You don’t dare say the word out loud in the halls of an institutional lender yet, but some savvy developer types are figuring out that the supply and demand curves for “condominiums” has swung in the direction of under-supply. A report out by Costar Group states that there’s a “boomerang” back to condos due to the lack of supply.
The need is in the urban core of major cities and it is fed by a demographic of younger professional adults seeking the city lifestyle. I suspect that like the last boom (erang) there is an element of the demand coming from baby boomers with back aches from raking their acre lots out in the ‘burbs.
Rental rates are appreciating at a clip that turns everyone into an apartment developer, and like all trends (Apple stock?), there will be an upper limit and the for sale option will become more appealing.
Working against that is the searing experience that is still fresh among younger buyers who bought into the condo craze in 2006 and are still underwater on their too-hot mortgages. Against it too is the rising cost of construction driven by the boom in apartment construction. The same sub-contractor base builds both product types and both use drywall, wood and steel which are all facing upward pressure.
At the end of the day, the deal has to make sense. Whether it is an apartment, condo or town home platform, the basics have to be answered in the affirmative:
- Is this a solid location? The neighborhood needs to be the amenity – how does it stack up in retail and restaurant offerings?
- Does the developer know what they are doing and do they have the financial strength to weather the “aww s*-t” factor?
- Do the macroeconomics of supply and demand in product type AND job growth/family formation support new construction?
If these basics are met, it might be worth a trip to your local lender. Yell “Condo!!” loudly as you enter their office. If they react like you are the Joker about to rob the bank, better stick to your day job. If they smile and escort you in…you are either too late, or you came to the right place.
“I just wanted a condo loan…”
Range Light Partners 