PHILADELPHIA – In a city cluttered with condominium construction, Old City 205 aspired to shine as an ultramodern residence for the well-heeled with its zinc-and-glass facade, loft-style homes and floor-to-ceiling windows.
Too bad no one will get to move in now. The $40 million project in Philadelphia’s Old City neighborhood won’t break ground, because the housing market softened and increasingly picky buyers balked at the project’s price tags, which ranged from $400,000 for a studio to more than $2 million for a three-bedroom penthouse.
Brown Hill Development, the company behind the project, noticed slower traffic and decided it didn’t want to be left with unsold units, partner Greg Hill said.
From coast to coast, developers are nixing or delaying condominium projects as home sales slow, construction costs soar and lenders start to balk at financing units that might not sell. What’s making it worse is the glut of high-priced condos and the lack of people who can afford them.
“We’ve gone through the biggest real estate boom in the last eight or nine years, and some of these projects haven’t started yet. Do you think they’re going to start building now?” said real estate executive Allan Domb, dubbed Philadelphia’s “condo king.”
In Las Vegas, projects that have fallen through include high-profile developments such as Aqua Blue, a $600 million, 825-unit condominium-hotel resort that counted Michael Jordan as an investor; the $3 billion, 4,400-unit Las Ramblas resort, backed by George Clooney; and Ivana Las Vegas, a $700 million, 945-unit tower named after Donald Trump’s ex-wife.
With housing in many areas of the country looking increasingly anemic, it’s not surprising that developers are bailing out.
Domb said he’s gotten about half a dozen phone calls over the past four weeks from developers asking whether he would like to buy their properties.
In May, the volume of apartment-to-condo conversions plunged to $334 million from $1.65 billion a year ago, said Gleb Nechayev, senior economist at Torto Wheaton Research, a real estate research firm in Boston owned by CB Richard Ellis. The all-time high was $4 billion, hit last September.
Builder confidence, as measured by the National Association of Home Builders/Wells Fargo Housing Market Index, fell in June to its lowest level since April 1995. Confidence took a hit due to rising mortgage rates, high home prices and the flight of investors and speculators from the market.
The index surveyed builders of single-family homes, where the sales decline hasn’t been as severe as it has for condos.
Jack McCabe, chief executive of McCabe Research and Consulting in Deerfield Beach, Fla., considers the condo market, especially the luxury end, at risk of a crash. Over the next few years, he predicts, prices will fall by double-digit percentages.
The luxury condo surplus is to blame. McCabe said the median household income in Broward County qualifies local buyers for a $225,000 home, so the luxury units are targeted mainly toward affluent, out-of-state buyers.
Meanwhile, speculators have driven up prices by flipping units, he said. But they’re now leaving the market – driving down demand – and putting up for sale properties they own, adding to the glut.
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