Slumping economy has drained housing market of condomania
Remember when condominiums were being snapped up by consumers just as fast as developers could produce them?
Condos offered a little something for everyone. To apartment renters, they meant owning a little turf in the city, while still maintaining flexibility. In a builder's eyes, condos glittered with the promise of large, fast profits and easy sales.
Those were the good old days.
The condo market, like real estate in general, has slowed way down. Sales are languishing in the face of high interest rates. The number of rental to condominium conversions dropped 35 percent in 1981 and will continue to decline this year. In a number of cities, developers are offering special discounts in efforts to sell their units.
Potential condo buyers appear to be staying put. Some are forced to continue renting, often doubling up with roommates. Others find it impossible to move because their present houses - or condos - won't sell. As one owner pleaded in a recent real estate ad:
''Boston waterfront. Sumptuous bachelor's quarters, gourmet kit. w/skylight . . . owner anxious, price reduced. . . .''
Builders are also casting a wary eye on new projects. Sue Hawkes, marketing director of the Codman Company, a Boston marketing and development firm, says she is counseling clients to hold off on their building plans until the recession eases.
The condominium is one symbol of Americans' changing housing needs. A growing number of young adults, 42 million of whom will enter their 30s in the 1980s, continue to opt to live alone. For this group, condos used to be an attractive investment. They also appealed to small families forced out of the large-home market by high costs and interest rates.
Ironically, though, condominiums, like many other real-estate investments, are becoming an option for the more affluent. While condominium construction has slowed considerably, those that are being built are increasingly for the wealthy.
''Condos originally appealed to the middle class and single owners,'' says Robert McNally of the Lanid Corporation in Parsippany, N.J. ''But now, when only 3 percent of that category can afford an average-priced home, things aren't moving much.''
While his company, which has seen a 75 percent drop in sales volume, continues to do well, it does move more cautiously these days. The times are over when Lanid would take a B-rated property and risk making something of it.
''We don't do anything now unless it's a triple-A rating,'' Mr. McNally sighs.
According to Kenneth Kerin of the National Association of Realtors in Washington, D.C., young people, for whom the condo should be an available option , are ''really a lost market now.'' Mr. Kerin points out that condo developers are losing young and less-wealthy potential buyers who can't afford the high interest rates.
While Kerin anticipates a modest decline in interest rates, he says the recovery in the condo market, if it occurs at all, will be weak.
Michael Brenneman, president of Brenneman Associates, a development firm in Washington, D.C., points out that there are some brightening spots in the condo market in his area. In the suburbs of the city, for example, several projects have come on the market at low enough rates to attract buyers. He also suggests that some consumers are adjusting to interest rates and once again are considering investing in a condominium.
In the city, Brenneman concedes that business is down 15 to 20 percent, and attributes much of the sluggishness of sales to ''consumer fear'' and a ''recession mentality.''
But, he adds, prices were also getting way out of hand. ''I guess we answered the question of how high is to high.''
Low rates and a fluid market, however, do not of themselves guarantee a successful project. In Houston, where the condo market is generally holding its own, location is crucial.
Michael Castleman of the American Metrostudy Corporation says many builders fail to analyze the market before they design a project. And, he adds, ''if you look for one buyer, and then build in a location where you're not going to attract him,'' the project is in hot water.
A poorly planned project might have squeaked by in boom times, but now more than ever it's essential to gauge the market carefully and prepare a good sales campaign.
The Campeau Corporation, a Canadian company, has had two serious failures in the residential market and is now planning to withdraw from Houston completely.
On the other hand, the Century Development Corporation in Houston is experiencing tremendous success with its Greenway Plaza towers, which are tucked into a large commercial office development. The condominiums in the two high-rises, which run about $150 a square foot, are attractive as an investment as they are, and will remain the only residential spaces in the development.
Of 390 units, only about 65 remain to be sold.
Boston is also feeling the condominium pinch. Ms. Hawkes of the Codman Company, citing a number of projects where units are either selling very slowly or not at all, says she isn't looking for any real change for at least a year.
As she points out, though, the luxury market is doing quite well. Codman's renovation of a Winchester, Mass., school into luxury condos is proving a success. Again, Ms. Hawkes cites location as one of the key factors in the success of that and other efforts.
All major American cities are experiencing a slack condominium market. Los Angeles, in the words of one developer, is ''flat on its back.'' But while developers in particular are being hurt by the current slump, buyers who have the money to ignore high interest rates can probably find some relatively good deals. And the luxury market is going strong for those to whom money is truly no object.
If one is looking to purchase a chic address in Manhattan, for example, opportunity awaits at the Trump Towers, developed by the Trump Organization. Condos start at $500,000 - and top out at a cool $11 million.