Let's get this straight. The market for new downtown condos has cooled. Many potential buyers are backing off, fearful of recession and...
Let’s get this straight.
The market for new downtown condos has cooled. Many potential buyers are backing off, fearful of recession and wary of the national real-estate downturn.
So Escala, the 31-story luxury complex under construction at Fourth Avenue and Virginia Street, is raising its prices?
Developer Lexas Cos. said this week that on June 5 it will raise the asking prices 3 to 7 percent for about 70 unsold units that have been on the market since last spring.
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Another 22 units that will be released for sale May 1 also will have higher price tags.
Lexas principals John Midby and Eric Midby said prices are going up partly to send a message to prospective buyers: If they’re waiting to buy until prices drop, they’re reading the local market wrong.
And they have until June 5.
“We look at the underlying fundamentals and see a different picture than those that have been scared off by the national trends,” John Midby said. “It doesn’t match the psychology that’s pervasive in the market, even in Seattle.”
Seattle’s economy is strong, he said. Housing prices here have held up fairly well while those in much of the rest of the country have plummeted.
What’s more, he said, demand for new downtown condos soon will outpace supply because many proposed projects that haven’t broken ground are having trouble getting financing.
“We are trying to create value for our current buyers and take [potential buyers] off the fence,” Midby said of the price increases.
But Glenn Crellin, director of the Washington Center for Real Estate Research at Washington State University, suspects those are not the only reasons.
“It is surprising that they are increasing prices to that degree unless there’s something else going on,” he said.
Lexas may feel an urgent need to move units, Crellin said: “A developer has to sell them because the carrying costs on a project that size are enormous.”
High-end downtown condo projects are particularly vulnerable to the real-estate market’s slowdown, he said, because many prospective buyers who are looking to move downtown from big, expensive suburban homes are having more trouble selling those houses quickly.
The first residents are scheduled to move into Escala, a $350 million project with 275 units, in October 2009. Condo prices range from $500,000 to $5 million, with “sub-penthouse” and penthouse units costing even more.
About 140 units were released for sale last May. John Midby said about half have sold, 60 percent (40 or so) of them last May and June.
Prices are going up, in part, because construction costs in Seattle have increased 30 percent over the past 12 to 14 months, he said.
Plus, raising prices as more units are released for sale was always part of Escala’s business plan, Eric Midby said.
Dean Jones of Realogics, Escala’s marketing firm, said that in the nine condo projects under construction in downtown Seattle and scheduled for delivery before the end of 2010, more than half the units have been sold.
Buildings that haven’t broken ground aren’t likely to be finished before 2011, Jones said, so supply is dwindling. The law of supply and demand eventually will motivate buyers.
“As inventory diminishes, prices go up,” he said.
Still, he acknowledged, sales have slowed.
Earlier this year the slowdown prompted another high-end downtown condo project, Olive 8, to offer buyers a novel guarantee: Buy an Olive 8 condo now. If someone else pays less later for a unit with the same floor plan, your price will be reduced to the lower amount at closing.
Developer R.C. Hedreen called the offer a bid to boost sales and a sign to prospective buyers not to expect prices to drop.
“They’re just basically saying the same thing we are,” Eric Midby said.
Hedreen President David Thyer said Olive 8 had sold some units since the offer was unveiled in mid-February, but he wouldn’t say how many.
About Escala’s price increase, Thyer said: “I’m sure they’re trying to send some signals to their partners and lenders that they’re bullish on the market. We all hope they’re right.”
Eric Pryne: 206-464-2231 or firstname.lastname@example.org