Finding Success in the Condo Craze
Experts offer advice for real estate practitioners navigating the expanding condominium market.
February 1, 2006
Luxury Wins Out
The word condominium actually describes individual ownership in a multiunit structure, not the architecture of a property.
For Scot Karp, director for the Ultraluxury Condominium Division of Premier Estate Properties Inc. in Boca Raton, Fla., that ownership centers around a specialized buyer looking for a high-quality lifestyle, stunning views, top-notch locations, and world-class amenities — and are willing to pay for it.
From inheritance-rich baby boomers to retirees, luxury condo living is in demand across the country. In addition to South Florida, Karp says luxury condos have strong growth in all the major markets, including Las Vegas, Chicago, New York, and Pittsburgh.
According to La Jolla, Calif.-based DataQuick Information Systems, California recorded 1,677 condo sales in the $1 million category last year, up more than 90 percent from 879 in 2004.
These opulent dwellings often include a doorman, concierge service, boat dockage, 24-hour monitored security and security staff, maid service, luxury spas, pools, tennis and racquetball courts, state-of-the-art fitness centers, designer appliances, top-of-the-line fixtures and lighting, marble floors, walk-in closets, wireless Internet access in all common spaces (including poolside), owner’s lounges, business centers, wine rooms, movie theaters, and valet and underground parking.
But luxury isn’t cheap. Last year, Karp sold a 4,900-square-foot luxury condominium for $4.65 million. Karp says monthly assessments in his area for luxury condos can cost $1,000 to $3,000.
In the 1970s and ’80s, condos were viewed as a housing choice only for first-time buyers and retirees. Today, Karp says his typical condo buyers are 40 to 55.
What changed? “I saw a distinct change in the attitude of buyers after 9-11,” Karp says. “People reflected and came back with the idea that, ‘I’m not going to wait until I turn 60 to have a condo on the ocean in Florida.’”
In addition to more luxury, today’s buyers want more room. “Instead of a 2,100 square-foot, three-bedroom apartment on the ocean, [boomers] are buying 4,000-square-foot units,” Karp says.
And a growing number of post-hurricane shoppers are trading single-family vacation-properties for a low-maintenance luxury condo.
“It’s easier to have the condominium manager wait for the roofing company,” Karp explains.
Of course, a condo doesn’t have to be new or luxurious to be desirable. Recognizing the need for affordable housing, and increased building costs and land restrictions in many markets over the past 15 years, developers and investors have been turning attached rental stock into for-sale condominium communities — and the movement to convert has never been stronger than in the past year.
According to New York-based research firm Real Capital Analytics Inc., nationwide sales to converters increased to more than $28 billion (representing 182,742 units) in 2005 from more than $11 billion (representing 77,193 units) in 2004.
Conversions are popular among the traditional condo market — empty nesters and retirees, says Kevin Krulewitch, managing broker of the Real Estate Alternative LLC in Indianapolis. These buyers are looking for secure gated facilities, less maintenance, and a reduced cost of living.
“Instead of tearing something down, why not refurbish and rehabilitate the property?” Krulewitch says. “If an existing property is already located near schools, jobs, recreation, and other lifestyle choices, the question should really be, why not convert?”
Krulewitch and other experts say conversions are popular in Manhattan, Phoenix, Seattle, South Florida, Las Vegas, San Diego, Chicago, and other expensive areas that have limited housing stock for entry-level buyers.
Some developers spruce up lobbies and hallways. Others gut units — refurbishing with luxury upgrades, such as carpet, window treatments, fixtures, stainless steel appliances, and granite countertops—and redevelop common areas to showcase ornate façades and lush landscapes with waterfalls, pools, and spas.
To capture the existing rental market, many developers offer discounts and incentives that can be used toward the purchase price or closing costs.
Still, assuaging the “Why would I want someone’s old apartment?” mentality can be a challenge when selling conversions, but Krulewitch says stunning makeovers attract entry-level buyers, single professionals, and families looking to trade detached living for shorter commutes and more quality time at home.
Condos Within Hotels
For buyers looking for more quality time while on the road, the condo-hotel is another option.
These permanent residences feature all the furnishings and amenities of a luxury hotel — such as world-class restaurants, 24-hour concierge, security, valet, housekeeping, and room service.
Tom Taylor, broker-owner of North Myrtle Beach, S.C.-based Condotels International Inc., says major hotels started selling the residences in the 1980s.
“Today, almost all of the world’s largest lodging chains have a condo division,” Taylor says.
Joel Greene, president of Condo Hotel Center in Miami, says South Florida condo-hotel residences range from $600,000 to $800,000 for a studio to $750, 000 to $1 million for a one-bedroom unit. Buyers pay more than $1 million for a two-bedroom unit. Greene says a rental option provided by the condo hotel management company allows owners to receive a portion — often about 50 percent — of the rental income of their specific unit when away.
Taylor says developers favor waterfront, mountainside, and downtown areas with strong demand for upscale lodging. Myrtle Beach, S.C.; South Florida; and Las Vegas have fast-growing condo-hotel markets that favor high-end travelers and boomers looking for a high-amenity pied-à-terre.
“Boomers are looking for a vacation lifestyle of spacious accommodations, dining activities, and entertainment,” Taylor says. “They demand extra services and luxurious amenities.”
Bon Voyage Living
In 2002, former Norwegian Cruise Lines Chairman Knut U. Kloster Jr. took that vacation lifestyle to the next level when he introduced the first residential cruise ship. “The World of ResidenSea” features luxury condos priced as high as $15 million, in addition to annual maintenance fees of up to $450,000.
In December, Dallas-based Institute for Luxury Home Marketing entered into an agreement with Arizona-based Residential Cruise Line to offer Institute members the option to buy ultra-luxurious condominiums aboard the “Magellan” cruise ship for up to $8 million.
In 2002, Miami-based Ocean Development Group teamed up with Four Seasons Hotel & Resorts on a ship-based condo project that will house 100 private residences aboard “The Four Seasons.”
Set to launch in the summer of 2008, residences on “The Four Seasons” range from about $2.5 million for an 800-square-foot one-bedroom unit to about $25 million for a three-story penthouse.
Annual maintenance fees aboard the liner are based on unit size and range from $100,000 to $500,000, says Leif-Erik Hvide, partner and senior vice president of Ocean Development Group Inc. in Miami. Fees cover insurance; repairs, maintenance and upgrades; crew, fuel, and work charges; and a $12,000 annual use-it-or-lose-it credit for spa, beverage, and food services.
With ownership based out of the Bahamas, “The Four Seasons” residences have no property tax or sales tax.
Catering to 40 to 60-something heirs, self-made millionaires, yacht lovers, or former owners who don’t want the expense of an individual vessel, Hvide says these floating condos feature gourmet kitchens, fine china and linens, high-end appliances, maid service, health spas, a casino, restaurants, and shopping. In addition, the ship features a marina, luxury tenders (small boats used to transport passengers to shore), Zodiac boats, and a helicopter pad.
Approximately the size of a 1,000-passenger cruise liner, Hvide says “The Four Seasons” will take two years to circumnavigate the globe, stopping at a variety of ports for a minimum of 24 hours and a maximum of 10 days and following good weather and world events, such as Cannes, France, for its international film festival; Monaco for its grand prix; Rio de Janeiro, Brazil, for its Carnival; and London, England, for the 2012 Olympic Games.
“You can see the world from the comfort of your own home,” Hvide says. “It’s like a full-feature home that moves.”
Lofts for Young Professionals
A panoramic ocean view is great for the rich and famous, but Pat Mistretta, a sales associate with Atlanta-based Morris & Raper InTown Inc., REALTORS®, says proximity to transportation corridors, urban centers, and local attractions draw land-loving young professionals to high-density loft-style condominiums.
“Lofts appeal to those that want condo ownership, but with a twist,” Mistretta says. “They want something unique that cannot be found in traditional homes or traditional condos.”
Mistretta says loft units in her area start at $130,000 for 600 square feet and top $1 million for 2,500 square feet.
Popularized in revitalized industrial areas, lofts offer high ceilings, lots of raw space, exposed ductwork, and masonry walls. With the exception of an enclosed bathroom and movable dividers that may be provided to separate areas, true lofts are one open space developed within a building or warehouse.
Less traditional lofts have a kitchen and living room on the lower floor and an open second floor for bedrooms.
New developments often advertise “soft lofts,” which fall in a category between a true loft and a traditional condominium. Soft lofts often have high ceilings — although usually not as high as in an industrial building — exposed ductwork, three-quarter walls (with doors), and polished concrete floors, Mistretta says.
Mistretta adds Houston, New York, San Francisco, and Tampa have strong loft markets. “The public cannot get enough of them,” she says. “Atlanta’s loft supply and demand has increased so much that there’s a separate listing for lofts in the newspaper.”
Marketing Advantage for Sellers
Whether you’re marketing a loft, conversion, luxury skyscraper, or oceanic wonder, you need to attract buyers who fit the condominium culture, says the Nikki Gunn, a sales associate with Pacific Union GMAC Real Estate in San Francisco.
“We’re selling a lifestyle, not just a home,” Gunn explains. “A doorman can offer both security and convenience. But some people like to be pampered. And others don’t want any fuss at all.”
Older clients often want conveniences within their building or a stroll away.
“They prefer being closer to the city to experience museums, theater, upscale restaurants, and shops,” Mistretta says.
Gunn says many of her clients are second-home buyers who want to vacation in San Francisco. “So calling the doorman to make a dinner reservation or order theater tickets is a thrilling perk,” she explains.
If the perks don’t thrill, marketing can.
Erin Brachman, a salesperson with Keller Williams Realty Cityside in Atlanta, invites all the practitioners listing condos within the complex to join her for a caravan-style open house.
“By holding communitywide open houses, you not only make it more worthwhile for the prospective buyers, you also are able to split the marketing costs,” Brachman says.
Most of the time, Brachman, who has had as many as four other practitioners work a joint open house, says the listed units are a different size or in another location within the complex, so sellers don’t object to her working with the competition.
Mistretta stages listings with neutral colors, minimizes clutter, and makes sure buyers are pre-qualified, and working within a realistic price range.
Ashton Coleman, e-PRO, a sales associate with Keller Williams Realty Inc. in Miami, includes a professional cleaning for his sellers and takes new buyers on a local tour of 10 key areas within an approximately 30-minute drive to determine a choice property.
To best position presale units that could be several years from completion, Taylor places condo listings on his Web site with a link to the complex, a virtual tour done with computer graphics and artist renderings, amenities and features lists, and an online brochure for download.
“These tools help them visualize enjoyment of the property and generate a showing opportunity,” Taylor says.
Smart Tips for Buyers
While viewing condos with buyer clients, encourage them to walk throughout the complex. Have them pay close attention to unit locations as they pertain to sunlight (which could impact utility bills), neighbors, and noise (from a pool, street, or highway). Consider access to local amenities and good schools. Look at the long-term impact of planned city improvements and growth patterns.
Compare new and used condos with luxury units. And review amenities and home owner’s association (HOA) fees. But adding fees to a hefty mortgage might be deal breaker, so outline on paper the amenities, conveniences, and luxury items included in the dues.
“The fees don’t seem as startling when inclusions are broken down,” Mistretta says.
Taylor suggests looking for a complex in which you would buy and recommend that product to buyers.
With the selection process complete, Karp recommends a trip to the management office or law firm representing the building to access financial statements, condominium documents and declarations, and the public offering statement, which outlines the Conditions, Covenants and Restrictions (CC&Rs). CC&Rs dictate how the HOA operates and outlines ownership rules and regulations.
Sellers might offer their documentation, but get current copies, says Karp, even if you have to pay for it.
“An owner who purchased in 1986 might have been allowed to rent the unit,” Karp cautions, “but subsequent amendments may prohibit renting.”
Gunn asks clients to read the most recent HOA meeting minutes. “This is where you’ll find complaints about a noisy neighbor, upcoming special assessments, and HOA fee increases. When you are paying $450 to $650 in HOA fees on top of an $800,000-plus mortgage, you want to know if the board is considering a 5 percent increase,” Gunn says.
Look for undisclosed assessments and pending fees, research changes in the budget, voting rules, regulations, and bylaws. And clarify shared responsibility for common areas. Verify parking spaces and storage locker numbers. Check restrictions that might limit renovations, pets, and rental income. And make sure everything is paid on the unit. Pay particular attention to any assessments due after closing — especially with units in complexes impacted by last year’s hurricanes.
“It becomes an issue when 15 days after the buyers move in, they get a bill for $10,000 for damage that happened three months ago,” Karp says.
Typically, in his area, Karp says assessments and fees due and payable before closing belong to the seller. After closing, and providing the assessment has been disclosed, the fee belongs to the buyer.
But not having the right information upfront can cause problems at closing. “In Florida, if you don’t receive all of your documents that are up to date, up to the time of closing, you can cancel your contract,” Karp says. “So make sure you’re giving the client all the documents, or you might not have a sale.”