Monday, September 24, 2007

Urban Condo Tour 2007

When I heard about Urban Condo Tour 2007, I decided to treat it like a seminar on downtown Seattle development. Saturday offerings included a presentation called Seattle 2011, "an in-depth look at the supply and demand trends affecting the downtown housing market with an exclusive look at the future skyline," offered by Dean Jones, a marketing strategist and one of the guiding lights behind Seattle's current condo boom. Jones was one of Seattle Magazine's 'Most Influential People" in 2004.

It was the word "exclusive" that really drew me in. I'm a total whore for that sort of thing.

I arrived at Fischer Plaza just in time for his presentation. He stood with a laser-pointer in front of an animated birds-eye rendering of Seattle's future skyline. It was like riding a weather copter on acid through the tall and skinniness that will soon radiate from the Denny Triangle outward. Around 50 people in jeans, khakies, sweaters, and comfortable shoes fought motion sickness as they quietly listened to his pitch.

People are snapping up new condos 2-3 years before they're ready for occupancy because that's how you get the best deals, he said. If you wait, you'll either get stuck buying in the more expensive secondary market of owner-sold units, or getting in line again later for the next round. The boom is on, and the units are selling now.

The inventory now coming on-line will increase what's presently available by a factor of five. We're looking at 1,500 new units a year for the next five years, he said. The trend is toward buildings with 500-600 units each. This is smart "amenity infused" housing, and draws upon third party vendors to add value without increasing cost. The median price is $750,000.

While over 2005 and 2006, just three new developments came on line, this year alone we have twelve. There will be nine more in 2008. And so forth.

Jones offered many reassurances that the Seattle housing market will continue to appreciate, and that buying ahead won't mean getting locked into a declining and overbuilt market. Given that there's a crane on every third block or so, this particular bit of salesmanship was inevitable. While the days of double digit annual appreciation are probably over, said Jones, we can still look forward to a good 5-8% a year for many years to come.

Why? Well, there's the famous jobs projection. 10,000 new jobs downtown in the next four years. Many of those people will want housing near their work, and be attracted by the urban living boom. Also, while it may look like we're overbuilding, we're not. The current boom will create less inventory than was delivered in Portland over the last 4-5 years, and they're doing just fine.

While some markets, like Miami and San Diego, are undergoing "corrections" with sitting inventories of 20,000 unsold units, that won't happen here because we've controlled the sort of speculation that distorts the demand picture and leads to overbuilding. Buyers agree that profits from condos sold in the first year will revert to the developer, and this, apparently, is enough to keep the flippers at bay. Besides, he said, "many of us feel that we're just in the first half of our growth period, while other markets are in their second."

And finally, he said that whole credit crunch slowing the market thing shouldn't get us too concerned. That's mostly a problem for the entry level of the market, and not the "well-heeled and very qualified buyers for most of these condos."

I didn't find all of this especially convincing, but apparently others do. "We have demand arriving well before pre-sales," he said. "People want to be the first person on the preview list."

Here's how it works. A development is announced, and even before the details such as final pricing and architecture are worked out, private presentations are held by the architects and developer representatives. A vision and a price range is offered. If one finds this presentation suitably intriguing, a $10,000 refundable deposit is placed that says, "I want to be the first to buy that house in that price range." These exclusive preview events precede the public offering by 2-3 months, and can help shape the outcome of the project.

At the launch of the Fifteen Twenty-One for example — the Second Avenue luxury development a few blocks from Pike Place Market that was one of the first to launch once height restrictions were lifted — the vision was to build 200 units at that site. But the preview sessions revealed that everyone wanted the larger penthouse designs. So they "took that design all the way down to the ground" and reduced the plan to 143 units. Ninety-five percent of these, he said, are pre-sold.

The Fifteen Twenty-One (a downtown home for the confident few), he said, is part of what developers refer to as Seattle's "Gold Coast." This also includes 1 Hotel at 2nd and Pike (unsurpassed luxury with a conscience), The Four Seasons at 1st and Union (Seattle's signature address), and the Escala at 4th and Virginia (Anticipate perfection, Embrace elegance, Experience grandeur). Between these four addresses, 505 new luxury condos will arrive near the Market and the Seattle Art Museum over the next two to three years, at an average price of over $2 million. More than half of these are already sold.

Some of these, said Jones, and forty percent of all condo sales nationwide, were bought by what he called "portfolio buyers." These are people who will outfit their home and have it as one of the options for where they might live. A portfolio buyer might have a home in London, New York, Seattle, and, oh, I don't know, maybe Rome. And they'll actually live in these homes some of the time. But they're also an investment. We're talking housing as wealth management strategy.

Thus informed, I was ready to embark on Urban Condo Tour 2007. Armed with my map of twenty represented properties (only some of the condos now under development), I set out toward the Gold Coast. For the first time, I noticed all the little sidewalk sandwich boards on every corner, directing the urban condo hunter to the various marketing offices that have sprung up around town. The first development I saw was Gallery, pictured at the top of this post. The crane at 2nd and Broad was visible from near the Space Needle. The sales office was, cleverly enough, located in a former art gallery at 1st and Wall. I signed in as Jack Mehoff, I'm just a big kid.

Various kitchens, baths, living rooms, and bedrooms had been constructed in the space to allow the prospective buyer the illusion of actually experiencing the thing in itself. This struck me as extremely modern. A scale model of the finished building dominated the sales floor. Scheduled to open in 2008, the Gallery will be one of the first of the new buildings up and running, and offers units that range from a 600 sq. ft. box for $300,000, to penthouses that go for more that $2 million.

The impression I got was that of a fully dimensional IKEA catalogue. A tiny balcony with a frighteningly flimsy aluminum railing set against a faux sunset painted on the wall made me thirsty for a virtual margarita, but I instead pressed onward. My idea was to check out the Gold Coast developments and then hit a few others in the Denny Triangle on the way back to my car at Seattle Center.

At First and Blanchard was Plymouth Housing Group's three story high Building Hope One Building at a Time sign, advertising their good work and promoting their capital campaign. I wondered how much hope it would take to counter what I was seeing.

I saw Real Change vendor Michael Wiggins at 1st and Lenora. "What's going on," he asked? "Until noon it was dead, and now there's all of these people. And you're all dressed up and you have a camera." I was dressed in my best approximation of moderately affluent weekend casual. I wasn't even wearing a baseball cap. My wife advised me that it ruined the effect.

I told Michael what I was up to, and who all these people were with their little urban condo guides. "Cool," said Michael. "Got any more maps? I'll sell them to them!" I think that, as the condo owners fill the downtown, Michael will do just fine.

1 Hotel and the Fifteen Twenty-One are little more than very expensive holes in the ground at this point. There wasn't much to see. My digital camera battery went dead, thus ending my aspirations as a photojournalist for the afternoon.

As I walked past 2nd and Pine, there was a pair of used shoes balanced on the rim of a garbage can. Someone had bought a new pair at Nordstrom's Rack, and instead of throwing the old ones away, paused to consider the less fortunate. To someone, these comfortable looking castoffs would be an upgrade. It was a thoughtful act of human kindness, but it was also a metaphor. If only housing, I thought, were this simple.


the paper noose said...

I love the "10,000" jobs argument. This assumes that all of them are at or above the income necessary to finance a condo, when in fact, most of those jobs will be held by people commuting from other neighborhoods and even outside of the city--because it's cheaper to live there then it is to pony up a down payment, and such jobs will largely be service or entry level clerical or admin.

Second, these "deposits" that are refundable is another way for developers to leverage financing on projects when credit is drying up. If no one showed up to these not buying into the fear that it's their "last chance" to buy, then I suspect development might slow a bit.

On top of that, with the real inflation numbers (including food, fuel, rent) of Seattle, 5-8% appreciation is at best break even.

The way the housing market is currently rigged, anyone taking the gamble to "move up" into the "middle class" might very well end up on the street. But like the mortgage brokers that got their fees for predatory loans even when they went bad, as long as developers can dump their condos, eventual foreclosures won't eat into their profit one single dime either.

Pastor Rick said...

Don't you think Nightwatch should buy a unit to house homeless domestic violence victims in the new chi-chi building?

Just imagine the rumble that would come from that!

Dr. Wes Browning said...

The sales lines are amazing. Have you seen the line the new Arctic Club Hotel is using? "Live Like an Icon." Who are the swelled heads who are lured by lines like that?

Bruce said...

When the housing bubble bursts, will there be 20,000 unsold units of housing in Seattle? That'd be great! They can all become SRO hotels in 2020. Homelessness solved!

I've talked to old Catholic Workers who remember thinking in the early 70's that when the old bums died, there wouldn't be any more homeless people. Then Reagan happened, and they destroyed all the urban SRO hotels, and drove the poor into the street. Modern homelessness was created by people in power, and I hope the same people invest heavily in this market today.

"When the housing bubble bursts." I love to say things like that in hearing of investors. Make 'em nervous.

If however, we'd be a little more rational about planning housing for everybody, maybe we wouldn't have to go through these stupid bubbles and crashes. And maybe everyone could afford at least marginal housing?

Bill said...

The true comedy in many ways is that what folks hope to create is a gated community within the city "walls," and perhaps escape every day by cars-with-heavily-tinted windows. If they go out at night, I doubt they will stroll, but instead drive their cars a block or two to Benaroya and have it valet-parked. Maybe we ought to have insisted their be skywalks for these folks to their favorite cluster of restaurants, movie and legitimate theatres, and, oh yes, some ways for the guys to get to the Lusty Lady unrecognized. It is all out of a David Lynch set. Whatcha wanna bet about 5% of these well-to-do tenants clean their own places and the hired help must commute 15-30 miles each way, use a secret entrance buired out of site to go to the matchbox units, and exit straight onto the viaduct by parachute.