Condos: After The Fall | Developers rent units, cut prices and remain patient for a rebound
Photo/Matt Pilon
Kettle Brook Lofts has seen condo sales fueled by low interest rates and dipping prices: $200,000-units can be sold as low as $140,000, said David Hill, a real estate agent with Keller Williams Realty in Worcester.
If you were looking for a single building that could represent the fate of the real estate market over the past seven years, you couldn’t do much better than 21 Illinois St. in Worcester.
In 2005, a year when condominium sales in Massachusetts rose more than 12 percent according to The Warren Group, a Hopkinton developer began transforming the old mill building into University Park Lofts. Over the following years, the project was completed and eight of its 37 units were sold.
Then, the housing market crashed. The developer went out of business, and the bank that held a mortgage on the building took possession of it.
The bank happened to be Strata Bank of Medway, which collapsed in 2008 under the weight of investments in companies like Lehman Brothers and AIG, then merged with Middlesex Savings Bank of Natick.
That’s when James Levin got involved.
‘Running Into The Fire’
“In October ’09, when everybody was running out of the fire, we were running into the fire,” he said.
Levin’s firm, Levin Development, bought the building from Middlesex Savings. He said he borrowed from a private lender, paying 14 percent interest.
“It was 2009, and everybody was terrified,” he said. “Nobody wants to lend money on somebody else’s problems.”
Levin, who now runs his company from the building, said the units are now pretty much full, though they’re mainly full of tenants, not owners. Levin is renting out many of the condos, and six others have been bought by other investors who have filled them with tenants while they wait for the real estate market to improve. Those that have been sold have gone much cheaper than they would have in 2006.
“We’ve averaged $115,000 a unit when we sell them, which is more than we paid for them,” Levin said.
Resorting To Renting
University Park is an extreme example, but similar patterns apply to other condo developments in Central Massachusetts. Over the past few years, unit sales have slowed to a crawl, prices have dropped and many owners have decided to content themselves with renting out portions of their buildings. Some projects that were partially built or in the planning stages have been indefinitely postponed.
The condo market seems unlikely to pick up anytime soon. The Warren Group reports that, in 2011, Massachusetts condo sales dropped 16.2 percent from the previous year to 15,122. That’s the lowest number of sales since 1995, and less than half of the 34,672 that were sold in 2005.
David Hill, a real estate agent with Keller Williams Realty in Worcester, has been seeing sales at two condo properties he represents in the city, Kettle Brook Lofts and Envelope Terrace. That’s partly because interest rates are so low, he said, but there’s another factor too.
“Unfortunately, the prices have just been going down and down and down,” he said.
Hill said units that once sold in the $200,000-to-$250,000 range are now going for as little as $140,000.
Median Price Rising
That kind of reduction in price is not necessarily typical, though. The Warren Group reports that the median price for condos statewide actually rose over the past two years. In 2011, the median price was $270,000, not far below the 2005 level of $278,000.
Steve Callahan, president of Global Property Developers Corp. in Bridgewater, said there have been few to no sales at his two Central Massachusetts properties, The Fremont Lofts in Worcester and The Falls at Arden Mills in Fitchburg.
The Fremont Lofts was mostly rented before the housing market crashed, Callahan said, and since then the firm has sold a few more units, leaving just four unsold units that are being rented.
Arden Mills got hit much harder. Only 48 of 205 planned units have been built, and out of those, only 15 were sold. The condos were left in limbo after the bank financing the project, California’s IndyMac Bank, went belly-up, leaving the developer without a clear way to make sales.
In any case, Callahan said, there’s not much point pushing for a way to sell condos in Fitchburg at the moment.
“There’s no market that I know of out there,” he said. “It’s all rental.”
Still, rental isn’t necessarily the worst business to be in. Callahan and Levin both said they’d rather find buyers than renters, but renting can actually bring in more money.
Levin promised the owners of existing units at University Park that he wouldn’t operate his units as rentals long term.
“We’re making so much money on rentals that, quite frankly, I should recant,” he joked.
David Carlson, the owner of David’s Service Center in Worcester, is one of the investors who bought units in University Park simply because he felt they were such a good deal. He said it’s easy to rent them out, and since maintenance is taken care of by the condominium association, he doesn’t have to worry about being a hands-on landlord. Eventually, he said, he fully expects their prices to rise so he can make a profit reselling them.
“I think real estate’s just about the only place you can invest money these days,” he said.
A two-building Worcester condo development, School House Lofts, was only half finished before the housing collapse. Mary Ann Goddard, a property manager with CMD Boston, said the completed building on Adams Street consists of 28 units, 18 of which are now owner-occupied. She said the developer, LMM Realty LLC of Somerville, is renting out the rest.
And she said LMM is working with the city to develop the second building, on Dartmouth Street, as rental units from the start.
“To kind of adapt to the changing market, the developer is seeking different ways to make it work,” she said.
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