You might remember me writing about a purchase that fell through at The Vale because the Buyer’s lender would not make the loan because the Home Owner Association (HOA) at The Vale was in financial trouble with 25% of the condo owners behind on paying their fees. It was my opinion that until the HOA got its financial house in order, condo sellers would have an extremely difficult time selling there and prices would most likely drop. I learned last week that the same condo refernced in the post recently sold to a cash buyer for $22,000 less than it had previously “sold” for. Ouch!
Last week I learned of another sale that fell through for the same reason but at a different condo community; this time 525 Town Lake. In this case the HOA receipts at 525 Town Lake are 36% under budget. Expect prices there to drop as a result. But be careful not to get lured just by the low prices as there is potential risk in buying in a community where the HOA is unstable or at financial risk. I’m not saying not to buy there, just know what you’re getting into and know potential risk before doing so.
The AZ Rep reported today about problems at Summit at Copper Square. I’m not privy to the financial matters at Summit but I will say this; the owner David Wallach is very hands-on and working hard to see the high rise condo building through these tough times. He is currently renting out condos at very very competitive prices (contact us for details or to see the condos). The added cash flow from the rentals will hopefully keep things afloat. It’s amazing what a difference just a few months made during the boom/bust cycle. Summit delivered condos starting roughly December 2007 and closed approximately half the units. If construction had finished six months earlier I think that most of the condos would have closed. But then again, if construction had been completed six months later I bet only 10% of the condo buyers would have closed.
BTW, Mr. Wallach if you’d like a venue to refute or add to today’s article, feel free to e-mail me your observations or comments and I will gladly post them to this site.
Things have been pretty quiet at Century Plaza, at least in our circle. For a while there we were hearing from prospective investors every single week. Over the last month we have only heard from one party. The guy was very very confident that he and his company would soon own Century Plaza. IF they do buy the high rise and IF they are able to offer the condos at the prices he shared with me then expect some really great bargains in the future. Keep watching this web site or give us a call to learn more.
I swung by Stella to shoot more photos last week; what a great community! I’d put the quality, style and overall look up against ANY (except Galleries at Turney) infill row house style project in town. I’ll post the photos in the next couple days so you can see for yourself.
Stay tuned for more…
We just took a detailed look at Home Owner Association fees at all Phoenix high rise condo buildings for the last five years. For the most part you will see a gradual increase in the older established buildings while increases were somewhat extreme in the newer buildings. A cynic might believe that the reason the newer building HOA fees jumped so much was because the developers underestimated operating costs in order to promote sales of its condos. Of course an optimist might explain that HOA fees and operating expenses are very difficult to predict for a building that does not already exist. I’ll leave it to you to decide what makes the most sense to you.
Here’s the data stated in dollars per square foot per month:
Last week the press reported that Fannie Mae had changed its underwriting guidelines for condos. We first reported the problem a two weeks ago as it related to a deal we were working at The Vale Lofts in Tempe. Fannie Mae used to underwrite conventional loans in condo communities if 51% of the condos were either already sold or under contract with legitimate buyers. The new rules increases that percentage to 70%. So think about it. You are a major investor who is considering buying the bank note on a high rise condo building that is in trouble. You figured that you would have to offer seller financing to prospective buyers until you reached the 51% mark. Then, in one fell swoop Fannie Mae changes it to 70%. So in a building like Century Plaza the developer might have to finance an additional 30 condos before any buyer could get regular financing. I would imagine big investors have a trick up their sleeves but I don’t know what it might be.
Another whammy is that any buyer, regardless of how good their credit score, will have to pay a .75% premium when buying a condo in a high rise building. This won’t be a deal breaker for a lot of people but it might persuade some to buy elsewhere.
Yet another challenge? Fannie Mae has also stated that it will no longer do loans in condominium communities where 15% or more of the homeowners are behind in their HOA fees. As we stated in our aforementioned blog post this will be a bigger and bigger issue in condo communities. This particular rule won’t affect buildings like Century Plaza or Safari Drive or one of the other failing buildings because the new owners will bring a large influx of cash to properly “fund” the HOA but it will adversely affect the communities where the developer has already moved on and the HOA is in financial trouble because of foreclosures (e.g. Landmark on Central, The Vale, and others).
So, although we are hopeful that the pending failures of several local buildings will bring much lower prices, renewed buyer interest and potential market recovery we are very concerned that Fannie Mae’s new guidelines might unravel everything.
Gang, there is something gigantic on the horizon for high rise condos here in the Valley. I can’t tell you anything about it (yet) but this will RADICALLY change our high rise condo market. If you are looking to buy a high rise condo right now, DON’T do it…until you talk to us (and even then it might be several weeks before we can give you any details). Sorry I’m being so criptic but believe me it will be worth the wait.