All boxed in: Condo market softens
Portland Business Journal - August 31, 2007
by Wendy Culverwell
Business Journal staff writer
Developer Marty Kehoe has heard the rumors: The bank foreclosed on The Cambridge, his luxury condo project in a trendy corner of Northwest Portland.
It's not true, said Kehoe, a veteran builder who used just one lender to finance the $60 million undertaking.
The rumor reveals cracks in the usually sunny face builders and real estate brokers usually put forth in the troubled housing industry. In Portland, condo construction continues at a breathtaking pace, and units still sell, but at a slower pace than a year ago.
"People want to buy. They're just scared to right now," said Kathleen MacNaughton, a broker with The Realty Trust. MacNaughton is leading the sales team for The Strand, a luxury project at Riverplace being built by Jack Onder.
In the past four months, the average condo price in the Portland area dipped 7.5 percent to $333,000. The number of condos for sale rose almost 50 percent to 3,675, according to the Realtors Multiple Listing Service and Ron Ares, a broker with Advanced Real Estate Services who tracks the market.
"The numbers speak for themselves," said Ares, who added that the increase may be somewhat misleading because condo builders are more likely to place their units on the RMLS service than in the past, when sales were handled independently.
The condo numbers echo overall real estate numbers, with the RMLS, a local listing service, reporting a 54 percent increase in the number of homes for sale since July 2006.
Kehoe has also noticed the slowing market. He even confessed surprise that all the buyers at 70-unit Cambridge remain committed. Units start at more than $700,000 and top out at more than $2 million for a penthouse with sweeping downtown views.
The project is 83 percent sold.
In another sign that developers plan to stick by their projects, the team transforming the former Portland Center Apartments near Portland State University into the Harrison condos said this week that it would complete the final phase of the project as for-sale units. There had been doubt.
The team, led by Reliance Development, converted the first two towers, but considered selling off the last as apartments.
The 176 units in Harrison South will be put up for sale next week and should be ready for residents later this year.
That tends to confirm observations by Nick Stearns, whose firm, Stearns Marnella Homes, develops condos just outside the urban core in places such as Milwaukie and the St. Johns neighborhood. He recently wrapped up the 111-unit Matthew Frank project.
The last unit sold in July, some four months ahead of schedule.
Stearns has observed slower sales at the top end of the market while midpriced projects such as Harrison thrive. He remains bullish and is making plans to launch a new project in Northwest Portland, with units selling for less than $500,000.
MacNaughton, the broker working at The Strand in the Riverplace District, concurs that luxury listings now take longer to sell.
"You've got to work harder to put a deal together," she said.
The Strand consists of three midrise towers adjacent the Willamette River, just north of the Marquam Bridge.
Initial sales were so strong that the team decided to save the best units for last, intending to close the project with a bang. A year ago, it was a solid strategy with buyers soaking up five to 10 units per month.
Now, the pace of sales is down to about half that.
Mike Purcell, president of Gray Purcell Inc., has 11 condominium projects in construction around Portland.
The Lake Oswego-based general contractor recently broke ground on the Mississippi Avenue Lofts, a 32-unit complex with units starting at $289,000.
The project was 60 percent sold just as the first dirt was being moved, Purcell said. But for every success story, there is one that hasn't performed as well.
Twelve months ago, Purcell said projects routinely sold out before construction wrapped up.
"Right now, that is not the case," he said.
Turning attention to apartments
Marty Kehoe has spent the last few years building luxury condominiums and converting apartments.
Now, as he wraps up work at The Cambridge, a luxury condominium project in Northwest Portland, he is turning his attention to apartments. His next two projects will be apartment towers, one 22 stories and the other 16. He is negotiating to acquire the undisclosed sites, which will be in Northwest Portland and in the west end of downtown.
"I think it's time to be in apartments again," he said.
Kehoe said he's not giving up on condominiums, but rising apartment rents and occupancy rates favor for-rent housing.
Kehoe said he has willing financial partners to back the projects, which will cost $100 million apiece.
"Portland is on the map with Wall Street lenders. They're eager to be here," he said.
Ladd Tower, on the South Park Blocks, offers further evidence of the rising interest in for-rent projects. The 190-unit tower, developed by Opus Northwest and Carroll Investments LLC, was originally conceived as condos, but in May, the developers changed their minds and decided to make it an apartment project.
Not everyone is stampeding to apartments, though.
The Harrison condos, formerly the Portland Center Apartments, have been a much-watched bellwether of the condo market. The developer partners have converted two of the project's three towers into condominiums and had given indications that the third might be updated, but kept as apartments.
The development team, led by Reliance Development, said this week that it will go ahead and sell units in the third tower, Harrison South, as condos.
John Mangan, spokesman for the development team, led by Reliance Development, said 303 units have been sold since it opened in April 2006, a better-than-average absorption rate for the market.