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