Ask a very public question about whether the condo market is in trouble and you quickly find out some developers fear that buyers’ psyche is so fragile right now that anything remotely negative will prompt them to flee from urban condo purchases.
Developers expressed concerns to our newsroom that talk of doom and gloom around the urban condo market – and about the economy in general – would become a self-fulfilling prophecy given the drumbeat from both national and local media about economic problems.
So, perhaps a more in-depth discussion is warranted in the face of this concern.
The buyer’s psyche
Buyers psyche is an interesting beast at this point. It’s taking a beating from all corners. Talk of recession and the housing slowdown nationally and locally weighs on their minds, particularly if they are considering buying a condo in a young downtown market.
But why should a buyer who wants to live downtown be concerned if they have the financial wherewithal to purchase a condo in which they will live for potentially years and pay what may be a reasonable price? Is it the fear the bottom will drop out of the values of downtown condos?
It doesn’t appear that the bottom will drop out of the values, at least in the units buyers purchase at pre-construction prices. Buyers who purchased resale units a year later might feel otherwise. Still, as things go down, they eventually go back up.
Few in condo development expect a repeat of the early 1990s and they hope it never happens again. Pricing is expected to moderate, particularly downtown, as the speculators lower their profit expectations in pricing their units for resale. That has already happened in the Viridian.
Now may be the time to buy. People who act contrary to conventional thinking with buying real estate can do well with their investments a lot of times.
That’s not to say there isn’t risk. There is risk in it like anything else in business. There’s never a sure thing in real estate. Buyers just need to do their due diligence to make sure they are getting a fair price relative to the market.
Developers probably won’t drop the price of unsold units. Instead, they may keep the price at the existing level to not harm the value of the units they have sold. Instead, they may offer other incentives to buy, such as paying a year’s maintenance fee for the owner.
The value of contrary thinking
Developer Tony Giarratana has made a career doing what’s contrary. He jumped into developing downtown residential about a decade ago, drawing plenty of skeptics who didn’t think he could do it. The Cumberland Apartments took a little time to work and establish a residential base downtown. But it did.
Then he did it again with Viridian in the face of still more skepticism. For some, the jury is still out on that project because of the resale market in the tower. That tower, however, significantly and quickly established a market for condos downtown and the number of units for resale has never been significantly high and recently has come down.
His conversion of Bennie Dillon was a hit. Core Development had a hit with Kress Lofts. East Nashville and Germantown have inventory but also have had sales.
Last month, developer Bill Hostettler sold 15 condos in his various urban projects, namely Harrison Lofts downtown and Park at Melrose in the 12th South area. January is typically a slow month for everyone.
“That’s a record for my little company,” Hostettler said of the sales.
Leaving money on the table
It’s no secret the housing market in general is taking a breather and urban condos have been caught up in it. The froth is off. But obviously sales still occur.
Sure, there will be buyers who walk from contracts in the new buildings. That may happen more so that boom time has subsided. Not all will do so out of panic. Some have life changes take them out of Nashville.
There are speculators, the flippers, who may walk from sales contracts believing they won’t make money. Would that be so bad? Wouldn’t that open up units for people who actually want occupy the unit? For urban Nashville, especially downtown, the true goal is to have more people living there.
Already, there have been buyers who have withdrawn from sales contracts, in some cases, walking away from larges sums. The Adelicia, in Midtown, for example, which required probably the highest deposits of any development, had six walk away, one on a unit of more than $1million. That buyer left $150,000 on the table.
But the developer resold five of those units at higher prices.
Downtown still is establishing itself as a condo market and buyers are pioneering to a certain degree. It still lacks some of the retail to serve those residents, and the Downtown Partnership is addressing that with efforts to recruit more retail to serve the new downtown residents. A new convention center wrapped with retail could help.
Someone associated with The Gulch development and Icon, wrote in an email that his comment to everyone is, “Come see me in early July (when Icon owners begin closing on units) and I’ll tell you where the condo market was headed in February.”
He added, “Anything else is pure hokum.”
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