Condos Compete With Apartments
The market for condos in the Wilmington area grew in 2016 and is expected to remain strong in 2017, but construction of new condos here is an entirely different story.
“Very few condos are currently being built and just as few new construction condos were sold last year,” said Heather Neville, a Realtor with NextHome Cape Fear.
“The focus for investors seems to be apartments, due to the attraction of long-term cash flow,” Neville said. “As millennials are indeed predicted to purchase a home, they are purchasing later in life than previous generations, making apartment homes a more desirable option for a bigger pool of people than what we’ve seen in the past.”
Most investors continue to favor apartments over condos as a relatively safe investment in a possible economic downturn, according to the 2017 Emerging Trends in Real Estate report produced by the Urban Land Institute and PwC.
The report spells out several factors for the rise of new apartments and fall of new condos:
- entry into the job market of the massive millennial generation, which is a prime age for rentals;
- consumers’ wariness of for-sale housing product following its massive loss in value during the housing market crash of 2008;
- and credit issues for consumers, compounded by student debt and tightened bank requirements for home mortgages.
The River Place project, to be built at the location of the Water Street parking deck downtown, is one development that does plan to incorporate the housing option.
River Place will be a 13-story mixed-use building with condos ranging in price from $209,000 to $689,000. The River Place development is expected to begin construction this year.
“On a general level, the majority of what we have processed within the last five years during the current multi-family trend has been apartments,” said Jessica Loeper, spokeswoman for New Hanover County, which fields the planning requests. “This does appear to be a significant increase from approximately 10 years ago.”
That’s not to say sales of existing condominiums have slowed.
“The market for condos looks great,” said Neal Johnson, president of Cape Fear Realtors (formerly WRAR). “We had almost a 10 percent increase in condo sales from 2015 to 2016.”
Johnson said that 2015 condo sales in the area were 324 units, and in 2016 condo sales were 356 units.
“Obviously River Place is the big talk of the town, a huge development right there on the river, that will draw in a lot of business,” Johnson added. “That’s really the big chatter in condo development.”
It’s also the only chatter, in new condo development.
“There are a lot of apartment complexes you can see particularly along Carolina Beach Road, near the 17th Street extension area,” Johnson said. “There are quite a few developments of actual apartment complexes. So that’s in big demand. You have seen that growth in the last two or three years of that apartment boom.”
It’s the same story nationally.
According to Robert Dietz, an economist with the National Association of Home Builders, multi-family development has been the leader of the housing recovery.
“This growth was propelled by an increase in rental demand, particularly from younger households,” Dietz wrote in a recent study. “This significant expansion in the multifamily arena has also been characterized by new building patterns. These changes include fewer new condo units. The impressive growth for multifamily construction has been concentrated in the rental sector.”
According to New Hanover County records, in 2012 there were 24 condo building plans recorded/filed with the Register of Deeds. By 2015 that number was down to seven.
Economists believe market forces will dictate what kind of product the developers will bring to market.
“If you build the apartments you can collect rent for a while, but if the condominium market heats up then you can convert,” said Edward Graham, a professor of economics and finance at University of North Carolina Wilmington’s Cameron School of Business. “When the financial crisis occurred, 2007, 2008, 2009, 2010, getting financing for condominiums by investors was virtually impossible.
“So a great many lenders were stung by the condominiums they held on their books. So it could be that lenders continue to be skittish about lending money to condo developers whereas lending money to apartment developers is far more easy,” Graham added. “With condos if we get a recession, it might be that a couple of hundred condos that a developer expected to sell in two or three years might end up taking five or 10, and then the loan turns belly up.”
Despite the downturn in condo construction in favor of apartments, Neville at NextHome Cape Fear remains bullish on the overall market and its future.
“The condos that are being built now are mostly in the newly revitalized areas of downtown and will be catering to those wanting a more luxury feel,” Neville said. “It’s great to see this development downtown as downtown Wilmington is a leading factor that draws many visitors to our area.”
Source: Wilmington Business Journal
BY VINCE WINKEL