Summary: FranklyRealty.com discusses Arlington Condos switching back to rental units!
Update 2-13-08 The Phoenix Condo in Arlington Reviewed
The Joule condos, formerly owned by Ed Peete (Arlington Virginia) recently announced a transformation from new condos (delivery Fall 07) ownership to apartment rentals. Canceling hundreds of contracts in the process.
A dozen local condo developments have taken this route and I predict that Zoso condos (also from Ed Peete) in Arlington Virginia will be next.
How can I make this prediction? Lets look at the obvious facts:
- Ed Peete just did it with the Joule condos in Arlington.
- Only 60% have been sold at Zoso. That is nothing. The bank will require certain milestones be met and I bet that most of those sales were in the first 6 months, with maybe a sale or two every month since.
- Pricing. The units were priced at Clarendon 1021 values (across the street) when flippers were making an $80k profit. Now 1021 sellers are lucky if they break even. (see NY Times Article)
- Withdrawn MLS listings. They withdrew their listings on the MLS on Dec 26th 2006. What company trying to feverishly sell their condos would withdraw from the MLS?
Why does this matter to buyers? One savvy business man recently told me
"I spoke to the builder... they are claiming to be on target for their delivery dates. They are definitely keeping it as condos."He would rather know the truth so that he can get on with finding his perfect condo. Instead he gets strung along for over a year and then is left with nothing.
How can t
he contract allow for them to tear it up?Most new constructions contracts have a clause that outlines the
penalties for purchasers that back out of deals. However there is a clause that allows the
seller to back out of the deal with no penalty (maybe you will get some interest on your deposit). This
lack of mutuality is being contested by some lawyers (email me if you need a lawyer), and is being used by buyers to get out of new construction contracts.
How can a buyer get the facts and expose their Achilles heal? First of all if you haven't bought a new condo yet, have your Realtor try to strike the clause that allows the seller to get out with no penalty. Or specify some damages. Whether it be $1,000 or
$20,000 or your deposit amount.
If you already bought a place and they tell you they are
"definitely keeping it as condos", then they shouldn't have any problem writing up a little bitty addendumy-poo to the contract that calls for damages if they lie to you verbally. Watch them shake in their pants and run for the hills.
Why are developers giving up?A brief history... In the olden days, New Constructions
were a great deal. Builders would sell units at
15-25% below market price in order to be able to sell 200-400 units. It is simple supply and demand. If you want to sell 200 of something, you better come in super low to make sure you sell out.
But then the market rocketed and flippers were able to pocket the 20% discount AND realize the 20% jump in the market (during the 1-2 yr development). I know a lady, straight out of college
that made $80,000 just 2 weeks after closing.So the developers
saw everyone getting rich and they wanted their
money back! They also saw buyers
line up in the thousands (3,000 for Clarendon 1021) and they started
selling units at current market prices (no more discounts). Buyers were buying hoping for the same run up, since it was a "sure thing". (See my
blog on a flipper that lost $150k)
Sure enough, with Clarendon 1021 the first 10 sellers made a killing, as much as $100k. But then the next 10 made $50k and the next 20 were lucky to break even, with some
losing over $30k.Zoso and Phoenix condos in Clarendon Arlington meanwhile priced their units at the TOP of the market when the flippers made $100k.
You know it is a bubble when you hear about 4 taxi drivers that decided to get rich and pool their money together to buy a new construction. Where are they now, I wonder.
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So what happens when you sell "60%" of the building for $100k over the current prices nearby? You have
un grande problemo (that means a "big problem" in Spanish). You can't drop prices for the rest of the units, or the current purchasers will want out. But if you don't drop, nothing sells. (Some builders have resorted to illegally fudging the MLS,
see blog, which is why you should use a Realtor!)
Why does this matter for the Arlington area?
It helps the existing condos. Simple supply and demand. Remove the supply and people buying will look next door at 1021. Now does this inside scoop mean you
should run out and buy at 1021? Yes! Absolutely, and from me, so I can get filthy rich! Nah, but each conversion back to apts. definitely can't hurt. And of those 100 buyers, lets say half are investors, maybe half of the rest (25) might look nearby. 25 active buyers? That helps values.
And for those of you that dislike Realtors, you'll love this... When a condo development decides to convert to apartments a week before closing,
guess what the Realtor gets? ZILCH!
- Written by Frank Borges LL0SA- Broker/Owner FranklyRealty.com703-827-4OO6 Please report all typos, I don't like looking stupid. If you like this post, sign up for new blogs daily, use the form on the right of the page.
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"It helps the existing condos. Simple supply and demand. Remove the supply and people buying will look next door at 1021."
Converting a building from condo to apartment doesn't truly remove supply. Let's face it. Apartments and condos are basically substitutes for one another. Physically, they're the same thing. Each potential condo buyer weighs his options (rent vs. own) and chooses what's best for him. More rental units should put downward pressure on rents, making renting more attractive.