Smaller projects gaining favor
The feverish real estate market of the last several years drove high sales within large condo projects, but developing housing trends could put some of the city's largest on shakier ground as the projected number of units sold fall well below last year's levels.
The likely winner will be smaller-scale projects of 50 units or less that have a larger pool of potential lenders from which to draw and typically require significantly less time reaching the 50 percent presales mark typically required for construction financing. Although no timeframe is set in which developers must hit the presales mark, a slowing housing market and increasing interest rates are expected to conspire against larger projects in which the time between a reservation and a locked in interest rates could be several months - and completion more years yet.
Interest rates, which have been at historic lows for years, are expected to hit the high 6 percent range this year, according to the National Association of Realtors, and people who are serious about buying are anxious to lock in now.
“There is some fallout primarily because people's lives move on and they don't necessarily wait for the building,” said Mary Bujold, president of Maxfield Research Inc., a Minneapolis-based multifamily housing consultant. “When they are buying property, they think their move is relatively imminent. People don't necessarily buy a house and think they have to wait two years to get into it.”
Buyers also are reluctant to tie up their money in projects that might never happen and then fight to get it back, said Mike Roess, a Coldwell Banker Burnet real estate broker who specializes in the Downtown condo market.
“I'm seeing buyers become savvy and not even go down a road they don't think has an end or may not be ready,” he said.
Although they have plans to break ground in June, developers behind the 54-story, 350-unit Nicollet condo tower at 10th Street and Nicollet Mall still are in negotiations with two national lenders to secure financing.
Sales began this fall, but developers remain shy of their required 40 percent presales mark. Reservations have been taken on 125 units, including three $3.5 million penthouses, and developers hope to convert those into purchase agreements beginning in March.
According to The Downtown Journal “Condo Watch,” 35 Downtown larger-scale condo projects - with 50 or more units - are in the works. They include the newly completed Bookmen Stacks in the North Loop, those under construction like The Carlyle on Downtown's riverfront and projects awaiting city approval. The largest projects include the Pillsbury “A” Mill towers proposal, which would feature 11 new buildings with 1,000 units on the river's East Bank, and the 3,500 to 5,000 condos slated for the Warehouse District's Rapid Park lots near the Target Center.
The Heritage Preservation Commission recently denied Minneapolis-based Schafer Richardson's proposal for the “A” Mill complex, which requires the developer to either appeal the decision to the City Council or revise the plan.
According to Maxfield Research's latest report on condo sales, about 1,100 new construction condominiums sold in 2005, down from 1,263 units in 2004. That number is expected to fall to around 800 this year.