PSU Center for Real Estate on Condos

Dsc_5601 The Wyatt seen through The Lovejoy (new Safeway and condos) construction site.

Portland State University’s Center for Real Estate’s third Quarter Report can be viewed here. Since we’re just talking about the Portland condo market in this post, this is the applicable chapter by Greg LeBlanc.

No real surprise that it isn’t pretty. We’ve already talked about the Wyatt being converted to apartments and that the entire project has been sold by Bob Ball to an unnamed buyer. There are massive amounts of new units coming online in the next year and the market has slowed both in number of units sold and the average selling price per square foot. It will be interesting to see if the Wyatt gets converted to condos. There has often been some backlash on apartment to condo conversion that was originally built and planned as apartments. These were designed and built as condos and became apartments. Will there be a “conversion stigma?” The market (especially current owners) should also breathe a collective sigh of relief that there are 244 few condos in the market. Will other developments head the same direction? Are there enough renters out there to fill the void left by buyers? It is impressive that the average sales price in the Pearl District is $427/SQFT.

9 Comments on “PSU Center for Real Estate on Condos

  1. I agree that the Wyatt will be interesting to follow.

    The Wyatt had a unique disadvantage while they were trying to sell condos: The crumbling Marshall-Wells building, built by the same developer, was sitting right across the street with a highly visible plastic tarp covering the entire South side of the building.

    Having previously owned a loft in the Marshall-Wells building, my guess is that the Wyatt will be plagued with construction defects and basic design flaws (bedrooms under staricases, next to elevator shafts or garbage disposals, etc.) If I had been a renter in Marshall-Wells, I would’ve broken my lease and moved out after three months.

    Unlike condo owners, people who rent have no compunction about simply leaving when the product turns out to be sub-par, and also unlike condo owners, they have no incentive to keep their experience a secret. If the Wyatt develops a poor reputation among renters, that will impact its potential as a condo re-conversion sometime in the future.

  2. I was driving over the Fremont bridge on Saturday and saw all of those cranes in the Pearl district. All those new condos under construction to add to an already glutted market. It’s a disaster in the making…

    And then there’s the South Waterfront disaster…

    BTW: WaMu under investigation now for improperly pressuring appraisers. The confluence of events right now isn’t looking good for WaMu.

  3. Fortune just released the “25 real estate market poised to fall.” Portland is #23 and home prices are predicted to fall by 19% over the next 5 years. The prediction is based on price/rent ratios, which is the same thing I used for my guesstimate of a 20% drop (it’s nice to have Fortune double-check your math for you 🙂 )

    Fortune Article
    (link fixed by editor).

  4. Leo: What about median price to median houshold income ratios? With tightening lending standards that ratio will be forced to go down closer to 4:1 or perhaps even less. price/rent is an important factor as well.

    Over five years I’m guessing it’ll be closer to a 25% to 30% drop (in inflation-adjusted terms)…. unless the economy really tanks hard as a result of all this, in which case all bets are off.

  5. I agree with TiP. We should see a correction greater than 20% as tighter lending standards push the cost of ownership higher vs renting. Also, expect the market to overreact to the contraction just as they did to the expansion.

    As for the condos- That’s interesting insight about building a bad reputation at the Wyatt, Leo. However, for conversions in general, I think that the right apartments can be successfully converted (in the right market) without backlash. The Lexis, coincidentally across the street from the Wyatt, was converted and only sells for slightly less than average psf because the finishes aren’t quite as nice as the real condos. The key is they aren’t cookie cutter dumpy apartments, you really feel like you are in a condo and not a section 8 with aluminum carports that just got granite countertops.

  6. Actually, I thought units in the Lexis were selling for significantly less than other condos. It’s not concrete and steel construction, and I’ve heard from former renters in that building that the noise insulation is quite poor. It’s more than just a difference in fancy countertops and kitchen cabinets …

    You’re probably right about overcorrecting prices. The price/rent ratio is just a nice, stable number that already has all other kinds of factors built into it, so that long-term, I always expect to return to that number (the equilibrium). More likely than not, prices will overshoot before they stabilize at the historical equilibrium.

    I guess I was just kind of surprised that my anecdotal dataset for price/rent gave the same number as the Fortune study, which probably used a much more rigorous dateset.

  7. One thing I noticed when looking at condo websites with floor plans is the % of “one bedroom” units where the sleeping area is actually an alcove. I wouldn’t want to live like that. If you were going to buy a condo wouldn’t you want a REAL bedroom??

    Talk about white elephants!!

    I wonder what % of the down town condo housing stock is studio/sleeping alcove?

  8. Another observation: The report linked above contains an interesting discussion about downtown resident parking availability. I have an issue with the economic assumptions there, such as the statement that a parking spot adds $50,000 to the value of a condo and that residents would exercise an option to rent at $165/mo. OUCH!!

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