Horizon, Host: Ted Simons

April 17, 2008

Host: Ted Simons

Condo Market

  • While the lower-end condo market is doing well, it's not the same story for higher-end high rise condos. Economist Elliot Pollack will talk about the condo market.
  • Elliot Pollock - Economist, Elliot D. Pollock and Associates
Category: Business/Economy

View Transcript
>>Ted Simons:
Well, sales of condominiums peaked in Arizona in 2005, with over 178,000 units sold, That according to figures compiled by Arizona State University Economist Jay Butler. Last year, just over 95,000 condo units were sold, reflecting the weaker Real Estate market. That's the lowest rate of sales since 1998. High-rise condo sales: even slower. I talked about the condo market with economist Elliot Pollock of Elliot D. Pollock and Associates.

>>Ted Simons:
Elliot Pollock, thank you so much for joining us on "Horizon."

>>Elliot Pollock:
Thanks for having me on.

>>Ted Simons:
Let's talk about the condo market. I want to you compare and contrast condos in general with the Real Estate market overall.

>>Elliot Pollock:
In general, it's about the same trend, about 10\% of all transactions involve condos. That's high-rise condos, it's townhouses -- condos go down, even condos in the $80, $90,000 range. The ones that are less expensive, under $150,000, let's say, have come down in terms of volume, but haven't come down as far as, let's say, housing overall. Housing, overall, is down about 50\%. Inexpensive condos, probably down about 40\%. But it's pretty close.

>>Ted Simons:
OK, inexpensive condos, apparently, I would guess, better than luxury condos. Correct?

>>Elliot Pollock:
Better than luxury condos, and better than high-rise condos. Most inexpensive condos are single story, or at the most, two-story. A lot of luxury condos, a lot of high-rise condos being built, and they have to be luxury condos by definition, because they're so expensive to build.

>>Ted Simons:
OK, let's talk about some of these luxury condos. A lot of folks in Phoenix, here in Tempe, in Scottsdale, now you're talking Glendale as well, all these projects, 30 stories here, 40 stories there, some of them are up, some of them are still dirt lots. Those that are dirt lots, they are going to go up?

>>Elliot Pollock:
At some point, but they'll be dirt lots for a long time. The housing market is in no condition to absorb many more of these. There are many of the units, especially the ones coming on-stream now that do not have a lot of sales on them. They will be see-through buildings for a while, and it's gonna be almost impossible to get financing. The ones that are either built now, or coming on-stream now, are the ones that got financing during the Real Estate boom. Right now, you're not going to get financing for these unless they're a tremendous -- there's tremendous amount of pre-sales, and that's just not going to happen in this environment.

>>Ted Simons:
Talking about luxury sky rise especially, that market, because it's one that people hear the big blown projects, and they wait around and nothing seems to be happening in certain parts of town. Is there a demand for high-rise condo living in the Valley?

>>Elliot Pollock:
There's a demand, but it's a very shallow demand. What you hear from people who favor them is, one, the Post-War Baby Boom, the kids are leaving home, they're going to want to move from their homes, and into a "lock and leave" places. Two, that there's a lot of people moving here from other parts of the country where they're used to that type of living. They're gonna have demand because of that. But the fact is, it's a very shallow market. I'll give you an example. In March of 2005, the Scottsdale Waterfront, which are two buildings at Scottsdale Road and Camelback, in my opinion, one of the best locations in the Valley, had 2,500 reservations for 198 units. It's three years later, there are still two units unsold, and about 40\% of the units were sold to investors. So, there's about another 40 units or so that are back on the market, in terms of resales. So there weren't a lot of actual users. The same thing is true with the Optima Project at around the same location, where about 40\% of the sales were to investors., rather than to people who will actually live in them. There aren't a lot of investors right now, and as a result, again, the market is very thin. Same thing could be said of the project the Centerpoint Project, where there have been very few real sales, relative to the number of units available. That may change over time, but until it does, you're not going to see many more of these built. You're going to see completions of the ones that are under construction, but after that it just stops.

>>Ted Simons:
OK, let's say you're living near a project that was ballyhooed for years, it's still a dirt lot, nothing has happened. Does that remain a dirt lot? Does the developer try to permit something different, maybe a 10-story or four-story -- what happens to these barren areas?

>>Elliot Pollock:
It's an -- It's on a project-by-project basis. First of all, depending on what you paid for the land, he might decide to hold on until he can build something that's more dense, because he paid an awful lot for the land. Land Values are based on the density of what goes on them, and obviously, there's almost nothing more dense than the high-rise condominium. Secondly, he might try to get off zoning, Non-Residential zoning because there's still demand for that, or the demand will be there sooner than Residential, or three, he will lose the land, and the second or third owner down the road will have it at a basis less expensive, and will be able to build something that is more market-driven right now, which is a low-rise or mid-rise project.

>>Ted Simons:
Once it goes through the permit process, which takes us to the municipalities. Did they jump too quickly for the idea of Urban Living?

>>Elliot Pollock:
The -- there's a bias on the part of municipalities to have that. They love the density, it gives them an excuse for the Light Rail. They think this is the way Phoenix should be. Obviously, the people in Phoenix tend to disagree, because otherwise, you wouldn't have this many vacant. But there's a lot more demand than there was historically. It's just the Real Estate market is in disarray right now. People are holding off buying. There's a huge excess supply, and I think it's gonna be a while before A: the ones that are built are absorbed and B: before you see another one built.

>>Ted Simons:
OK, the idea of the market being down so low, some folks say, now is the time to get these projects underway, because in a year or two, if things start cycling up, you're sitting pretty. Anyone following this logic?

>>Elliot Pollock:
Well, the only trouble is, you can't get financing for these projects right now. And so the lenders are not following that logic. They want to see pre-sales, and a lot of them, before they'll even consider giving you money, if you can get it in this environment. And two, there's a large excess supply out there already. They want to see those absorbed before they're going to start lending again.

>>Ted Simons: OK, real quickly, let's go city by city. Tempe: in trouble?

>>Elliot Pollock: Tempe, I wouldn't call it in trouble. The good news for Tempe is these projects are built or near built. Now, whether the existing developer survives or not, somebody will ultimately live in those places. It might be at a lower cost than they're now asking. It might be at the cost they're now asking, I don't know. But ultimately they'll be high-rise living in Downtown Tempe at some price.

>>Ted Simons: OK, Scottsdale.

>>Elliot Pollock:
Scottsdale, same thing. The Optima Project is pretty well sold out, Scottsdale Waterfront is pretty well sold out, but there are a lot of resales in each. The Safari Project, for example, they're taking it one building at a time, they're doing it very slowly, and they have to do that to get the financing. But overall, it's going to be a limited market. High-rise and mid-rise will be a limited market for a while.

>>Ted Simons:
Same thing, Downtown Phoenix and Glendale?

>>Elliot Pollock:
Same thing. A lot of the places Downtown have been put on the backburner, which is a nice way of saying they may just be indefinitely postponed, or done away with. The Glendale Project, I think, right now, is for the next cycle. It's not for this cycle.

>>Ted Simons:
Alright, Elliot, thank you so much for joining us.

>>Elliot Pollock:
Thank you.

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