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


monsoon

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I don't think population is decreasing in South Florida either. If anything it's still rising and remember this is the area where the truly rich have invested in property for a long time. What has disappeared is all of the speculative money being thrown at high rise condos that were built there in unreasonable numbers. It finally crashed when the money dried up and people finally figured out that real estate can't rise this fast with endless abilities to make profits with flipping. Now instead of "flippers" a new term has replace it. "Vulture Investor". This is someone who comes in and takes advantage of developers and homeowners stuck with depreciating properties. Anybody that bought a condo in the last 3-5 years is really going to be the one that will take the brunt of this fall. Just like the last investors in the dot-com boom. Anybody remember Nasdaq at 5000+. People have an uncanny knack for putting their money into a "sure thing". You can add high rise condos to that list.

Now that the banks themselves are in trouble things don't bode well for Charlotte's mainstay in high income employment and I suspect that we are going to see a mini-Miami here in Charlotte too. It's even more likely to happen because Charlotte does not have the land pressures nor name recognition that Miami has and this is the reason that all of as sudden 4 projects are "on hold", two of which have significant concrete out of the ground. A couple of years ago when I started the original topic on this and suggested that Charlotte could not sustain all of this kind of construction, nobody except for a few believe it and now here we are, projects are being canceled and put "on hold".

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But my impression has been that the demand for these units is out there (that is, demand to actually LIVE in these units), its just that the investor funding for construction has virtually dried up, largely driven by over-builds in places like Miami and Vegas.

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But my impression has been that the demand for these units is out there (that is, demand to actually LIVE in these units), its just that the investor funding for construction has virtually dried up, largely driven by over-builds in places like Miami and Vegas.

Agreed. That's why you are seeing projects like 210 Trade temporarily on hold b/c of that permit issue and not lack of demand. Lenders are closing monitoring those types of details a little more than they were before. Also, lets not forget that Wachovia's condo tower is moving forward too. But that's obviously a little different since they are a bank and they are financing it just like their new office tower.

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I don't think population is decreasing in South Florida either. If anything it's still rising and remember this is the area where the truly rich have invested in property for a long time. What has disappeared is all of the speculative money being thrown at high rise condos that were built there in unreasonable numbers. It finally crashed when the money dried up and people finally figured out that real estate can't rise this fast with endless abilities to make profits with flipping. Now instead of "flippers" a new term has replace it. "Vulture Investor". This is someone who comes in and takes advantage of developers and homeowners stuck with depreciating properties. Anybody that bought a condo in the last 3-5 years is really going to be the one that will take the brunt of this fall. Just like the last investors in the dot-com boom. Anybody remember Nasdaq at 5000+. People have an uncanny knack for putting their money into a "sure thing". You can add high rise condos to that list.

Now that the banks themselves are in trouble things don't bode well for Charlotte's mainstay in high income employment and I suspect that we are going to see a mini-Miami here in Charlotte too. It's even more likely to happen because Charlotte does not have the land pressures nor name recognition that Miami has and this is the reason that all of as sudden 4 projects are "on hold", two of which have significant concrete out of the ground. A couple of years ago when I started the original topic on this and suggested that Charlotte could not sustain all of this kind of construction, nobody except for a few believe it and now here we are, projects are being canceled and put "on hold".

These projects have been put on hold because of costs of rising materials, an arguable nationwide recession, a troubling banking industry, and where banks have enforced stricter building methods and minimums in order to receive funding. No one could have predicted that this would have all happened at once and when these new towers are at the begining stages of the construction process. I don't think it had to do with supply and demand. There are many that are still lining up to purchase uptown condos, and with rising gas prices and trends that invert the trend that has taken place over the past century, people are looking to live close to where they work and buy into an alternative lifestyle. It's just the bottom of the wave for now, it'll be back up.

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I don't think population is decreasing in South Florida either. If anything it's still rising and remember this is the area where the truly rich have invested in property for a long time. What has disappeared is all of the speculative money being thrown at high rise condos that were built there in unreasonable numbers. It finally crashed when the money dried up and people finally figured out that real estate can't rise this fast with endless abilities to make profits with flipping. Now instead of "flippers" a new term has replace it. "Vulture Investor". This is someone who comes in and takes advantage of developers and homeowners stuck with depreciating properties. Anybody that bought a condo in the last 3-5 years is really going to be the one that will take the brunt of this fall. Just like the last investors in the dot-com boom. Anybody remember Nasdaq at 5000+. People have an uncanny knack for putting their money into a "sure thing". You can add high rise condos to that list.

Now that the banks themselves are in trouble things don't bode well for Charlotte's mainstay in high income employment and I suspect that we are going to see a mini-Miami here in Charlotte too. It's even more likely to happen because Charlotte does not have the land pressures nor name recognition that Miami has and this is the reason that all of as sudden 4 projects are "on hold", two of which have significant concrete out of the ground. A couple of years ago when I started the original topic on this and suggested that Charlotte could not sustain all of this kind of construction, nobody except for a few believe it and now here we are, projects are being canceled and put "on hold".

I have two friends from Miami that are involved in development and construction there. One with lending, the other is an architect and works as a project manager for builders/developers. Both have agreed in large part with the comments above about Miami's problems, but have explained much of what happened there and places like Vegas and parts of California as an effect of flipping the same properties over and over between investors. This is something that hasn't happened here. We have had flips, certainly, and right now those that hoped to flip here are getting fried at Avenue and Trademark and the same happened last year with Courtside. The attempts to flip in this projects has really fizzled and never really worked for the most part. Flipping new condos never really caught on or worked here with rare exception and most of that 5 or 6 years ago with the first wave of new projects (when demand was higher than supply).

What occured in many instances in those other markets were initial buyers who intended to flip bought and sold. They sold to the next wave of flippers, who sold to the next wave and so on. Eventually product that had been astronomically marked up and resold with no real economic change or 'real' reason for increase in value other than speculation caught up with these folks. Combine that with a construction boom that continued, and new units coming on the market at better value than those flipped up and up, a bunch of folks got caught with their pants down -- like a Ponzi scheme -- someone gets left holding a bunch of nothing that everyone else has cashed out of. Additionally oversupply and national financing problems factored in to pop these markets. A lot of this also had to do with foreign buyers (a friend who is a real estate agent in Miami told me over half of his business are wealthy buyers from South America and Central America who purchase with cash) and investors in those markets as well as companies that were set up that bought large blocks of units in many buildings at a discount to drop back on the market at the end of a project.

Since most of our buildings are primarily occupied by owner-occupants, and many of the units attempted to be flipped ended up as rentals, we never had the flip of the same units over and over. For the most part new units in new projects might have been flipped once, but that's it and generally speaking no more than 20% of any building has been flipped or bought up just as investment so far. Again, at Courtside, M Street, and other projects where flip attempts were made these resales often didn't happen, even for the first flip attempt. Market forces do tend to take care of themselves in many cases. Buyer demand hasn't supported buying a unit and tacking on $40,000 for nothing and tossing it back out on the market for an easy sale. Bad for the investor, good for the buying public.

From what most have seen and expressed, the demand for units, or lack thereof, hasn't been the driving factor for the current slow down in construction, but the economic issues that are nationwide have. I don't think anyone has missed the news that lenders are as tight with their money now as they ever have been and freewheeling investing by banks is dead. The Park is a good example -- if they would ever finish the project they have most units already sold -- it will be interesting to see how many buyers were willing to hang on through this endless process of its construction or how many that were buying to flip and might be willing to lose their earnest money since the flip game in Charlotte has pretty much proven to not be a viable or realistic way to get rich quick in real estate.

Buying any property to try and get rich quick with is very risky. Buying your own home to live in for at least 5 years is as safe a prospect as its ever been. Of course we could talk about major problems or issues that could kill values even if you are a homeowner, but something like the failure of one of our big banks or some other major economic collapse would affect all of the city, not likely any single market specifically.

Edited by Charlotte_native
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The NBC Nightly News is going to do a program on Monday night about the failure of these high dollar condo developments. I don't expect much from the program, but given they are going to devote a segment to it on the national news, it does seem to be a national problem that is catching up with Charlotte.

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The NBC news piece piece was called "Condo Bust" and it basically said that center city revitalization condos, even ones with government subsidies were tanking. In some cases the properties of buildings were being auctioned off at 50% of the original asking price. Other projects were on hold.

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NPR reported all housing markets fell again last month with the exception of Charlotte, NC which gained. Does this mean we are the last one standing? Wasn't Seattle and Austin there the month before?

I didn't hear the story on NPR, but this was on Charlotte.com today:

http://www.charlotte.com/news/ap_news/story/551712.html

Hard to tell, from my reading, if they are saying all markets are down except Charlotte or just the cities tracked are down except Charlotte. Part says 'all major cities' but the Standard & Poor part says of the 20 they track.

It points out that the hardest hit are Miami and Vegas due to 'rampant speculation and overbuilding' and they dropped 19.3%.

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Some of the articles being written about the C-S index today are a bit deceptive. Charlotte is the only city with positive home price appreciation (HPA) year over year (from last January to this January), but as each month rolls by, Charlotte's 12 month rolling HPA has been dwindling. That's because the Charlotte MSA has been depreciating for the past 5 months straight. In fact, if you were to annualize the change in Charlotte's HPA over the past 6 months, you would come to a figure of -6.15%. I would say the last 5 months really tells the story of where Charlotte's housing market is going in 2008. Here are the actual C-S index figures for Charlotte if you're interested.

Case-Shiller Index Value for Charlotte MSA

January 2007 129.43

February 2007 129.31

March 2007 130.44

April 2007 131.98

May 2007 133.42

June 2007 135.05

July 2007 135.60

August 2007 135.88

September 2007 135.13

October 2007 133.98

November 2007 132.68

December 2007 131.9

January 2008 131.7

MoM % Chg

January 2007

February 2007 -0.09%

March 2007 0.87%

April 2007 1.18%

May 2007 1.09%

June 2007 1.22%

July 2007 0.41%

August 2007 0.21%

September 2007 -0.55%

October 2007 -0.85%

November 2007 -0.97%

December 2007 -0.59%

January 2008 -0.15%

January 2007 to Januarry 2008 YoY Change: -1.75%

Edited by BlueDevil37
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19.3%? Ouch.

If you want to check out your home's value (up or down) check out cyberhomes.com. You can type in your address and see how your house (and area) is fairing as far as home value. It also let's you do comparisons of neighborhoods, which is a pretty cool way to see how the area is doing in terms of home values.

Cyberhomes.com

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Regardless of what general house prices are doing, I would contend the downtown high rise condo market is not completly driven by the same forces. 30,000 or something like that moved into Mecklenburg over the past year so I would expect that would help to keep prices in check on the general housing market. However the demand for very high priced high rise condos, in a market where there are no land pressures to build these kinds of buildings to meet demand, has driven by other factors that ARE falling apart, even here in Charlotte. When they stop work on a project that has been years in the making then that is a definite sign that this market is in trouble.

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  • 3 months later...

In respsonse to the initial forum question, it looks like flippers may have been more of the market than maybe orginally thought. Hate to be Chief Raincloud but I now count 6 foreclosures in Coutside. As Charlotte's "First Modern Highrise Condo Building" this does not bode well for other projects.

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In respsonse to the initial forum question, it looks like flippers may have been more of the market than maybe orginally thought. Hate to be Chief Raincloud but I now count 6 foreclosures in Coutside. As Charlotte's "First Modern Highrise Condo Building" this does not bode well for other projects.

At least this might slow the number of flippers in these projects. I still don't understand why anyone thought trying to flip a new condo when you've done nothing to increase its value other than close on it was a sound business idea.

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Maybe it was the same kind of mentality that leads people to pay highrise prices for units surrounded by parking lots and vacant space. Skyscrapers are only justified, in the long run, in situations where there is no land left. Certainly, this isn't CLT, NC.

Perhaps, but i think most don't see a similarity in mentality for those looking to cash in by doing nothing and flipping a property and those that choose a certain property type for their home. Two different objectives, two different types of folks. Considering the price per foot in most of the mid-rises, high-rises, and townhomes are similar to the price per foot for homes in Dilworth, Myers Park, Elizabeth, NoDa, Wesley Heights, I can't see where it is really very out of line. The markets on a per-foot basis are almost identical. Only a small percentage of uptown properties are much higher than around $200 - $250/foot, some are as low as $150/foot.

Edited by Charlotte_native
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Although investors were definitely involved in some of the previous 3-4 years of Charlotte's condo blitz, I believe most of the appreciation was pushed more from the developments that were announced one after another. Example, those who bought in early at Courtside or Court 6 benefitted from the new market pricing of trademark, avenue, and other newer towers with better ammentities.

I think other markets have suffered due to an investor feeding frenzy - but to dismiss this practice as something evil because a "flip" investor adds no value is a bit dismissive. Another example, buyer A secures a contract for 5-10% deposit, waits 24-30 months during construction, and is able to sell (hopefully) for the new market price based on 24-30 months of apprecation. Now take buyer B, buys an existing condo uptown, lives there for 2 years, makes no improvements and is able to sell for the same appreciated value. Who deserves to make a profit? - I say both equally deserve that appreciation.

I agree that doing this as a business is not espcially wise, but those who tried and failed will suffer the consequences. As for the homeowner's that will suffer from an immediate drop in value due to foreclosed units, they also benefitted from the flippers that supposedly artificially drove the prices up. Let's call that a wash.

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Maybe it was the same kind of mentality that leads people to pay highrise prices for units surrounded by parking lots and vacant space. Skyscrapers are only justified, in the long run, in situations where there is no land left. Certainly, this isn't CLT, NC.

Geez, thank goodness so many of these other projects are not coming to fruition then (OneCharlotte, 300 S. Tryon, 210 Trade, The Park?) or else we really could have had a condo overhang problem on our hands.

Another thing that may help tip the scale a little more in favor of Center City condos is sky high gas prices, which may keep prices at a floor. This will have the opposite effect - that is making exurb type areas like Huntersville and Mint Hill, where there is also a ton of land available, a lot less desirable. We're already seeing that effect in play in the DC area, where Northern Virginia exurb house prices are getting slaughtered. I would expect to also see that happen in our exurbs, if it already isn't.

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I live in Orlando and have been following the housing market trends in Charlotte and other desirable cities, due to the rising cost of living here. When Charlotte was cheap in the housing market while Orlando was high and out of control, lots of people left for Charlotte and I saw the rise in housing prices in Charlotte start to happen, basically the trends in the Charlotte market are about a year to a year and a half behind the Orlando market. Even now with the mortgage crisis prices in Orlando haven't dropped drastically, it's gone from a peak of $297,000 and is now down to $247,000 and the national average is now $207,000. Who is going to buy all those condos? The Orlando Sentinel recently reported that the fastest selling housing market in the metro since January of 2008 is now downtown, where all the recent highrise condos have been built. It has made a major turn around due to falling prices and the cost of gasoline. They give an example of a penthouse that was priced originally at $1,000,000 was marked down to $850,000 and sold within 2 days. The downtown condo vacancy rate was 80% in December 2007 and is now 22% as of June 2008 and sales are happening fast. There are now over 20,000 residents living within 1 mile of the CBD and over 100,000 residents within 3 miles of the CBD. Due to falling prices and auctions. smaller units that were priced in the $300-400K range are now selling starting in the low $200's. There are now about 2000 rental units under construction in the downtown area, most in a residential/retail center called SoDo and a residential/retail center called Mills Park. Orlando is in the top ten cities with the worst urban sprawl and 4th in the nation in commute time. So the same will probably happen in Charlotte, no matter how much available land there is in the suburbs. The one thing that is a turn off to the new condo towers is the homeowner association fees which are like $500-$600 a month in the new buildings. To see a link of the SoDo apartment complex which is anchored by an urban Super Target go to :

April aerials: http://www.sodo-orlando.com/about-sodo/new...s%20aerials.pdf

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.... This will have the opposite effect - that is making exurb type areas like Huntersville and Mint Hill, where there is also a ton of land available, a lot less desirable. We're already seeing that effect in play in the DC area, where Northern Virginia exurb house prices are getting slaughtered. I would expect to also see that happen in our exurbs, if it already isn't.

There is actually no evidence that high gas prices will cause people to move to the center city, especially in an area such as Charlotte where the majority of the jobs are also in the suburban areas. People will switch to more fuel efficient cars, use express buses, etc. This was proved in the 1970s during the fuel shocks of the time where, not only was gas high, but there were times where you couldn't buy it at any cost. I remember driving down sugar creek hoping to find an open gas station but they were all closed. This did not cause people to start running towards downtown Charlotte. In fact people continued to move in the opposite direction. I note that the condo projects would not be canceled if the demand was still there. It isn't despite, the gas prices.

The homes are being slaughtered in Northern VA, because they experienced very high appreciation in a short time, and now it's headed back down. The same is starting to happen to overvalued property in Charlotte too. I don't know why it is surprising to people this is happening when at a macro level real estate went up 87% in this country since 2000 but household income has actually dropped in real terms. It's unsustainable.

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There is actually no evidence that high gas prices will cause people to move to the center city, especially in an area such as Charlotte where the majority of the jobs are also in the suburban areas. People will switch to more fuel efficient cars, use express buses, etc. This was proved in the 1970s during the fuel shocks of the time where, not only was gas high, but there were times where you couldn't buy it at any cost

True, there is no evidence because we have never seen anything close to the likes of what's going on right now. Even in the 1970s, adjusted for inflation, fuel shocks were never ever this high. During the oil embargo years you've cited, the highest gas prices reached were $2.50/gallon (again, in today's terms) and peaked at $3.40 in March 1981 at the beginning of the Iraq-Iran war. Don't you think there's a chance - just a possibility - that $6 gas by the end of the summer could perhaps render people's behavior in this era different than what we've seen in the past?

By the way, oil broke through $140 a barrel for the first time today. Uggh.

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I think other markets have suffered due to an investor feeding frenzy - but to dismiss this practice as something evil because a "flip" investor adds no value is a bit dismissive. Another example, buyer A secures a contract for 5-10% deposit, waits 24-30 months during construction, and is able to sell (hopefully) for the new market price based on 24-30 months of apprecation. Now take buyer B, buys an existing condo uptown, lives there for 2 years, makes no improvements and is able to sell for the same appreciated value. Who deserves to make a profit? - I say both equally deserve that appreciation.

I agree that doing this as a business is not espcially wise, but those who tried and failed will suffer the consequences. As for the homeowner's that will suffer from an immediate drop in value due to foreclosed units, they also benefitted from the flippers that supposedly artificially drove the prices up. Let's call that a wash.

I hope i never implied that flipping was somehow dishonest, evil, or anything otherwise. I personally just think it is a VERY risky way to try and make quick money. Easy come, easy go.

My comment about making money without doing anything was more in consideration of the difference between someone who buys a property, invests money in it to add on or update, then reprices and resells. Something like that scenario is somewhat less risky because you have actually done something to create value more than just biding your time and closing.

I believe in the free and open market and if people want to risk their money in flipping new condos, go for it. But there has been quite a fleecing of those that tried this at Courtside, Avenue, Trademark and other projects. Luckily it hasn't caused prices to drop lower than people paid for their units, and it has also created a nice inventory of rentals in uptown for those that decided not to sell at a loss and rented their units out.

Edited by Charlotte_native
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Flipping is definitely high-risk/high-reward. The rush of "investors" to the new concept of high-rise living in downtown Charlotte was not unlike the rush of investors in the .com craze. I'm sure most thought that there was no way they could lose money and that their money would only be tied up for a short period of time given the aggressive construction time lines that were proposed to them. Developers saw this huge demand and met it w/ supply - its not like there is a severe shortage of land inside the 277 loop. Get an architect to design your building, buy an option on the land, come up with a hip, cool name for the building, and open a pre-sales office on Tryon St.

Have we heard any success stories from these investors who got in early in the Charlotte market? I think the folks who bought the places to live in and are in it for 5-10 years will come out okay - the market will shake itself out over that time. But those who thought they could sell for 20+% gains as soon as the doors opened are/were likely mistaken.

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.... Don't you think there's a chance - just a possibility - that $6 gas by the end of the summer could perhaps render people's behavior in this era different than what we've seen in the past?

By the way, oil broke through $140 a barrel for the first time today. Uggh.

Maybe, maybe not. Prices were mitigated somewhat through rationing of supply that isn't going on now. Also, unlike the 70s, we have such things as telecommuting, more access to mass transit, (In your example DC's metro was still mostly a plan in 70s) and improved technology to make much more fuel efficient, and non-fossil fuel cars.

I can tell you know the vast majority of the demographic in the Charlotte area cannot afford or would want to move to the center city or its surrounding enclaves.

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