Who is going to buy all the Condos, (Part II)

[monsoon]

We have had a spirited discussion on this in the past and now with the news that 300 South is canceled on the heels of the news that One Charlotte tower is also dead, and no news from Trump, has the condo bust finally hit Charlotte? Did too many projects get announced in a city where there were not enough real buyers to support and/or will units that have already been built start to experience devaluation?

What other projects could be canned as well?

[MZT]

To me it sounds like the irrational exuberance has been blown off, and developers are "getting a grip" that Charlotte is not going to be the next Manhattan full of million dollar condos.

Flippers will get creamed here, just like in Miami and Las Vegas, and prices will fall until rents will support the financing.

Edited January 31, 2008 by MZT

[atlrvr]

Well....not that many people have a ton of faith in the Citadin, but I'm doubting their ability to get financing for a project of that scale without at least 80% pre-sold.

I think a lot of this has to do with financing difficulties rather than demand. From best I could tell on 300, they pre-sold about 50%, which would have been good enough to start building if this was 1-2 years ago.

As I've said in other threads, I see TWELVE getting pushed back by 6months-1year, and the redevelopment of 222 S. Church being pushed back several years.

Other that these, everything else that has begun pre-selss has broken ground I believe....oh yeah, except Encore, which I think will happen, due to the small number of units...

All in all, I don't think we will see a drop in prices.....people who might have been planning to buy at 300 S. Tryon will now likely consider The Vue, or possibly 210 Trade. Buyers holding out for TWELVE will likely just purchase at Catalyst.

Assuming we don't start losing jobs again, I think we will see demand begin to exceed supply at some point in the next 2-4 years, and developers will be scrambling.

[Windsurfer]

To me it sounds like the irrational exuberance has been blown off, and developers are "getting a grip" that Charlotte is not going to be the next Manhattan full of million dollar condos.

Flippers will get creamed here, just like in Miami and Las Vegas, and prices will fall until rents will support the financing.

At least some of the condos are being cancelled before they're even built. That'll help the demand for the units already built. I'm running into people looking at units at The Trademark who came to town under the impression The Vue was already built, for example.

[HopHead]

I think it was inevitable that some of these projects would get pushed back or cancelled all together. Though, I have to admit I was little surprised by 300 S Tryon being put on hold. I thought it was a very feasible project b/c of it's mix of some affordable condos and office space. I agree with atlrvr that TWELVE will probably get pushed out some. Some of these cancellations, like some suggested, will only help out the other projects already under way. I'm hoping that someone will be smart enough to maybe take one of these delayed high rise condo projects and change the plans around to become office space given the fact we have such a low vacancy rate.

[Charlotte_native]

I think this is just an adjustment to current market conditions rather than a larger statement about the whole city or its long-term growth. Supply and Demand are out of whack right now due to many factors including troubles with financing on a large scale and small personal level, the economy is tanking, and people are worried. These projects, some of them, should be delayed and it appears this necessary move is happening. Everything runs in cycles and we are now in a down cycle. Thankfully developers are taking note and holding off on irrational building (though on a personal level i'd love to see these go up NOW!).

This will turn around at some unknown point and projects will either be revived, changed or shelved, but markets always take care of themselves.

I do agree that the flippers who bought in a strong market are going to hurt the most from this. Good side, the rental market is great...switch from trying to make the quick dollar with a flip and take the longer road with a tenant!

It can't be all bad for the projects that are going up, especially Catalyst, to have some of their competition bow out.

Edited January 31, 2008 by Charlotte_native

[Raintree21]

Will falling interest rates enable more people to afford a mortgage on a place downtown, creating more demand?

Will the delay of projects like 300 S. Tryon cause those that already reserved units to flee to other buildings that are built or are already under construction, thus pushing 300 back further due to a lack of sales?

[monsoon]

Will falling interest rates enable more people to afford a mortgage on a place downtown, creating more demand?.....

There are no magic pills for this. The only way the Fed can lower interest rates is to print more paper money. This has the immediate effect of devaluing the $ more which makes everything more expensive. So no, I don't think there will be more demand for luxury condos because of this action. Food, energy, almost everything costs more, but salaries are not rising with it. (in fact lots of people are worried about their jobs including many at some of Charlotte's largest downtown employers)

[swh1972]

^^ Dropping the Fed Rate has an immediate impact on Short Term rates, but Mortgages (Long Term) may not see the same effect, and it may not be as immediate of an effect. Also, I wouldn't expect Mortgate Rates to drop 1.25% from their current levels.

[Charlotte_native]

Dropping rates has traditionally given at least a temporary boost to real estate refinances and sales. Whether it will now or not is yet to be seen -- the banking industry hasn't been in shambles when this has worked in times past and has been able to translate those lower rates into loans for individuals. Right now the loan process and what is available is very different from other rate drops to rebound the real estate market. The factors that have created this are different also.

Whether people want luxury condos in downtown isn't really the issue it is their ability to buy anything anywhere, the luxury units downtown or the more abundant normal units downtown are both slow so it doesn't appear to be picking on one part of the market or another. Right now peoples ability to buy and their fears over the economy are more of a driving factor than whether something is luxury or not. I would argue that the desire to own ones home is still there, just not the buying power nor the confidence that now is the right time to make a big move on anything.

As I've always believed, though, down cycles are part of the overall natural cycles and are as necessary as the up times.

I do know people buying right now and they are getting great deals -- If one has the ability and the confidence, now is probably the best time to get the best deal from the past couple of years and maybe through the next couple.

There are no magic pills for this.

Awww, come on! Be fair, you mean you don't think the Feds giving tax paying Americans $600 won't be the panacea for all that ails us!!! I thought that would bring about the high and mighty times of the past!

[maratletter]

The only way the Fed can lower interest rates is to print more paper money.

Oh really? Long-term rates are market driven. Long-term interest rates, as represented by yields of the 10-year or 30-year Treasury bond, tend to move in anticipation of changes in the economy and inflation. The Federal Reserve Board only controls the short-term federal funds rate. The Federal Reserve Board (Fed) has the power to raise or lower the federal funds target rate (Fed funds rate), which in turn influences the market for shorter-term securities. The Fed funds rate is the rate banks charge other banks for overnight loans. The Fed may raise the rate to keep inflation in check or lower it to stimulate the economy. Interest rates and bond prices have an inverse relationship. When interest rates rise, bond prices generally fall. Conversely, when interest rates decline, bond prices tend to rise.

[monsoon]

^I was referring specifically to the actions the Feds took over the last few days. Most everyone on this site would know that mortgages are tied 15 and 30 year bonds which are are not, as you correctly mention, directly tied to short term rates. I guess the effect of those rates were not explored, but one can assume that even that isn't going to change the demand for luxury condos, since much of the market, it would seem, was made up of investors and not home buyers. In addition, it's now common for people to finance part of their home purchase with a short term loan (in part to avoid PMI) and those are directly tied to Fed actions, which is to print more paper money to drop short term rates.

[Appetite for Construction]

From what I have heard from a developer (one with connections to the project, not the lead developer), the residential portion of 300 South Tryon was strong, it was the office component that was cause for concern. True, uptown office vacancy rates are insanely low, but with more rough times ahead for the banks, it's a bad time to build a spec office building, especially with all the new office space that will be coming online in the next couple years. Perhaps all this project will need is a signed lease with an anchor office tenant to be resurrected.

[RiverwoodCLT]

Whats going on at the Vue? I have not seen much going on for the last 2 weeks. Do you think we could see another delay here for not having enough sales to start construction due to tight money market?

[HopHead]

Whats going on at the Vue? I have not seen much going on for the last 2 weeks. Do you think we could see another delay here for not having enough sales to start construction due to tight money market?

Out of curiousity, I drove by there yesterday. They had Pine blocked off. It appeared they were doing some kind of utility work on that side of the Vue site. There were also numerous workers in the hole that's been dug. I haven't seen much activity there lately either, but it appears they are still moving forward

[Raintree21]

Whats going on at the Vue? I have not seen much going on for the last 2 weeks. Do you think we could see another delay here for not having enough sales to start construction due to tight money market?

Out of curiousity, I drove by there yesterday. They had Pine blocked off. It appeared they were doing some kind of utility work on that side of the Vue site. There were also numerous workers in the hole that's been dug. I haven't seen much activity there lately either, but it appears they are still moving forward

I refer to my post about a week ago or so in the Vue topic noting that virtually nothing has been done. There were reports of pile driving but I've yet to see it or the equipment for it (although I haven't been there in a few days). There was very little heavy machinery there (only a small bulldozer and a dismantled crane w/ treads) last I saw. Could this be the next loss? Seems like this is too huge of a project to cut but the delays have been very noticeable. Having another vacant hole in the ground would be horrible (reminds me of DeeDee's hole in Glen Eagles).

[smeagolsfree]

I would bet that the hole in the ground we have in Nashville would be in competition for anything you can find there. The West End Summit is a 25 and 23 story mixed use complex that has a huge hole and nothing going on. Right now its a huge swimming pool about 50 feet deep and covering an entire city block. I think the Signature tower here may well be postponed if not DOA. I think all cities that have been hot for development may have a rough year, Nashville and Charlotte included. I also think that Charlotte and Nashville and a few others will fair better in the current market than areas in FL, CA, AZ, and NV.

I say give it a year and see where we are at, and many of these projects (not all) could be resurrected. Lets hope so anyway.

[Charlotte_native]

Whats going on at the Vue? I have not seen much going on for the last 2 weeks. Do you think we could see another delay here for not having enough sales to start construction due to tight money market?

I've seen work going on there for the past few weeks. I shop at that Harris Teeter a good bit and walk past this site when I walk to work. They are doing something in the hole, nothing going up yet, but there has been activity.

[RiverwoodCLT]

Good, I hope to see some big progress soon.

[UPTOWNGIRL]

I refer to my post about a week ago or so in the Vue topic noting that virtually nothing has been done. There were reports of pile driving but I've yet to see it or the equipment for it (although I haven't been there in a few days). There was very little heavy machinery there (only a small bulldozer and a dismantled crane w/ treads) last I saw. Could this be the next loss? Seems like this is too huge of a project to cut but the delays have been very noticeable. Having another vacant hole in the ground would be horrible (reminds me of DeeDee's hole in Glen Eagles).

Pile driving is done. I awoke to it at my place a block away each morning for days ... I also witnessed it... they were just over there the other day placing in the wooden beams to fill between the H-beams that they drove.

I don't know - I walk by 1-2 times every day, and I am seeing activity there daily. I know it appears slow going right now, but they seem to be moving along.

[Commoner]

Oh really? Long-term rates are market driven. Long-term interest rates, as represented by yields of the 10-year or 30-year Treasury bond, tend to move in anticipation of changes in the economy and inflation. The Federal Reserve Board only controls the short-term federal funds rate. The Federal Reserve Board (Fed) has the power to raise or lower the federal funds target rate (Fed funds rate), which in turn influences the market for shorter-term securities. The Fed funds rate is the rate banks charge other banks for overnight loans. The Fed may raise the rate to keep inflation in check or lower it to stimulate the economy. Interest rates and bond prices have an inverse relationship. When interest rates rise, bond prices generally fall. Conversely, when interest rates decline, bond prices tend to rise.

This is where I'm confused - maybe you can help me out. So the Fed Funds rate drops 25, 50 or 75 bps at a time. Money's cheaper and paper gets more valuable. But the cost of money when it comes to home loans is supposedly pegged not to the Fed Funds rate, but to the price of mortgage-backed paper? Does the price of mortgage-backed paper not respond to fluctuations in the Fed Funds rate? Any clarification would be appreciated.

[Charlotte_native]

Observer confirms today that The Park, 210 Trade, 300 South Tryon, and potential Trump project are all on hold. It says that credit problems have made financing difficult even though demand hasn't waned (according to those quoted in the article). The Park is delayed but moving along slowly with a handful of workers according to Verna, 210 Trade had to re-do permits and other construction permit related docs but say they've sold 70% of their units and will still be moving people in by 2010, Trump says they still like Charlotte but want to hold off on making any moves in the current market.

Personally I can't see all of this as bad -- too much supply could be bad for the area, limited supply could keep units moving fairly smoothly as they have been. Balance is always a good thing! I'm sure those with buildings already in process or going up can't be all that upset at these other projects being delayed.

The flippers trying to move units in completed buildings are probably pretty happy as well -- so far the ability to close on something and just mark it up drastically for a profit hasn't proven so reliable any longer, especially when facing the same units for sale by the developer when the project is done at much better prices. This whole slowing of new announcements and projects might help get some of those properties off the market.

Edited March 21, 2008 by Charlotte_native

[monsoon]

^Partially finished buildings with no activities are bad motivators for people looking to purchase.

[Charlotte_native]

^Partially finished buildings with no activities are bad motivators for people looking to purchase.

The only partially finished one mentioned was The Park and Verna claims they are working -- just slowly. The others put on hold aren't partially built. 210 Trade is the only other that might qualify as such, but it hasn't been started, just the base where it will be built is done (Epicentre). 300, Trump, etc are, to date, just plans on paper.

[voyager12]

Compared to the crashing markets in cities like Miami and Las Vegas our "slowdown" is not negative if looked at in that context. I also don't see the population growth in Uptown slowing. Completed projects like Trademark and Ave seem to be filling rapidly and the more moderately priced projects in the outer Wards like Quarterside for example, seem to be moving along just fine.