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Lynn Porter
Real Estate Editor

February 21, 2008

Real Estate Buzz: More condos going back to apartments

By LYNN PORTER
Real Estate Editor

Mosaic Homes is renting out a 111-unit Federal Way apartment project it unsuccessfully attempted to sell as condos last year. The project was called Whispering Hills and has been renamed Trellis.

The firm also is renting the 239-unit West Ridge Park Apartments, which it bought for conversion, and the 62-unit Strata on California, which it had marketed as condos. Both projects are in West Seattle.

“I think it's very classic Economics 101: supply and demand,” said Dave Kirzinger, an owner of Mosaic Homes. “The market has changed... The market is very good for rental, but not as good for condominiums.''

He said people locally are steering clear of home ownership because they don't see the potential for appreciation.

Mosaic will keep Trellis, West Ridge and Strata as apartments near term, but will market them as condos if demand picks up, Kirzinger said.

Lending standards have tightened and people locally are reluctant to buy given the dismal national housing outlook, said Tom Cain, principal in Cain Inc., which tracks apartment projects of 50 units or larger.

“They know Seattle is better, but it's not entirely insulated so they're concerned that home prices are going to start going down here,” he said.

Kirzinger said keeping Trellis, West Ridge and Strata as apartments won't be as profitable. But Cain said the “plus” with this re-apartment trend is “a very healthy rental market with tight vacancies and rising rents.”

Rich Walker, an apartment sales broker with Marcus & Millichap, said that “for the most part, the conversion market (in the region) has either slowed or stopped.”

A few higher-end Edmonds and Eastside properties are being converted, he said, but the entry-level market is saturated.

“That's where the majority of the subprime buyers were, and loans have become more difficult to obtain,” he said.

Mosaic was founded in 1999, and is also active in the Greater Vancouver, B.C., area, where it focuses on rowhomes and townhomes. The firm's Puget Sound region condo projects Towne in Bellevue, Tanager and Gallery in Kirkland, Brio in Lynnwood, and Bluegrass in Everett have sold out, Kirzinger said.

The firm is looking to buy more apartments locally.

“We think Seattle has very good long-term fundamentals,” Kirzinger said.

Make that two apartment towers

The Hanover Co. has decided to build two high-rise luxury apartment towers at Northeast 10th Street and 106th Avenue Northeast in downtown Bellevue. It had been mulling other uses for one of the towers.

The Houston-based firm will start construction of the first tower with 147 units by November and complete it about 26 months later, said Hanover Development Partner Eric Kenney. The second phase will be 160 units. Carrier Johnson is the architect.

The 220-foot-tall buildings will have a complementary architectural style and each will have 8,000 square feet of ground level retail. The design calls for an “urban park” — a linear open space generally along the north side of Northeast 10th Street — with retail shops and outside seating for restaurants. Kenney said the project must still go through the city's planning process.

Hanover is constructing three luxury apartment projects locally: the 129-unit Ten20 and the 202-unit Ashton Bellevue, both in Bellevue, and the 224-unit Olivian in Seattle.

Rents are rising now, but Dupre + Scott Apartment Advisors has said it's concerned the regional apartment market will be overbuilt in 2009 and 2010.

Kenney said both job and population growth merit Hanover's new construction.

As of last fall, the average Bellevue-West (Bellevue west of Interstate 405) 1-bedroom rent was $1,283, up 7.1 percent from a year earlier, according to Dupre + Scott. The average 2-bedroom 2-bath rent was $1,576, up 8.8 percent. The firm forecasts these rents will have climbed another 3 to 4 percent by spring, to $1,328 for 1-bedroom units and $1,630 for 2-bedroom 2-bath units.

Hedging condo buyers' bets

Image courtesy of R.C. Hedreen [enlarge]
Prices in Olive 8 range from $750,000 to $4.4 million. Fifty of the 230 condos are left to sell.

Acknowledging it is in an uncertain market, R.C. Hedreen is guaranteeing new buyers that if the price of an equivalent condo in the firm's Olive 8 project in downtown Seattle is lower at closing then they'll get the lower price.

“If at closing we have discounted other products of that type, we would pass that same (percentage) discount on to you,” said David Thyer, president of R.C. Hedreen.

The 39-story Olive 8 Hyatt Hotel/condo project is under construction at Eighth Avenue and Olive Way. The hotel is scheduled to open in December, with condo closings in January through May. Fifty of the 230 condos are left to sell, Thyer said.

The units cost $750,000 to $1.75 million, with three penthouses at $2.4 million to $4.4 million. Most of the condos are $1 million to $1.4 million.

The Washington Center for Real Estate Research at Washington State University said in November of 2007 that owners of more expensive homes in King and Snohomish counties are having difficulty selling because of high inventory levels, so they can't trade their suburban homes for in-city condos. The center said that may hurt prices for condos of $500,000 and above.

Thyer said job growth should stimulate demand and a number of projects have been delayed or may not be built in the near future, limiting supply.

“We're not too stressed about this issue, but I do acknowledge that there is a lot of concern and caution in the marketplace in general,” he said.

Thyer argues that construction costs, and therefore the price of condos, will continue to rise.

Four Seasons looks overseas

The developer of the $150-million Four Seasons Hotel and Private Residences in downtown Seattle has sold 24 of the project's 36 condos.

The firm has garnered $2,000 to $2,400 a square foot from buyers aged 24 to 94, according to the Seattle Hotel Group.

Now it's stepping up marketing outside the United States.

“We're starting to do more publicity overseas,” said John Oppenheimer, managing partner of Seattle Hotel Group. He said that while the project's prices are significant, they're “nothing” compared to the cost of a condo in London and Tokyo.


 

Lynn Porter can be reached by email or by phone at (206) 622-8272.


Got a tip? Contact DJC real estate editor Brian Miller at brian.miller@djc.com or call him at (206) 219-6517.


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