Repartmenting Around Seattle

Looks like the repartment trend has picked up enough steam in Seattle to catch the attention of the press. Specifically, the Sunday Times yesterday featured an article titled “Re-apartments” blooming.

The newest trend in the Seattle rental market is a “re-apartment” — an apartment that was converted to a condo and is now being converted back to a rental.

Also called a “conversion-conversion,” the “re-apartment” trend is just starting to hit the local market as condo owners in some areas struggle to sell during the housing slowdown.

“The market wasn’t strong enough or the product viable enough to allow them to sell enough of the condos to make it work,” said Tom Cain, a partner with Apartment Insights Washington, which each quarter surveys 150,000 apartment units across the region.

An example of the re-apartment trend is the 153-unit Landing at Angle Lake in SeaTac, which was offered up as condos by San Diego-based developer Pacifica Companies in the second quarter of last year.

By the last quarter of 2007, all 153 units were back on the market as rentals, according to Apartment Insights Washington. Pacifica did not return a call for comment.

Kirkland-based developer Mosaic snapped up three apartment buildings to convert into condos last year. After converting a 62-unit building and a 111-unit building in West Seattle, the company decided in December to revert them to rentals for the foreseeable future, said co-owner Dave Kirzinger. The third building, a 239-unit complex in Federal Way, hadn’t been changed into condos yet when the decision was made.

The reason was simple: condo sales are slow.

Hmm. But I thought that the condo market was still hot, hot, hot. What about the “strong condominium price growth” this very paper was telling us about just last month? Why wouldn’t every developer in the country want to get a piece of this action? How odd.

In related news, it turns out that the Lock Vista apartments in Ballard (which have been mentioned a few times here before) won’t be converting to condos after all.

The Lock Vista Apartments in Ballard will not be converted into condos — at least for now — owners told tenants Friday.

The affordable-housing complex in Ballard was slated to be sold to a condo-developer this year, but the sale fell through when the buyer was unable to meet its end of the deal, according to a statement by Dominion Real Estate, which manages the property.

That is excellent news for the residents there.

(Kirsten Grind, Seattle Times, 02.03.2008)
(Amy Rolph, Seattle P-I, 02.01.2008)

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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. Tim also hosts the weekly improv comedy sci-fi podcast Dispatches from the Multiverse.

27 comments:

  1. 1
    deejayoh says:

    The interesting thing here is the effect that all this buying and selling has had on vacancy rates/availabilty of units. If you look at the census data from 2000 to 2006, you’d see that the “occupancy rate” of all housing units has declined from 95.6% to 91.8%. That’s 3.8% of all units. At the same time, the % of owner occupied units has increased from 48.4% to 51.9% – or 3.5%.

    I think what drove much of the decrease in occupancy was rental units being purchased for conversion. They are off the market for , 12 or even 18 months while being “rehabbed”.

    What you have in the middle is the number of available rentals being squeezed. Rent’s had stubbornly remained low until last year – when they shot back up to where one would expect them to be based on income growth.

    Given the weakness in the resale market, I expect you’ll see many of these units coming back onto the market as rentals/failed flips soon, and reversion to mean on the % owner occupied/occupied units.

  2. 2
    Dave0 says:

    Hmm. But I thought that the condo market was still hot, hot, hot. What about the “strong condominium price growth” this very paper was telling us about just last month?

    Simple, the strong condo growth story was written by Elizabeth Rhodes, while this story was not. The Seattle Times should seriously look at dumping Rhodes in my opinion. She is such a blatant example of biased reporting.

  3. 3

    If anything in the Seattle area has been obscenely overbuilt, it has been condos and townhomes, and there are quite a few condo projects still under construction…In a real estate class investment class i took about 9 months ago, the belief then was that living in a condo was the ‘new paradigm’, that people no longer wanted yards, that condos were where it’s at. I figured that i was just an old fashioned freak, liking my little house with a big yard.

  4. 4
    AndySeattle says:

    As a victim of a conversion (wouldn’t want to own that unit, especially at that price!) I am glad to see this trend. I had a few friends that also had their buildings converted and they bought… Now they have second thoughts.

    To Ira’s point, I think I too must be an old fashioned freak as the idea of a little house (even with a little yard) sounds much better than a condo. The idea of high HOA dues makes me want to puke.

    How much more home could you buy for ~$250 per month? Especially at 5.5%?

  5. 5
    NotaBull says:

    “I figured that i was just an old fashioned freak, liking my little house with a big yard.”

    I’m looking to buy right now (well, “soon”) and I’m only looking at places with 0.25 acres or more and some privacy (trees, etc). I cannot stand sharing any common walls/floors with anyone and love my peace and quiet.

    Condo/townhouse living is not for everyone…

  6. 6
    Erik says:

    I’m not a big condo booster either, but I think that they are a viable option for some.

    Actually, maybe I should say could have been a viable option for some. While many of the shortcomings of condos are inherent in the basic concept, I think that execution has been a major shortcoming, at least locally. Why so many studios and one-bedroom units? Without the bubble fever, who could consider signing a 30-year obligation to live in a small space with little or no outdoor area and one (or no) bedroom? Yes, I know that the average buyer doesn’t live one place for 30 years, but the obligation is still there (at leastif you have a sense of integrity and won’t just walk out on debts).

    Buying real estate is always going to limit one’s flexibility to some extent (such as making moving for a job more difficult) but even a small house at least offers a second bedroom and maybe a garage. What is the owner of a 500 or 600 square foot condo supposed to do if (s)he gets married or wants to live with someone else? What if they have a kid? Will they make the toddler live in the coat closet? If 2-br units with usable decks, storage lockers, etc were the norm then at least there would be a little room to breathe and grow, while still allowing for much higher residential densities than detached SFRs.

    So why do they build so many tiny units? “Affordability”, I guess. But affordability pretty much went out the window with the real estate craze. It’s not just absolute prices that are ridiculous, it’s also prices relative to other options. Larger units exist but they seem to cost very nearly as much as houses of equivalent size. Even the 1BR units seem to be offered at a much lower discount from house prices than I would have imagined possible 5 or 6 years ago. I just don’t get it.

  7. 7
    nitsuj says:

    “Given the weakness in the resale market, I expect you’ll see many of these units coming back onto the market as rentals/failed flips soon, and reversion to mean on the % owner occupied/occupied units.”

    Many of those are on the market….too bad they are trying to rent them out at a rate that covers their full mortgage (which I’m assuming is 0 down IO given some of the rents I’ve seen on CL)

    “the belief then was that living in a condo was the ‘new paradigm’”

    Kind of like dot-com companies circa-1997. Losing money was the new paradigm. If I sell furniture below my cost and offer free shipping I’ll be hugely successful! “But how will you make money?” “We’ll scale it up!”

    Umm…..

  8. 8
    Jess-Pumpkin says:

    I’m surprised no one has mentioned the main article that accompanied this “re-apartment” piece in yesterday’s Times (the “re-apartment” was an inset box):

    http://seattletimes.nwsource.com/html/realestate/2004159180_rentals03.html

    I’m not bringing this up to restart the argument of “buying vs. renting” — I just find it curious that the inset box is highlighted but the main article was not mentioned.

    Not a realtor, not a landlord, not a bitter anything except bitter renter/wanna-be buyer.

  9. 9
    The Tim says:

    Jess, there’s no conspiracy here to ignore the rental article. I’ve got Google news alerts set up, and the “re-apartment” one showed up in my inbox, while the rents one didn’t. However, I did see it yesterday when Angie pointed it out in the comments. I just didn’t see what was worth rehashing, when I’ve covered the rising rents thing fairly well already:

    Rents increasing 8% in 2007 was entirely expected, and predicted in my July post above. If they continue shooting up faster than 5-6% later this year, then we’ll have something interesting to talk about.

    That’s my two cents, anyway.

  10. 10
    Jess-Pumpkin says:

    Thanks Tim, I’m not much into conspiracies, either.

  11. 11
    Cougar says:

    I spoke with my landlord yesterday and he said due to the housing market along with the increase of jobs at Microsoft it is not difficult to rent units. We had two vacancies filled within days, this is in downtown Redmond. Also the apartment conversions to condo here have and are still selling for top dollar. Pricing varies 225K-275K for one bedroom, 300K-500K for two bedrooms. Have you seen the cranes (6!) on one construction site for Microsoft off 520?

  12. 12
    Ballard Boy says:

    I rent a 900sf sfh in Ballard and my out of town LL has been eager to raise my rent annually. I will be using the rent-o-meter when my lease comes due this year! I am sick of his saying he is under pricing!

  13. 13
    vboring says:

    i like the idea of condos. well, put it this way, if i had to choose between an hour long commute each way and a condo, i would choose the condo. given that i was interested in buying and could only get a $300k loan and didn’t want to live in a place that should be torn down, those would be my choices.

    that being said, most of the condos in seattle are trash and i would never buy one. most of them are stick-built instead of concrete and steel and have terrible noise problems.

    the new $500-600k condos in Ballard are concrete on the ground floor and stick-built the rest of the way up. this ensures they’ll have higher maintenance costs and more noise problems.

  14. 14
    Joel says:

    The apartment complex we just moved out of historically has always had a waiting list to get in, but just after we moved out they got a few vacancies that they haven’t filled in a few months.

  15. 15
    deejayoh says:

    Hey Tim – Here’s another one to add to the list! It looks like Domaine – the Condo development next to Canlis on Au-Roar-A is going to be apartments instead

    Just a week after dumping Expo 62 (Seattle PI article on it for a different spin) The DJC reports that Intracorp is now trying to dump the 91 unit and ill situated Domaine. From the broker’s site:

    Moran & Company is pleased to announce that it has been retained as the exclusive listing agent for the sale of Lake Union View Apartments, a 91-unit pre-sale apartment community located in Seattle’s downtown/Lake Union.

    From urbanlivn.com

  16. 16
    rose-colored-coolaid says:

    Does anyone know what the total cost of repartmenting is? IE, are the owners coming out pretty even (cost of upgrades offset by increased rent), or are they having their breakfast eaten?

  17. 17
    EconE says:

    What about the condos that are so full of renters that they might as well be apartments?

    Are banks shying away from lending on those?

    I was always under the impression that there was a threshold to the % of units that could be rented out in a complex in order to get financing for it.

    After owning a home in the past I’m fine with the condo lock-n-go lifestyle myself. However…with all the deee-licious rentals out there now (and more to come!)…who on earth would consider buying a condo in Seattle?

    And don’t forget to NEGOTIATE NEGOTIATE NEGOTIATE on those rental prices!

  18. 18
    explorer says:

    I can’t imagine that they would be coming out even, given the level they came in to. Unless they anticipate some sort of tax break or incentive to hold on to a loser, or even a break even. The REITs are losing money bit time, and many of the developers of the biggest buildings are REITs.

    That said, my previous converted Apt. building had sat basically unsold until last month. All of a sudden all but one are “sold?” The listing price never went down more than 5K for any unit. Gotta wonder if it is a case where someone thinks that the “scale” of buying in bulk, then renting–at a higher than market rate, but less than the initial mortgage, will be overcome by inflation.

    Just wild speculation on a puzzling situation. Conversions are no better in most cases than the previous use. You end up paying more for way out of proportion to what you get, from what I have seen.

  19. 19
    george says:

    EconE, good advice.

    You can also slow the rent increases with a good counter-offer. Just subtract the cost of having the apartment vacant for one or perhaps two months, plus any needed cosmetic improvements from the proposed increase.

  20. 20
    Bitterrenter says:

    If I was a tenant in that Ballard building I would try and move. I’d like to see all of the tenants move to really f*ck over the owners.

  21. 21
    stephen says:

    We looked at a conversion in Woodinville last year that was absurd. I doubt they spent more than 10-15k per unit (paint, carpet and some marble in kitchen with cheap veneer cabinets) and they were well into the 300’s for tiny two bedrooms. We’re talking a 30 year old crappy complex to begin with.

    I’ve never understood condo’s for most people. When your tired of owning a home then it’s time to enjoy the savings and freedom of the rental market. If too many things break, move :-)

    At the end of the day it is just an apartment. The likelyhood of making any money on a condo in the next decade around here is about as likely as bats flying out of my…

  22. 22
    economist says:

    if i had to choose between an hour long commute each way and a condo, i would choose the condo

    How about the 3rd option, renting a nice house close by for the same price?

  23. 23
    The Tim says:

    Stephen,

    Was that the “Timber Ridge” complex on 140th Ave, by any chance?

  24. 24
    Scuba Steve says:

    A condo wouldn’t work well for me. Need a garage, and not a communal one. Unless they like to see me restoring my car… maybe the occasional welding project every now and then. Not to mention that I like working on the house to make it a nicer place to live. I’d rather not subject people on the other side of the wall to that kind of noise.

  25. 25

    We at PropertyShark.com were also curious about the reported numbers and took a quick look at median sales and total transactions for condos in Seattle for December 2007 versus December 2006. We found that median sales (approximately $266,500) were flat and the number of sales was down by roughly 50%.

  26. 26
    B&W Nikes says:

    Checking Craigslist shows in town rental prices are all over the place. I wonder if someone squeezing out from under a high mortgage views renting at double the average rent as relief? No fun there.

  27. 27
    FredE says:

    What we learn from both this bubble and the technology bubble is: if the marketing and profit hype sounds like bullshit that only retards could believe, you’re right, and it’s a bubble, and you should GTFO.

    The problem is that some people do make money off these bubbles. And usually only one person (Quattrone, Lay, Mozilo) or a small few (Ebbers, Case) takes the heat.

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