Sunday, March 23, 2008

Condo Hell

On its way.

The condominium market is about to get worse as many cities brace for a flood of new supply this year -- the result of construction started at the height of the housing boom.

More than 4,000 new units will be completed in both Atlanta and Phoenix by the end of the year. Developers in Miami and Fort Lauderdale, Fla., are readying nearly 10,000 total new units in a market already struggling with canyons of unsold condos. San Diego, another hard-hit region, will add 2,500 units, according to estimates provided by Reis Inc., a New York-based real-estate-research firm.


Developers usually put up their own money for a project first, then spend borrowed funds. Once developers have spent their money and have commitments from lenders, they have a strong incentive to keep building to finish the project.

"These developers had millions of dollars tied up and they had them financed so they just moved forward," says J. Ronald Terwilliger, chief executive of Trammell Crow Residential, which builds many rental apartment buildings and also a few condos. "What they hope is that by the time the project is finished the market comes back."

There's just an incredibly long time between the moment when a big urban condo project is envisaged and when it can be completed. Here in Philly, where I don't think things ever got quite as crazy as some other places, there are new projects just beginning which probably don't make much sense. No one seems to have explained to local developers and real estate agents the concept of "nonconforming loans," and that most people just don't have access to a mortgage at a sane rate above $417,000 right now.

Probably the biggest concern is that these places get built, but built on the cheap.