Atlanta’s condo market has improved dramatically, defying many doomsday predictions during the height of the market’s meltdown.
At the rate condos were selling here in 2008, it would have taken more than nine years to run out of the thousands of units that had been built, but not bought.
Five years later, at the rate Atlantans are now buying condos, all the remaining new units should be gone in just over six months.
At the end of June, there were 446 new, unsold condos in intown Atlanta, according to new data from real estate consulting firm Haddow & Co. That’s down from the 7,252 units that were unsold at the end of 2007. The condo data also includes townhomes.
During the worst of the crash, the prognosis for condos was awful. Many of the buildings went back to their lenders, unsold. Others converted to apartments as they tried and failed to sell during the glut.
“It was a pretty bleak and dismal outlook,” said Chase Mizell, an agent with Atlanta Fine Homes Sotheby’s International Realty.
But steadily falling inventory has led to a classic imbalance of supply and demand. Unsold units are moving faster, and for higher prices. Improbably, one Midtown building that had been planned as apartments is now being constructed as condos. And while no other planned condominiums have been announced, experts say there is a strong possibility that existing apartments — perhaps those that were originally intended to be condos — will again be marketed and sold as new condominiums. It would be the beginning of a new era of condominiums in the region.
There are challenges to even the conversions, though — most notably, financing. Many lenders are still wary of lending for condo projects, and condo lenders have strict rules about how many units can be rented. That could make it difficult for apartment buildings like The Atlantic in Atlantic Station or Mezzo in Buckhead, which were built as condos and now primarily house renters, to convert back.
Still, Condominium Concepts Management CEO Darlys Walker has heard talk of conversions for more than a year. She expects the first one to take place in early 2014.
In a normal cycle, older apartments in desirable locations are often among the first to be converted, said Collin Ellingson, managing broker for Coldwell Banker of Atlanta’s new homes division. Rents remain high, though, and it may take until the apartment market is saturated for apartment owners to consider the switch.
There is a huge number of apartments now under construction, and Walker and others expect that with granite countertops and crown molding, they could become condos before a renter ever sets foot in them. But for the time being, Walker said, developers are still dipping their toes in the water.
“Sales are now greater than inventory,” said Joshua Herndon, an associate at Haddow & Co. “That’s the reason a conversion project makes sense now.”
At 1010 Midtown, the best-selling intown condominium, there were 101 closings in 2012, said Jim Fountain, the sales manager of the 425-unit building. At the beginning of the year, 100 units remained, but now there are just 25 left.
As condos have sold, prices have risen. The average sales price per square foot at 1010 Midtown is up 8.5 percent, to $319, Herndon said. The average sales price per unit is $417,411 so far this year, he said, up nearly 22 percent over last year’s sales figures.
“If there’s any need for new construction, certainly we’re evidence of that,” Fountain said. “It would have sounded crazy five years ago.”
The overall prices are still lower than the peak in many cases, though, and that can make ground-up condominium construction cost-prohibitive.
“Inventory-wise, there’s certainly room for a new project,” Herndon said. “Economics-wise, it doesn’t make sense yet.”
At The Brookwood in Buckhead, which has its last unit under contract, resale units are selling for $40,000 to $80,000 more than they first sold for as few as 18 months ago, said John Huckaby, senior vice president and regional director of ST Residential. That’s still lower than original asking prices on the property, but indicative of an improving market.
As prices rise, Huckaby said, fewer owners are underwater. That gives them more mobility, and means they are able to sell their homes and move into larger condominiums or single-family homes. That trade-up helps the overall housing market continue to improve.
Mizell, with Atlanta Fine Homes, said he expects more people to put their condos on the market as inventory continues to decrease and prices keep rising. When they can make a profit, instead of merely breaking even, they will be more likely to sell, he said.
“I think we’re on the brink of it as we speak,” he said. “There’s huge pent-up demand.”
In fact, of the top communities for sales in metro Atlanta, the first three are condominiums, and not single-family home subdivisions, said John Hunt, a senior analyst with Smart Numbers. River House condos, in Sandy Springs, sold 141 units in the 12 months that ended in May. 1010 Midtown and The Brookwood were Nos. 2 and 3.
In some cases, sales have been high because new owners came in and reset prices. In others, it’s simply location.
As demand remains high, Hunt said he would not be surprised if developers, in converting old apartments complexes to condominiums, make the same mistake they did in the runup — overshooting prices.
While Herndon said the St. Regis closed five units in 2013, at an average price of $3.5 million, other ultra-high end buildings have had trouble selling at higher prices.
Conversions generally sell for less than new construction, Hunt said. If they succeed, more new condo construction shouldn’t be far off.
“It’s always cheaper to start from the bones, and fix it,” Hunt said. “Successful ones are going to be a matter of conversions. … It always starts with conversions and the ability to hit the lower price points.”
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