Will Seattle buck the trend?

Argh, another article I was interviewed for but I didn’t make it in. Washington CEO, Will Seattle’s condo market continue to buck the national trend?

e6f89bfd6a Will Seattle buck the trend?

Fortunately this article is much more critical of the Seattle condo market than other articles have been. However, I am disappointed it didn’t dig deeper and talk about the struggling developments (Trio, Domaine) and the number of re-sales and rentals stacking up at developments like 2200 and soon to be Cosmo.

Perhaps more interesting is the number of multifamily housing proposals filling up Seattle’s pipeline. The total number of proposed low-rise, mid-rise and high-rise multifamily units, including condos and apartments, increased 24 percent, from 13,823 in February 2006 to 17,140 in February 2007, according to New Home Trends. Meanwhile, apartments are converting to condos at a rapid clip: from 430 apartments in 2004 to 1,551 in 2005 to 2,352 in 2006, according to Seattle Planning and Development Director Diane Sugimura.

Do all those numbers point to a coming condo glut? It’s hard to say. Some of the condo proposals now in the pipeline, for example, could be canceled because of rising construction costs, and that could help keep supply in check.

I’m beginning to track inventory any help with the numbers would be appreciated. Hopefully I can have it produce some graphs like the one in the article so we can keep up with the numbers in real time:

2d2e065f90 Will Seattle buck the trend?

About Matt

Matt , Urbnlivn's publisher, has a love for lofts with industrial features and new construction condos that is only eclipsed by his passion for outdoor sports and urban living. Phrases such as “polished concrete” and “exposed brick” are music to his ears. You can also find Matt on Twitter or skiing.

  • Brian

    I agree that they do hire illegals.

    But without knowing the ins and outs of unions – if the whole point of a union is to go in and get work for union members, how can they justify an illegal taking a crew spot off the hands of a member?

    Unless they pay the illegal min wage, charge full cost, and give the difference to union guy x who is sitting at home watching Bassmasters.

  • Brian

    I agree that they do hire illegals.

    But without knowing the ins and outs of unions – if the whole point of a union is to go in and get work for union members, how can they justify an illegal taking a crew spot off the hands of a member?

    Unless they pay the illegal min wage, charge full cost, and give the difference to union guy x who is sitting at home watching Bassmasters.

  • matthew

    What if the union member is an illegal?

  • matthew

    What if the union member is an illegal?

  • Brian

    Then I wouldn’t be shocked per se, but probably surprised…

  • Brian

    Then I wouldn’t be shocked per se, but probably surprised…

  • chris

    “That being said, I do not think that construction cost increases have played nearly as much of a role in the inflation of prices in Seattle as has loose lending/decreased lending standards”

    I disagree. the inability to deliver new product (replacement cost) below that of existing product has bolster prices- most particularly for condos. If construction prices had not risen 10% per annum for two years+ we’d have a lot more affordable high rise condos on the market.

  • chris

    “That being said, I do not think that construction cost increases have played nearly as much of a role in the inflation of prices in Seattle as has loose lending/decreased lending standards”

    I disagree. the inability to deliver new product (replacement cost) below that of existing product has bolster prices- most particularly for condos. If construction prices had not risen 10% per annum for two years+ we’d have a lot more affordable high rise condos on the market.

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    happy Friday everyone ;o)

  • EconE

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    happy Friday everyone ;o)

  • matthew

    Chris,

    So if supplies are getting cheaper, and labor is flat, then prices should be dropping right?

  • matthew

    Chris,

    So if supplies are getting cheaper, and labor is flat, then prices should be dropping right?

  • PhilW

    Land is the biggest single expense for building. The first thing that drops when housing falls off the cliff (coming soon to a town near you) are land prices as almost everybody liquidates their holdings.

    Most of the condo projects that have started will be built, even if they have to switch them to apartments to keep the funding.

  • PhilW

    Land is the biggest single expense for building. The first thing that drops when housing falls off the cliff (coming soon to a town near you) are land prices as almost everybody liquidates their holdings.

    Most of the condo projects that have started will be built, even if they have to switch them to apartments to keep the funding.

  • Chris

    Matthew, yes, new construction costs should be declining some but we’ve yet to see it in the bids at this point.

    Land is extremely sensitive to demand. Land values tripled in Ballard in the last five years and land in say, Detroit, is virtually worthless when there is no demand for new product. That said, for most res. condo development, land is “only” 40-50k of total cost – or 1/4 to 1/5th. Its much higher (40%+) for townhouse projects.

    Condo projects can switch to rentals, but many will not because even the highest rents that could be underwritten will produce much less value than what condo might have supported in good times. ie – $2.30/sf rents @700 sf = $19320 gross income less 30% expenses = $12,600 NOI (assume no vacancy) = value of $245k @5.5% cap rate. Dividing this value by the 799 sf unit size yields $351/NRSF in value vs. $500-$600/sf in value for a condo. However, apartment projects can sometimes be more financeable because banks will ok projects with minimal margin on cost providing that the project adequate debt coverage whereas condos would need a 15-20% margin.

  • Chris

    Matthew, yes, new construction costs should be declining some but we’ve yet to see it in the bids at this point.

    Land is extremely sensitive to demand. Land values tripled in Ballard in the last five years and land in say, Detroit, is virtually worthless when there is no demand for new product. That said, for most res. condo development, land is “only” 40-50k of total cost – or 1/4 to 1/5th. Its much higher (40%+) for townhouse projects.

    Condo projects can switch to rentals, but many will not because even the highest rents that could be underwritten will produce much less value than what condo might have supported in good times. ie – $2.30/sf rents @700 sf = $19320 gross income less 30% expenses = $12,600 NOI (assume no vacancy) = value of $245k @5.5% cap rate. Dividing this value by the 799 sf unit size yields $351/NRSF in value vs. $500-$600/sf in value for a condo. However, apartment projects can sometimes be more financeable because banks will ok projects with minimal margin on cost providing that the project adequate debt coverage whereas condos would need a 15-20% margin.