Sunday, September 18, 2011

Rebound for luxury condos in Valley

Upscale, condominium projects in coveted metro Phoenix locations were icons of the region's housing boom and then some of the most visible signs of the crash.

Dozens of condo towers and loft projects were planned or under construction just as the housing market started slowing. On prime lots across the Phoenix area, signs promoted the projects, sometimes noting prices well above $500,000.

An Arizona Republic analysis in 2006 found as many as 8,000 new condo units were planned.

Fewer than half of those condos were built, and several projects that started went into foreclosure or bankruptcy as the housing downturn worsened. Those projects, complete or half-built, sat boarded up or fenced off.

But now, five years after the housing crash started, several of the high-rise towers and other luxury-condo projects are filling up with buyers and renters.

- Almost 90 percent of the 146 condominiums at One Lexington, a converted 1974 bank building on Phoenix's Central Avenue, have sold. Only 14 of the condos were sold before the project's previous developer filed for bankruptcy in 2009.

- The 22-story Centerpoint Tower in downtown Tempe welcomed its first renters, mostly Arizona State University students, last month. Now, the tower is full.

- Developers of a high-rise in downtown Phoenix called 44 Monroe opted to turn the building's condos into apartments, which are now drawing tenants. The 34-story tower, Arizona's tallest residential building, is nearly 70 percent full. It has 196 apartments.

- In central Scottsdale, more than 20 condos out of 50 planned have sold at the once-stalled Sage project along the city's waterfront. The Safari development, not far from Sage, is also filling up.

- The brick minimansions known as Chateau on Central in Phoenix, once boarded up and stalled in foreclosure, are now open and selling.

Metro Phoenix urban-housing expert and broker Keith Mishkin estimates more than 120 new high-end condos in newer developments have sold so far this year, almost twice as many as last year.

"I wouldn't say the new-condo market has bounced back, but it has definitely started to stabilize," he said. "And it's not just investors buying now. People who want the urban lifestyle and Baby Boomers are now the biggest groups of high-rise condo buyers."

Of the 8,000 high-end units planned in 2006, real-estate analysts say about 3,000 have been built and bought or leased.

In most cases, the original developers went bankrupt or bailed out of the projects. The resurgence in the market has come as new investors have taken over the sites at a lower cost and offered units for less money.

While some of those units have become apartments, others are selling to the same kinds of residents developers originally targeted. The sales indicate that the Valley does have a market for upscale, urban condos for empty-nesters and move-up buyers - as long as the price is right.

Lower prices

Late last year, Phoenix architect Mike Hauer bought a one-bedroom condo on the 14th floor of One Lexington tower in midtown Phoenix.

"The price was right, and the location is great," said Hauer, who paid about $180,000 for his condo and doesn't have to pay homeowner-association fees for a year as part of the developer's incentives to draw buyers. "I had friends over for Fourth of July, and we could watch the fireworks from my balcony. There aren't a lot of Phoenix homes with views like mine."

The project has attracted notable residents including Phoenix City Council member and real-estate expert Tom Simplot, who bought a condo in the tower last summer.

Formerly known as Century Plaza, the high-rise was converted from offices to condos by Equus Realty in 2008. But it the housing market was crashing, and Equus couldn't sell the condos for a profit.

Hauer paid less than half of what his condo was originally priced at when Equus was developing the project in 2008.

Equus filed for bankruptcy, and its lender took over the project. In February 2010, after scouring the Phoenix market for the best high-rise condo deals, British Columbia-based Macdonald Development Corp. bought the tower from the lender for an undisclosed sum.

So far, Macdonald reports it has sold $30 million in condos at One Lexington. The tower was valued at $19 million in 2009.

"Some people thought we were nuts for buying One Lexington," said Rob Hubbard of Macdonald Development. "But we came into the market at the right time. It cost the last developer $340 a square foot to build it. We obviously didn't pay that much. Now, we are able to sell the condos for $225 a square foot and make a profit. Our buyers are seeing almost instant appreciation."

Crash aftermath

What crashed metro Phoenix's condo market is what took down the rest of the area's housing market: an oversupply of new units and too many buyers who were investors, expecting the homes to gain value, rather than homeowners, expecting them to serve as shelter.

The investors, who bought condos and penthouses when the first wave of high-rises started selling units in 2005-06, paid top dollar and then tried to sell as they saw the market slow in 2007. At the same time, metro Phoenix apartment owners were converting their projects to condominiums in record numbers.

According to Arizona housing analyst RL Brown, as many as 10,000 apartments were converted to condos in 2005-07, further adding to the supply of a kind of housing stock rarely seen in the Valley before the last decade.

One of the first downtown Phoenix luxury condo projects, the Orpheum Lofts on West Adams Street sold out quickly in 2004-05. But in 2006, more than one-third of the condos in the Orpheum Lofts were for sale, and then a year later, foreclosures in the historic tower started to soar.

The 17-story Landmark tower, an older apartment high-rise on Central Avenue in midtown was converted to condos right before the market started to slow. It drew many investors and buyers willing to pay as much as $200,000 for a studio.

The project sold out, but some of the investors and buyers walked away as prices in the tower fell with the housing market. Now, the tower is popular with young, single renters.

The 44 Monroe project downtown had its problems, too. The project's original lender went under and was taken over by the Federal Deposit Insurance Corp.

In 2010, Chicago-based ST Residential bought the property planning to sell its 196 unsold units at prices starting just under $200,000. There still wasn't the market for condos at that price. So, the developer turned the tower into apartments earlier this year.

ST Residential also bought the Scottsdale Safari condo project out of foreclosure. This year, condos at that project near Scottsdale Fashion Square have been selling for $400,000 and higher.

Market outlook

When Summit Properties started building a condo project in central Scottsdale in 2007, the least expensive unit was offered at $695,000 and the penthouse at $1.3 million.

But there were few buyers, and Summit lost the project to its construction lender iStar, which finished building it and lowered prices.

Jan Jumet and his wife, who live in Pennsylvania but have been visiting Scottsdale during the winter for several years, recently purchased a condo in the project now named Sage.

"We have wanted a second home in Scottsdale for a long time, but we were waiting for the bargains," Jumet said.

David Sotolov, senior vice president of iStar, said the company considered selling the project to another developer but the offers weren't attractive enough, so it held on and finished construction. Condos are now selling at Sage for $370,000 to $530,000.

Chateau on Central, the luxury brownstone homes, could be the next comeback project for metro Phoenix's urban housing market. The project, like several other stalled condo projects including Centerpoint, was financed by the now-defunct Mortgages Ltd., which left many private investors with big losses when it abruptly shut down in 2008 after the death of founder Scott Coles.

Construction of Chateau stopped when the lender was forced into bankruptcy. Originally, the five-story minimansions with copper turrets, elevators and rooftop terraces were supposed to sell for $2.8 million to $4.5 million.

But after they sat half-built and empty for more than a year, Wisconsin-based MSI West Investments paid $7 million for the 21 homes. The buyer finished the project and is now marketing the homes for $1.1 million. Phoenix Mayor Phil Gordon is currently leasing a home at Chateau.

Not all the condo projects started during the boom struggled. Optima Camelview in Scottsdale, the lofts at Kierland Commons in north Phoenix and the Scottsdale Waterfront are a few that fared better with buyers, and condos at these projects are new reselling and some buyers are making profits on the deals.

Real-estate analysts say there is a market for high-rise condos and lofts in metro Phoenix. The problem was too many developers and investors jumped into the market at once.

Condo owner Hauer believes he bought at the right time for the right price in a tough housing market.

"I think I could sell in five years for a profit if I wanted to, but I really like it here and don't see myself moving anytime soon," he said.

by Catherine Reagor The Arizona Republic Sept. 14, 2011 12:00 AM

Rebound for luxury condos in Valley

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