Some projects scaled back or turned into apartments
The once-sizzling market for high-rise downtown Phoenix condos has cooled.
Phoenix leaders have touted condo dwellers as a crucial part of downtown's resurgence, saying residents would help sustain nearby shops and their foot traffic would inject the neighborhood with 24-7 vitality.
Now, plans to attract those condo dwellers have questions marks. Although downtown Phoenix real estate has fared better than housing on the suburban fringe, developers say condo sales have slowed to a trickle.
Among the signs of a slowdown:
• CityScape, a $900 million mixed-use development, added apartments to the development and pushed back plans for condos to later phases of the project.
• Some planned condo projects have become apartments, including Jet, a proposed 36-story development, and Alta Phoenix, a 375-unit project under construction.
• Nearly 30 of 165 condos at the Summit at Copper Square are unsold. At 44 Monroe, 130 are sold and 66 are for sale.
Countywide, condos sales are down 37 percent compared with the market peak in 2005, when more than 19,000 condos were sold.
In the two downtown Phoenix ZIP codes, 85003 and 85004, condo sales and sales of luxury condos fell after 2005 but are up slightly this year. That uptick is probably misleading, Valley economist Elliott Pollack cautioned.
He said he believes those numbers may be skewed by buyers who signed contracts a few years ago for condos that weren't built yet. Those sales didn't make it to county rolls until recently when the unit was done, he added.
A national issue
The downturn in Phoenix's downtown-condo market has plenty of company, said Doug Duncan, chief economist for Mortgage Bankers Association, a national industry group.
"Arizona, California, Florida and Nevada are the four states which saw a significantly outsized growth in their supply (because of speculators)," Duncan said.
There are slow sales in downtown Reno, Las Vegas and Miami, and in California cities.
Phoenix leaders have shifted their focus as they wait for a rebound.
Phoenix is pushing to find ways to create more affordable housing downtown, even if that means apartments instead of condos.
"Obviously, one of the goals of our downtown-revitalization effort is to create that critical mass of people living in the downtown," said John Chan, director of Phoenix's Downtown Development Office.
He said he believes that will be "the catalyst for additional housing and the restaurants and retails and other amenities that everyone is looking for."
But, at this point, the market will dictate when more high-end condos will be built, Chan said.
He added that it's tough to say how the condo downturn will affect downtown development.
"It's not going to have an impact, for example, when the next office tower gets built or when the next ASU biomedical building gets built," he said.
Some of the plans for downtown retail may be affected, but to what extent, Chan said he isn't sure.
Supply and demand
The condo market has supply-and-demand problems, experts say.
On the supply side, there has been a tide of downtown Phoenix condo projects.
Since 2005, city figures show, 383 condos and townhouses have been built in the downtown core, between Seventh Avenue and Seventh Street, and Interstate 10 and the railroad tracks. More than 2,000 more are under construction or are in the pipeline.
With so much on the market, banks have toughened rules for developers who want to build new projects.
During rosier years, banks wanted developers to have pre-sale contracts for 20 to 30 percent of their units before construction. Now, that number is as high as 60 percent.
Concrete, drywall and construction-labor costs have shot up, said developer David Wallach, whose firm is building the Summit at Copper Square.
"Something that costs a couple thousand (in single-family home construction) in high-rise costs a couple of million." Wallach said.
"The lack of stability of pricing has scared off a lot of people."
On the demand side, luxury-condo developments are competing for a relatively small group of buyers in a saturated market.
Plus, banks have tougher requirements for who can qualify for jumbo loans, those for more than roughly $400,000, Duncan said. That's the starting price range for many downtown luxury condos.
No 'fast sell'
One side of the trend is empty-nester Mike Shaw, 48, a downtown pizzeria owner who recently closed on a two-bedroom unit in the Summit at Copper Square near Chase Field. Shaw's new home will put him and his wife a few steps from his business and his beloved Diamondbacks.
"I want to be downtown where the action is," said Shaw, who is moving from Queen Creek.
On the other side is attorney Marshall Meyers, 35, who is trying to sell his family's midtown luxury condo and is considering where to buy his next one.
To Meyers, the downtown condos, which range from the high $300,000s to beyond $1 million, seem overpriced.
He admitted he may not have to make that decision anytime soon.
"The market as, you know, is not great," Meyers said. "I am not expecting a fast sell."
Signs of hope
Many insiders are upbeat about the long-term prospects of the downtown Phoenix condo market.
Unlike Florida and San Diego, which had a lot of downtown condos before the boom, Phoenix had only a few hundred units until a few years ago, developers say.
For the fifth-largest city in the U.S., that's a relatively small number, which means that there is probably additional unfilled demand, Wallach said.
More units at 44 Monroe will sell after the development is complete and the units are move-in-ready, said Ryan Zeleznak, Grace Communities principle.
Zeleznak said he sells about two to three condos a month. Wallach, of the Summit at Copper Square, said he has not sold a condo in months.
Both men said the pattern is normal because many serious buyers aren't interested until a condo tower is complete.
Because downtown condos are a relatively new concept in the Phoenix market, no one knows how much demand there is.
During the boom years, demand was distorted by investors who have now fled the market.
The condo slump has put a spotlight on Omega, a $100 million, 34-story, 204-unit condominium complex that Wallach plans to build near Second Avenue and Adams Street.
The sales office for Omega opens in the spring, and insiders are watching to see how it does.
Duncan, the Mortgage Bankers Association economist, said he sees the condo market as a bellwether for the overall housing market.
His mortgage-bankers group predicted the overall housing slump because of the price trend in condos. Now, the industry is keeping an eye on condos for signs of recovery.
"I always watch condos as the leading edge of where the market is going to go," Duncan said.
Jahna Berry and Matt Dempsey http://www.azcentral.com/arizonarepublic/news/articles/1120condos1120.html