Tag Archives: Condos

Embracing Seattle’s New Urbanism

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As a longtime resident, I’m used to watching the Puget Sound area go through continual growth spurts as development and demographics change. I get lost in my hometown of Port Orchard spurting for the last 45 years as steady as the whales in Sinclair Inlet.

In spite of economic ups and downs, the NW is never stagnant and the next 10 years will hardly be an exception. And now there is another new trend as the babyboomers are seeking new lifestyles, all the while the NW economy is projected to add 50,000 new jobs by the year 2024. This new lifestyle and economy is fueling a new change as Seattle, the Queen of the NW cities embraces it’s new urbanism.

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Seattle will continue to change it’s skyline as a projected 10,000 new condominium units will be built over the next 5 years, ranging in price from the $200,000’s to more than 5 million. Here is the skyline as it will be affected by projects currently in the pipeline.

[photopress:Skyline_1.jpg,thumb,alignright]Always living in the eye of this growth hurricane, I try to stay open to predictions especially when these 10,000 units are already on the drawing boards. (Remember when East Lake Sammamish was only summer cottages, and the only thing you did in Issaquah was stop for a burger before hitting the slopes?)

But still I pause skeptically when I see plans for the immediate future in development like those planned for downtown Seattle. With only 55,000 people currently living in downtown Seattle, will changing demographics fill all of these new units? And where will the people come from?

Dean Jones, President and CEO of Real Logics speaking at a panel discussion regarding Seattle’s New Urbanism in June, believes there is a pent up demand for these new units and that about 2200 units per year can be absorbed, likely more than can be built possibly causing more demand than supply.

This pent up demand, Jones believes, is coming from 4 main sources: up to 1/2 from empty nesters; in city professionals; in city homeowners; and a minor segment of investors. According to architect Blaine Weber, a major driver of this demand for in city living is that people are seeking a new lifestyle. Living in the city can be a more carefree, healthy lifestyle as people step out of their building and walk a few blocks to work. ‘With addition of new pedestrian walkways and multi-modal transit opportunities, Seattle can become a 24-7 hub.’ Personally, I think that rising gas prices also make people rethink their life style alternatives and move closer to work centers and mass transit.

It’s interesting to wonder, then, what will happen to the housing being left behind by the empty nesters. In fact, some suggest that a sufficient inventory of single family detached housing already exists to supply demand for the next 20 years. Christopher Lineberger of the Brookings institute believes that all net new inventory will be attached single family homes in intensely urban settings again reflecting the desire of up to 50% of the public to live in a carefree environment with ‘walkable urbanity.

New urbanism is showing up outside of Seattle, too as planned developments are changing the waterfronts of Bremerton, Tacoma and communities like Dupont, Issaqauh Highlands, Snoqualmie Ridge and Redmond Ridge have been winners with buyers in the last 5-10 years. On the Tacoma waterfront there is a new 800 unit planned community that will be car-less with mixed use waterfront, according to the ‘Queen of Condos’ in Tacoma, Gema Powers. This appeals to my love for walking to Starbucks and the grocery store.

I’ve always thought I’d try out downtown living, especially since it’s where LTD Properties and Real Estate is located. I worry though about the lack of lawn and trees that’s you’d forgo in a high rise, and where would my husband restore his old Mustang that takes up half our garage? On the other hand, no more pulling weeks and repainting the house. I guess there’s pros and cons to all life styles, but at least we have enough alternatives that we can choose our own. It all sounds so appealing that maybe I’ll try out everything for 2 years at a time, but of course, when there are two and one doesn’t like change, I’ll have to live vicariously from friends as they embrace this new urbanism!

The “starter price” condo market

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Many years ago, I did a study of the “starter price” condo market and received some very surprising results. Based on Dustin’s post, I re-did the research and obtained the exact same results as I did back in Bucks County, PA some 13-16 years ago! Interesting…

The two highest months for people making decisions to buy a condo in what we might call a “starter” price range are March and July. March because first time buyers are often urged by their accountants, or simply by their tax return on their own, to own instead of rent. July due to downsizing of empty nesters or now single, divorced persons selling their single family homes in June and July and moving to a condo. Of course, every month has a mix of reasons to buy, but I find these two reasons account for the fact that these two months tend to be the highest in a yearly cycle.

Sales in June and August are not too far behind and on a quarterly basis, sales are more fairly consistent year round for condos than single family homes, with a slight drop in the last quarter. Again we are not talking about million dollar condos, we are talking about the lowest rung of the price chain.

Actual statistics of 2 bedroom condos under $300,000 (most about $250,000) within a short distance of Sundance in Klahanie.

2005 – Jan. – 10, Feb. – 14, March – Twenty eight – Sold in the 1st quarter – 52

April – 18, May – 19, June – 24 – Sold in the 2nd quarter – 61

July – Thirty, Aug. – 24, Sept. – 13 – Sold in the 3rd quarter – 67

Oct. – 13, Nov. – 9, Dec. – 15 – Sold in the 4th quarter – 37

Inventory in 2006 is way down with only 39 sold in the first quarter compared to 52 in 2005. This does not appear to be because there are fewer buyers, but because fewer people are putting their properties up for sale. However this low inventory in the resale market should not necessarily lead you to believe that demand will be high as supply is low. There is a lot of pressure on the resale markets from New construction and Condo Conversion Projects, generally. Even if the new construction or condo conversion is not in your back yard, people will drive an extra mile or two for brand new.

I have to admit that I almost fell off my chair to find the results almost identical in this scenario, to the study I did some 3,000 miles away back in the early to mid nineties.

Condos: Conversion versus New Construction

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(Editor’s Note: Please welcome Wendy Leung as the newest contributor to Rain City Guide. She is a real estate professional specializing in the Seattle Condo market. She has been running a very interesting condo blog for a few months now, and I thought we could all benefit from her knowledge on the condo market in Downtown Seattle. if you haven’t read her blog, definitely check out her post on Cars and Condos where she gives insight into the local condos by describing the type of car that they would be. Great stuff! You can always learn more about her at her website or by contacting her directly at 206-321-2493)

With an increasing number of apartment buildings converting into condos as well as a parade of new construction projects being unveiled every day, home buyers may be wondering how to think about these two property types.

At the end of the day, your Realtor should help you evaluate the options based on your goals, budget, needs, and circumstances. Furthermore, every property is unique and generalizing about conversions and new condos is a bit like saying one genre of restaurant will always offer better service than another. That said, there are some fairly consistent differences between the two property types. Here are some of the advantages for each.

Advantages of new condos

  • Newer, nicer interiors and exteriors, often come with better amenities and more imaginative architectural designs.
  • Better quality construction (at least as far as we know). Gone are the days when builders used leaky Synthetic stucco for every new project. The quality of construction has advanced these days and more and more builders are using hardy plank, a combination of brick veneer, vinyl, metal, concrete, steel and cement.
  • Flexibility to customize the interior. Usually, the builder will offer you a variety of upgrades and style options to make the place match your personal style.

Advantages of conversions

  • There are fewer surprises. What you see is what you get. The building has been around for a while so generally, if there are any issues with the building, it should already have happened. If the building has issues, you can usually get hold of the information about any issues much easier than a new condo to make a better informed decision.
  • There is actual market data available for that building and even that unit to support the rental value for the building if you are purchasing it as an investment. There will also be more insight into peoples’ opinions of the building as opposed to speculation from the new condo sales center.
  • Most of the time, conversions are cheaper than buying new construction. When you’re looking at ROI, this can be the biggest factor of all since 3 years from now, a new condo and an apartment conversion will both be older condos in the eyes of most buyers.

If you are not paying a really large premium for new construction (this is getting harder to do these days), it will probably resell for more than a conversion. However, a pricey new construction unit may have a higher absolute price appreciation but may not have a higher return on investment (than a value-priced conversion unit). At the end of the day from an investment point of view, it’s the rate of return on investment and not the absolute resale price growth that maximizes your profits.

Multi-family investments – recommended reading

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Generally I have an issue with most real estate books as they are usually advise on how to make a million dollars in 90-days or some similar hype. So it’s refreshing to come across the few books that are sound, practical advise on investing in real estate. The latest that I’ve read that fits into this practical advise category is The Complete Guide to Buying and Selling Apartment Buildings by Steve Berges.

Let’s face it, with high vacancy rates and low rents, multi-family hasn’t been a great place to invest the last few years in the Seattle area. But with the increasing prices of entry level homes, number of condo conversions removing units from existing inventory and the increased interest rates the rental market is seeing renewed demand. So where do you invest and how do you analyze the deal?

That’s why I like this book. Steve Berges doesn’t promise to make you a millionaire overnight. Instead he lays out tax planning, case studies and financial analysis examples that help you develop some investment strategies. I was a finance major in college, plus several years at Microsoft brainwashed me with the metrics mantra — if you can’t measure it, it doesn’t matter. So I really appreciated the financial analysis part of this book. Sample spreadsheets on how to calculate different ROI scenarios and determine the best investment among several properties.

This isn’t an exciting, feel-good rich dad, poor dad type of read. It’s practical advise on how to get into the game, analyze your investment and calculate your exit strategy. For anyone contemplating multi-family investments, I highly recommend this book.

One last note — don’t spend useless hours trying to recreate his spreadsheets from the book. I wasted several hours on that before realizing the obvious — all his analysis tools are available on Steve’s website www.thevalueplay.com

Condo Conversion vs. New Construction

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Given the popularity of condo conversion communities in the Seattle area, I think it is worth noting what these are, and what these are not.

I have heard both buyers and escrow companies refer to condo conversion communities as “new construction”. Please know that these are not new construction, but remodels, for the most part asthetic remodels, of older, rental communities. While you are buying the interior, and the interior is remodeled, you are also buying a fractional interest in the exterior. If there are 100 units, you are taking on a 1/100th responsibility for the new roof or exterior paint and all of the major components shown in the reserve study.

If you are buying into a condo building or community that has always been a condo community, the monthly dues for the last 15 to 20 years should have provided for an accumulation of “reserve funds” to replace the roof. If you are buying into a condo conversion, make sure the developer has “contributed” enough monies into reserves, to compensate for the fact that there were never before “unit owners” putting monies into the reserve account toward future replacement needs.

The roof may be OK today. But if it is a 20 year shingle and a 15 year old complex, there should be 15 years worth of accumulated monies set aside by the developer before he turns over the complex to the Home Owner Association. This is to insure that when the roof needs to be replaced in 3 to 8 years, there will be sufficient funds in reserve to buy the new roof. Also make sure that the monthly dues set by the developer include a sufficient amount for reserves. In five years when you need a new roof, you will need five years of owner contributions, plus the 15 years worth of reserves set aside by the developer, so that the roof can be replaced without a special assessment.

Understand that if a condo community or building functions as it should, there should never need to be a special assessment. Every owner, via their monthly dues, should be paying their fair share of future repair and replacement costs each year. It’s a simple calculation which assures that the monies will be in the reserve fund at the time the Major Component item needs to be replaced.

So I leave you with this warning. Find those things that are not new when buying into a condo conversion, and make sure the developer is contributing an amount into reserves reflecting that portion of “useful life”, used to date.