May 29, 2008

Downtown condo pipeline favors sellers

By one estimate, only 827 newly built condominium units will be delivered between now and 2010.

By JOHN MIDBY
Lexas Companies

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Midby

Seattle is frequently named one of the most livable cities in the nation because of its spectacular views, sought-after lifestyle and relative value compared to other West Coast cities. The Downtown Seattle Association says there are more cultural attractions here per capita than anywhere else in the United States.

With our enviable economy, it’s hardly surprising that the Puget Sound Regional Council expects that 1.7 million new people will move to this area by 2040, and that we’ll add 1.2 million jobs. For perspective, that’s a population the size of today’s Portland metro region, a city that’s delivered more new condominiums in the last five years than Seattle and Bellevue combined.

All this bodes well for urban living and the downtown Seattle condominium market. But what about the national economic jitters and the daily media barrage about our national housing woes?

The downtown Seattle market

Image courtesy of MulvannyG2 Architecture

Escala was one of the last projects to receive financing following the credit slowdown. It will add 275 condos to the downtown market when it opens next year.

According to Forbes magazine, our condo market is the most stable in the country. Local home-buying statistics from the Multiple Listing Service show that during the first quarter of 2008, both the total number of sales and the median home price of downtown condominiums were up over the same period in 2007.

Confidence in the overall downtown Seattle real estate market, access to a desirable lifestyle and the region’s inability to relieve traffic congestion in neighborhoods and outlying areas all contribute to a steady demand for new downtown homes. If there’s a housing bubble in downtown Seattle, it’s a psychological bubble based more on reports from the rest of the country than on what’s happening here.

For the buying public, Seattle doesn’t mirror the national picture, and people are shopping for homes. Some are area newcomers while others are selling their single-family homes and moving into downtown condominiums. With continued demand and more limited supply, Seattle will remain a bright spot in the national housing market.

Credit crunch limits supply

Despite stability in the downtown Seattle real estate market, most banks and other financial institutions are not making condominium construction loans. Because exposure in other states has put strenuous requirements on construction lending, banks have reduced substantially the amount they’ll loan, while requiring that half or more of the condominium units be pre-sold.

Fortunately for Lexas Companies, our luxury downtown Seattle condominium project was one of the last projects to receive financing following the credit slowdown. Since Escala broke ground in the summer of 2007, no other high-rise condominium project has begun construction, yet at least 40 others were planned. Now it’s unlikely that these other projects will acquire financing before 2009. With a typical three-year build-out, these projects probably won’t have homes available to buyers until at least mid-2011 — and quite likely, not until 2012. That’s 24 months after Escala opens in 2009.

In today’s market, it’s estimated that only 827 new-construction condominium units are in the pipeline to be delivered between now and 2010.

The result of the credit crunch is a constrained supply, while demand remains relatively strong. This benefits the handful of downtown projects that are under construction.

Market forces still strong

Seattle’s economic forecast remains buoyant. In a January 2008 report by ReSolve, a Seattle-area company that provides real estate appraisal services, more than 7 million square feet of new office space is under construction with another 2.5 million planned, indicating a strong job market. According to the same report, job growth will continue, with downtown adding nearly 4,675 jobs this year and next. ReSolve expects this expansion to continue with an average of 1,755 new jobs per year between 2010 and 2013.

The bottom line is that — unless job growth greatly diminishes, the population boom does not materialize and traffic congestion magically resolves itself — the downtown condominium market is going to continue to be strong, which means there will be a diminished supply of prime downtown condominiums, which, in turn, will lead to a seller’s market.

Not all markets are created equal, and downtown Seattle offers the best fundamentals in the United States. So while it may be a contrarian view, I believe there’s never been a better time to buy than now. With historically low interest rates, a great selection of properties and a confident future ahead, there’s no reason not to buy.

John Midby is a principal of The Lexas Companies, the developer of Escala. With more than 40 years of experience in real estate development and business management, Midby has developed countless projects ranging from master-planned communities and commercial and office developments to high-rise condominiums.

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