High-rise condominium development shut down for years following the housing bust and financial crisis, as tens of thousands of units were converted to rentals or remained unsold and in limbo.
Yet strengthening condo sales and a still-strong desire among many baby boomers and their kids to go from suburbia to urban life could soon spark another round of high-rise condo building in cities — at least those with growth prospects, say architects and property brokers.
"We went from hearing nothing about condos six months ago to hearing about them every other day now," said Mark Humphreys, CEO of Dallas-based Humphreys & Partners Architects, a leading designer of rental and for-sale residential projects. "They're coming back.
Humphreys characterized talks with developers about new condo buildings as preliminary; they have yet to yield definitive plans.
Still, condo developer optimism skyrocketed in the second quarter, in the National Association of Home Builders quarterly builder sentiment poll out last week. Now the brightest outlook in eight years, it reverses first-quarter pessimism.
New development continues to move forward in urban residential strongholds and it is beginning to pop up in smaller cities.
Among other projects, Tishman Speyer and China Vanke are developing 655 units in two San Francisco towers, and ABN Realty plans 24 units in a 21-story building in Lower Manhattan. A wave of Latin American cash is financing a new condo boom in the venerable South Florida market around Miami.
In smaller markets, Hallmark Partners plans to break ground on a 55-unit luxury condo project in downtown Jacksonville, Fla., and homebuilder Toll Bros. (TOL), with 99 units under way in Hoboken, N.J., intends to break ground soon on 60 condo units in Bethesda, Md.
High-rise activity is stirring in Chicago, a Midwest condo market bellwether. CMK Cos. plans a 150-unit tower downtown, where Appraisal Research Counselors says only 645 unsold condos were available at the second quarter's end. That's down from some 8,000 at the end of the building boom in 2008, says Gail Lissner, vice president of the research firm. The figure includes units marketed but never built.
Garry Benson, a principal of condo consultancy EMS/Garrison Partners, says he was a little surprised by CMK's announcement. A condominium demand indicator — the conversion of rentals into condos — hasn't taken hold yet. Though he acknowledges that the for-sale market is gaining momentum.
"We're beginning to see strong absorption and shrinking inventory in the Midwest and on the coasts," he said. "The American population has a short memory in general, and we tolerate bad times for only so long.
Percolating interest in high-rise condo construction coincides with a slowly recovering market for new homes. Census data show annualized single-family housing starts at 521,000 in July, down 2.2% from June yet 15.4% ahead of a year ago.
Financing condo construction is still difficult, Benson says. Plus, developers need to show that their projects work as rentals when seeking a loan, Humphreys adds.
Some 64,000 existing U.S. condo and co-op units sold in July, up more than 23% from a year ago, in preliminary National Association of Realtors data. All regions saw year-over-year growth of at least 20%, with the Midwest and South posting the top gains of 25% and 23.8%.
The median sales price of $209,600 in July marked an increase of 15.5% over a year earlier.
While some development is taking place, David Crowe, chief economist of the NAHB, isn't as optimistic about a near-term uptick in construction as other industry experts.
First-time buyers, a critical condo demand driver, are largely absent after helping fuel the last urban residential boom when everyone wanted to own, he says. But renting has become the mantra now.
"We're having difficulty getting first-time homebuyers into the market in any way, and condominiums have suffered because of it," he said. "We've found that it's true in the single-family home market as well.
Condo developers are still eager to build, Lissner says, and predicts a rollout of proposals over the next several months. Benson and Humphreys argue that demographics will eventually win out: A portion of some 75 million baby boomers and 84 million of their children still want to move — and own — near the action in vibrant downtowns.
Empty nesters with no kids have been stuck in their homes for a few years as values languished, Benson says. But the housing recovery finally has given an opportunity to move.
Even some high-rise apartment developers recognize the possibility that condo demand could spike over the two-year time frame that it typically takes to go from blueprints to occupancy, says David Senden, a partner in the Irvine, Calif., office of KTGY Architecture & Planning.
So, in some cases developers are putting legal framework in place to turn the rentals into condos if it becomes more advantageous to sell. They're boosting apartment sizes and mixing in more two-bedroom units after building mostly small studios or one-bedrooms, he adds. "Having a crystal ball and knowing what's going to happen in two years isn't easy," Senden said. "It's really tough to sell a little tiny unit.
Although developers have attracted thousands of residents to downtown high-rise apartments in the last few years — a trend Humphreys calls the "Manhattanization of the U.S." — they're not exactly dwellings a typical boomer is seeking.
"There's not a huge inventory of condos in most markets anymore," he said, "and most of us are wanting a little more exclusivity than a 300-unit apartment project."