Downtown now a resale condo market

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Highlights:

  • Jesse Hamilton releases downtown condo report.
  • Hamilton, of Land Title Guarantee Co., finds sales down, prices up.
  • Condos selling at record prices per square foot.

 

Downtown condo snapshot. Source:Jesse Hamilton, LTGC.

Downtown condo snapshot. Source:Jesse Hamilton, LTGC.

Downtown Denver’s condo market is now dominated by resale homes, not ones being sold by developers.
That is a sea change from a few years go, when condo towers such as Four Seasons and the Spire were having trouble finding buyers because of the economic turmoil that led to the largest national and local housing crash since the Great Depression of 1929.
Now, demand is far-outstripping the meager supply of downtown condos.

“Demand is so high you can see that reflected in the jump in the price per square foot,” which is well over $400 for units that sold in the first quarter, according to Jesse Hamilton, an account manager at Land Title Guarantee Co.
Hamilton recently completed an in-depth analysis of the downtown condo market.

A lack of supply has led to a drop in sales, but prices have risen to record levels.

Downtown Denver  Skyline

Some of Hamilton’s findings, comparing the first quarter of this year to the first quarter of last year, include:

  • There were 69 condo sales in the first quarter, a 22 percent drop from the 89 in the first quarter of 2013.
  • The average sales price per square foot was $427, a 19 percent increase from the $359 per square foot in the first quarter of 2013.
  • The average size of a unit sold this year was 1,332 square feet, 2 percent higher than the 1,311 square feet a year earlier.
  • The average closing price this year was $526,605, 12 percent higher than the $470,752 last year.
  • Total closed volume in the first quarter was $35.8 million, 15 percent lower than $41.9 million last year.

Buildings that showed huge year-over-year gains on a price per square foot basis include:

  • The Four Seasons, 96 percent;.
  • Brooks Tower, 66 percent.
  • Windsor Condos, 31 percent.
  • T\the Glass House, 25 percent.

As with the overall housing market, there is severe shortage of homes for sale in downtown, Hamilton said.

In fact, the shortage may even be more pronounced in downtown than in most other submarkets.

“This is an example of a hyper-local market,” said independent Realtor Gary Bauer.

“Downtown is probably one of the top condo markets throughout the Denver metropolitan area, although of course price is a factor in downtown that we do not see in many of the suburban markets, where condo prices also are up substantially,” Bauer added.

Supply shortage

Hamilton said his snapshot of downtown illustrates the need for “new-built, fresh inventory.” “All of the major high rises are either sold out or close to sold out,” as far as units being sold by developers, he said.

“We need new supply,” he said.

Increasingly, many of the homes being purchased are being sold by individual owners, not by developers, he said.

A snapshot of top condo downtown condo buildings. Source: Jesse Hamilton, LTGC.

A snapshot of top condo downtown condo buildings. Source: Jesse Hamilton, LTGC.

Some people who bought condos at the peak of the last cycle around 2006, and have been renting the units, may find prices high enough to sell their units, he said.

“That would be one way to get more supply on the market,” Hamilton said.

“Absolutely. That is the problem. We don’t have enough inventory,” said Heather Ehret-Faircloth, a broker with Kentwood City Properties.

She and others noted that instead of condos, developers are building high-end apartment buildings because of fears of construction defect liability.“The threat of construction defect lawsuits has made it much safer to build high-end apartments, which why there are no new condos being built, even though there is a big demand,” Ehret-Faircloth said.

Owner-occupants, meanwhile, are competing against investors for the handful of condos that hit the market.

“A lot of investors have jumped into the market to buy units at the Glass House, for example, to take advantage of the strong rental market,” she said.

“We are seeing a lot of cash sales,” said Ehret-Faircloth said.

There is no doubt that prices are in the stratosphere.

“I recently sold a $2.4 million shell at the Four Seasons,” she said. “It was a shell. Unfinished. It sold for close to $600 per square foot.”

“Bidding wars are for homes in the $250,000 to $350,000 and even $400,000 range,” she said. “In downtown, prices basically starts at $400,000.”

50 grand will not buy a condo

Even parking spaces are hot, said Scott Leggett, a broker with East West Partners/Slifer Smith & Frampton Denver.

“It’s funny. I have a parking space for sale in Brooks Tower for $55,000,” Leggett said.

“I got a call this morning from a guy who wanted to tour it. He thought it was a condo he could buy for $55,000.”

But at $55,000, it may be a bargain.

“Parking spaces are hot and are getting hotter,” Leggett said. “For suburbanites moving downtown, the parking issue is a bit of an eye opener and a learning curve. You can’t just park in front of your friends condo or in front of your favorite downtown tavern. Denver is becoming a big city and parking is always an issue in big cities.”

When East-West Partners opened the 23-story Glass House in 2007 in Riverfront Park, it was the hottest ticket in town.

Some speculators who pre-purchased them at pre-construction pricing, immediately flipped them for a profit of $100,000 or even $200,000.

During the Great Recession, prices plummeted at the Glass House and nearby buildings, with some owners returning their keys to the lender.

In the first quarter, the average price of a unit in the Glass House fetched $488 per square foot.

Downtown condos by another metric. Source: Jesse Hamilton, LTGC.

Downtown condos by another metric. Source: Jesse Hamilton, LTGC.

“We have surpassed where we were at the opening,” said Leggett, an 11-year veteran at East West Partners.

Prices have been rising so fast that one might expect they wouldn’t appraise.

That hasn’t been the case, said Steve Blank, a broker with Fuller Sotheby’s International Realty.
Last week, he was comparing notes with two Kentwood brokers and “none of us are really having any problems with appraisals, which honestly, is a bit surprising.”

Blank said he thinks condo prices will continue to rise in downtown.

“With the advent of (the redevelopment) of Union Station, it is just creating a lot of buzz and excitement downtown, which is just making downtown even more attractive for buyers,” he said.
With prices exceeding pre-recession prices, developers may be tempted to start construction of a condo building, Hamilton said.

“There are still some big hurdles,” for condo construction, especially since a proposed bill that would have addressed construction defect litigation died in committee, Hamilton noted.

“I think we are at a tipping point,” Hamilton said. “We are hitting huge numbers as far as sale prices.”

It also is important for downtown to have a diverse housing mix, Hamilton said.

“We want product available in our community in downtown to fit all buyers, whether they are move-up buyers who want to stay downtown, first-time buyers or empty nesters,” Hamilton said.

Interested in buying a home in downtown? Please visit COhomefinder.com.

Have a story idea or real estate tip? Contact John Rebchook at JRCHOOK@gmail.com. InsideRealEstateNews.com is sponsored by Universal Lending, Land Title Guarantee and 8z Real Estate. To read more articles by John Rebchook, subscribe to the Colorado Real Estate Journal.

 

 

 

 

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John Rebchook

John Rebchook has more than 30 years of experience in writing and communications. As the Real Estate Editor for the Rocky Mountain News, he wrote about residential and commercial real estate for 26 years. He has won numerous awards for business stories and columns that he wrote, both as an individual and part of teams. In addition to real estate, he also covered economic development, banking and financing, the airlines, and cable TV for the Rocky. In addition, he was one of the original freelance writers for GlobeSt.com, covering commercial real estate for the Internet publication.

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