Condo buildings stand half empty
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Tess Vigeland: If you’re looking for a bargain on your next home, in cities like this one, you might be tempted by a condo. For one thing, they mostly are not foreclosures where someone was evicted. These are brand-new units with all kinds of modern features. And there are more of them on the market than single-family houses. We wondered whether a glut like that is a good thing for buyers.
Marketplace’s Jeff Tyler begins his report at Seattle’s most famous landmark.
Jeff Tyler: I’m here at the Space Needle, about 500 feet off the ground, where it’s easy to see why Seattle is nicknamed “the Emerald City.” There is lush greenery between the buildings and the Cascade mountains rising in the background. From here, you can also see lots of shiny, new high-rise condo buildings in the downtown area. What you can’t tell, though, is that many of them are half empty.
I got a tour of the condo carnage from Paul Thomas. He’s in the business of auctioning off real estate and tracks the market closely. But — as this next building demonstrates — there isn’t much of a market to follow.
Paul Thomas: Escala, here in front of us, it’s 230 units. And they’ve only sold two in the last year-and-a-half.
A few blocks away, the next condo tower isn’t doing much better.
Thomas: Right now, the building has almost 100 vacant units out of 143.
There was a lot more demand when the project started. But that was before the market collapsed, and investors began to re-evaluate.
Thomas: As of a year ago, about a quarter of the people who’d put money down walked away, leaving deposits of up to $100,000, because they saw the values dropping so fast that it was cheaper for them to just walk away and leave their deposit.
The over-building is visible in surrounding cities as well, like Bellevue, where the new Bellevue Towers added 550 condos to the market.
Michael Brandt moved in last November.
Michael Brandt: We have a two-bedroom, 1,500 square foot unit. This is the master bedroom.
It’s airy and modern — and cheaper than it had been.
Brandt: Initially, my unit was priced at $566. And, it was then reduced by 20 percent.
The main reason he can get a discount is because the building is 82 percent empty. So, does it feel like a ghost tower?
Brandt: Having more neighbors wouldn’t be a bad thing. But it doesn’t feel like a ghost town.
Brandt says solitude has its advantages. For example, he doesn’t have to share the building’s fancy amenities.
Brandt: This is the best room in the whole building. We have a spa, we have a sauna, we have a steam room, and we have a hot tub.
No kids in the jacuzzi, and no lines for the cardio machines at the gym. But these perks don’t come free. They’re generally paid for with home owners’ dues. But, in this case, the building’s owner covers those costs, until 60 percent of the Tower’s condos are sold.
Brandt: I’m actually not paying home owners’ dues right now, and won’t be for potentially a year-and-a-half or two years down the road.
He’s saving $600 to $700 a month in home owners’ dues.
On the other hand, low occupancy also has some drawbacks. For one thing, owners don’t get a representative on the board, until the building hits certain occupancy thresholds. And, if you tried to sell right away, you’d be competing with the other 400 units for sale in the building.
Brandt: I don’t see myself in that position, because I’m planning to stay here for at least five years.
Did Brandt get a good deal? The jury is still out. Some expect prices to go lower.
Bargain hunters turned out for a condo auction in downtown Seattle last month.
Auctioneer #1: You are going to tell the sellers what these properties are worth. You folks are the marketplace.
When a condo sells here, it helps set the bar for similar properties on the market.
Auctioneer #2: At 331,000, third and final opportunity, 331. Any one else at 331,000?
[Person calls]
Auctioneer #3: Boy, that’s close. Now, 332.
Sometimes, auctions lower the bar. Hoyt Scott bid on a condo that had been listed at $700,000. He bought it at auction for $300,000 less.
Hoyt Scott: So I jumped in and got the unit actually for significantly less than I was prepared to pay for it. So I’m very happy.
Tyler: Any advice for buyers coming to auctions?
Scott: Somebody told me to wait until the bidding gets very close to the end and then jump in for what you really want. So that’s what I tried, and it seemed to work.
That held true at this auction. The price per square foot fell for the last properties to be sold. But consumers have to do their research ahead of time. Read the legal documents posted on the auctioneer’s website, and buyers have to remember that condos sold at auction are “as is.”
Architect John Eggleston bought a condo at auction last June. He found that amenities promised by the seller don’t exist, and no one will take responsibility for fixing problems.
John Eggleston: Once the auction was over, everybody just sort of dropped everything and ran. And, we’ve been working for nine months with the county trying to get our legal description and title correct for tax purposes.
So, Eggleston’s paying tax on three parking spaces, when he only owns one. And there are construction issues, light fixtures that don’t work.
Eggleston: Little things like that. They’re humorous. I think if I’d paid full price, I’d be pretty upset about them.
Obviously, a bargain is in the eye of the beholder. Matt Goyer writes a Seattle condo blog. He says some speculators are still snapping up deals.
Matt Goyer: They seen these auctions as an opportunity to sort of dollar-cost-average down by buying a second or third condo.
Goyer isn’t interested himself. He already owns two condos, which he bought at the top of the market.
Goyer: I’m continuing to rent it out — and losing money on it every month. And, later today, I’ll probably have to go fix a leaky toilet. And I’m just tired of it.
For Goyer, the best bargain would be a chance to get out of this market without losing his shirt. Sometimes, saving money looks less attractive than avoiding headaches.
In Seattle, I’m Jeff Tyler for Marketplace Money.
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