The April 2017 edition of Seattle Magazine includes a savvy editorial piece on in-city condominiums, or perhaps the lack thereof. Reporter Elain Porterfield tapped Dean Jones, President and CEO of Realogics Sotheby’s International Realty among other market experts on the conundrum of high demand for housing yet surprisingly little condominium development. She asks outright “Why is there a condo shortage?”.
“The bottom line is really about the bottom line,” said Jones. “High rents and low capitalization rates (the amount of return that an investor gets on their investment capital) has made the business of building apartment buildings highly profitable without the costs or complexities of selling condominiums. If a developer could build a 400-unit tower and sell it to one institutional investor for similar profits as selling to 400 individual homeowners and sidestep ongoing construction defect liability, that’s going to win the debate – especially as rents have been rising by nearly 50-percent in the past seven years.”
Within the article, Jones was quoted as saying “These developers aren’t in public service” – suggesting that most will seek the highest returns with the lowest risk. However, NEXUS was called out as a “rare” development given that Burrard Group, developer of the 382-unit condominium tower decided early on to offer the iconic building for individual homeownership instead of the temptations for rent. Thus, it was of little surprise when the units were offered for reservation last year that eager buyers lined down the block for an opportunity to reserve a home and the same thing occurred last weekend when 75-percent of the 382 homes at NEXUS were sold.
The graphic below illustrates the phenomenon where effectively no new construction condominiums were delivered in downtown Seattle between 2010 and 2015. Even if all the potential projects being monitored in the pipeline are delivered between 2015 and 2020 the total supply will still be less than the last condo boom between 2005 and 2010.