In development sometimes you roll snake eyes

Monday, February 4, 2008 at 2:47am

The flagellation of Nashville’s urban market for condominiums has become a sport over the past few months.

There are developers, even those with urban projects, who want to declare the market dead, except of course, their development, which happens to be the finest quality and better than all the others.

Of course there is more supply on the market than demand. That happens in real estate cycles.

With the way people are talking, you’d think catastrophe is around the corner.

Realtor Jon Sheridon has seen a few condo cycles and he said this one is nowhere close to the early 1990s when the real estate market collapsed in the wake of tax law changes.

“You couldn’t hardly give a condo away,” he said. “The word condo even got a bad name.”

Sheridon said he wishes the builders had gone a little slower during this run. “Of course, builders will build,” he said.

Real estate development tends to be about too much or too little. Rarely is there equilibrium. It’s brief when it happens.

Just a few years ago, everyone was screaming for condos downtown. There’s a shortage so build, build, build. And developers did.

Now, it’s “Gosh, they built too much.” Maybe there wasn’t that much demand. Maybe the investors buying units hid the true demand for urban living. Maybe. Maybe. Maybe.

Suddenly it all looks bleak because buyers aren’t streaming in and sucking up the units in a day or just hours. Buyers supposedly aren’t in the buying mood because of the general housing malaise and talk of recession, although agents say they are working like crazy in January, usually a slow month.

Still, there has to be a sales effort as opposed to helping buyers fill out paperwork.

When developers start handing the keys back to the lenders, then it’s time to worry. It doesn’t appear that anyone is hanging in the balance — anyone major anyway.

There may be developer units in the hundreds still left for sale. But many more have been sold and that means the developer’s construction debt is paid and the rest is gravy.

Some investors, particularly the amateurs, who bought into the condo frenzy will get stung. That’s life. Roll the dice and sometimes you get snake eyes, just like the stock market, if you don’t have the staying power.

Developers could have built a lot more in downtown, Midtown and elsewhere in urban Nashville.

Some pulled the reins either by choice or because of market altering factors. Had the downtown ballpark not died, for example, Struever Bros., Eccles & Rouse would have built a 214-unit condo tower.

The number of Viridian units up for resale still sounds alarms. About three dozen are on the market now, roughly 10 percent of the total number in Viridian.

Is that a lot? It doesn’t seem like a lot if you were driving a subdivision of 330 homes looking for the for-sale signs of 34 homes.

There’s also worry over what happens when “investor buyers” of Encore units put them up for resale, if indeed any do right away. Icon in The Gulch has everyone chattering as well about what may happen. The list goes on.

Inventory might not be such a bad thing just in case there is a sudden mass resurgence in a desire for urban living. A developer can’t deliver a big project for two or three years anyway.

Instead, buyers have what they like to have — choice. And prices will moderate some as the resellers’ unrealistic profit expectations are brought back down to Earth.

Meanwhile, the smaller ones — a dozen to maybe 50 units are infill projects — are expected to continue doing well. The danger sign there is specific to areas. There’s a noticeable “oversupply” in the area around Long Boulevard and 31st Ave N. off West End where several smaller projects combine with the big tower The West End to create a long for-sale list.

Still, developers differ on what will sell better and what will sit. Some say units less than $300,000 will sell better while ones more than that mark will sit. Others say buyers will focus more closely on quality.

Nobody knows what will happen until it happens.

All of this is President George Bush’s fault anyway. Five years ago, he pushed for increasing homeownership in America with programs for zero-down payment and loan programs targeting low-income borrowers.

It brought abuse, fed subprime lending and drew people in over their heads. The Democrats in Congress went along with the populist plan. So, it all catches up. The housing market tanks, somehow to everyone’s shock, and ripples through to cause many pain.

Perhaps with a new president, everyone will get warm and fuzzy again and start buying Nashville urban condos for $400 per square foot.

The Chatter Class appears Mondays in The City Paper. Comments may be sent to rlawson@nashvillecitypaper.com

Filed under: City Business
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By: BADCOPS on 12/31/69 at 6:00

I have done the condo life before. What a night-mare in drag.All they are is glorified apartments. Noise from above, flooding from above, neo-natzi property managers that wallpaper peoples doors with their sticky notes.Lets not fail to mention the high condo fees that go along with these units. The security people they hire have shakey past themselves and also management usually has a key to your unit. Beware... Most buglaries in condo's are inside jobs, sub-contractors also get a key to your unit to do the work and lord know who's made copies.I'd go over the bridge and buy a nice older home where you know you will get more bang for your buck. The condo's in Florida are the first to flunk the smell test. Now they can't sell them and even if owned outright you still have the darn condo fees to pay for.Poorest of poor investments for anyone.

By: imdyinhere on 12/31/69 at 6:00

I had a developer attempt to talk me into buying in about four years ago. He assured me I would have no trouble making payments on a unit that's price was about 6 times my salary. Looking back, I could have just make the 5k down payment and then sold, like so many others, for a quick profit. But I just wanted a home, so it didn't occur to me.Real estate has become nothing more than a pyramid scheme; those at the top have screwed the average person out of the market. Now the idiots who got caught holding the bag are begging the Federal Government for a bail-out.

By: crackcitytn on 12/31/69 at 6:00

What is also amazing about Condo's you pay taxes on the property. Most people do not realize in a condo you only own the insude walls. The property is not yours so why would you have to pay taxes on something that isn't even yours. It would be the same of someone renting. They don't pay for property taxes on something they don't own.This is such a scam and the realtors that don't explain it should loose there license. They are failing to disclaim the truth regarding these properties.Remember "Buyer Beware."
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By: cheri_t on 12/31/69 at 6:00

Crackcitytn said "... you pay taxes on the property. ..in a condo you only own the insude walls. The property is not yours so why would you have to pay taxes on something that isn't even yours. It would be the same of someone renting. They don't pay for property taxes on something they don't own."This is wrong. The rents charged to a renter have to cover ALL the costs of operating the property (including taxes, maintenance and management) and still have some left over for a return on investment to the owner. All the unit owners in the condo property collectively own the whole property. So they have to collectively support the taxes, the roof, the outside walls, the landscaping, the management, and the pool. I don't own or develop condos, but I do see that there are advantages as well as disadvantages. The advantages are that you don't have to personally attend to property maintenance, there is a management and maintenance standard, and you have amenities that you wouldn't have in a single family home.

By: Time for Truth on 12/31/69 at 6:00

I think it is great that there is housing like this in the central core. Eventually the market will stabilize if they don't continue building giant projects. But BADCOPS is right, an older freestanding home in East or West Nashville provides the best of both worlds and those homes continue to rise in value.

By: just_the_facts2 on 12/31/69 at 6:00

Condominium developments are not for everyone. But maybe more than one might think. A quick study of the U.S. Census Bureau provides the following: 58% of Tennessee households consist of 1 or 2 people and 90% of new households in Tennessee are occupied by one or two people. Currently there are 1,361 residential units under construction downtown, and of those units, 1,210 are already sold (89%). The reason why is because there is demand that exists for 1,662 more units in the next four years over and above what has already been announced or is under construction. Markets have their ups and downs – downtown living in Nashville will be on a steady increase for years to come.

By: idgaf on 12/31/69 at 6:00

Downtown condos (or even rental property) have limited appeal/market. If you don't work down there and/or want a car you will have to buy a space for your car or pay to park. It would be a pain for visiters too.As always this city puts the cart before the horse and threw away any tax incentives or other consessions they gave out.

By: ibeen on 12/31/69 at 6:00

hey richard are you an idiot?? This home ownership program and the pressure that the government puts on lenders to make these loans started long before Bush was elected.Check your facts.

By: bugmenot on 12/31/69 at 6:00

"All of this is President George Bush’s fault anyway. Five years ago, he pushed for increasing homeownership in America with programs for zero-down payment and loan programs targeting low-income borrowers."I presumed this was a joke when I first read this paragraph. Apparently not. Do you really think the targeted low-income borrowers are the target market of these overzealous builders? Your answer will determine whether you are disingenuous or just stupid. Regardless, poor decisions, whether it be from the borrower or the lender, are just that - not the fault or the responsibility of some government body.

By: bugmenot on 12/31/69 at 6:00

"All of this is President George Bush’s fault anyway"lol.

By: bugmenot on 12/31/69 at 6:00

It's illuminating but a little sad when ignorant partisan reporters embarrass themselves like Richard Lawson has with this article. Straight news articles are not supposed to be saturated with political spin. Here is an article from 1993: http://findarticles.com/p/articles/mi_m1282/is_n25_v45/ai_14779796Assault on the mortgage lenders: in the name of racial justice, the Clintonites want the power to decide who gets a home of his own - efforts to impose regulations on banks to make loans even if applicants are not creditworthyThis article shows the long-standing aim of Democrat party has been to force banks to make these risky loans. Bill Clinton, not Bush, was behind the subprime crisis.Trying to blame Bush for a downturn in the cycle of the economy while ignoring the history of the subprime crisis seems like something for the Op-Ed pages instead of a straight news story. And what about all those layers of editors? How did they let that attack against our President stand? Are they in agreement that facts don't matter? If so, they too need to seek a new profession.

By: jas on 12/31/69 at 6:00

It was a good article, until the Op/Ed in the end.Did the editor miss this part?

By: mooselips on 12/31/69 at 6:00

The Democrats in Congress went along with the populist plan'. Uh, the republicans controlled congress until last year, so it is the they, not democrats, who went along with Bush's plan. Nice try."
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