FOR AREAS OUTSIDE OF ATLANTA: Sometimes you do have to reinvent the wheel if you want to sell condo units in this real estate market
by
Jeanne Bonner
Georgia Online News Service
If you've logged onto the social networking site Facebook recently, you may have noticed to the right of your personal newsfeed a small ad for a condo in your neighborhood.
The ads are one small part of the arsenal of strategies Georgia condo developers and real estate agents are deploying to move properties in this dismal housing market.
Other strategies include allowing clients to lease a unit before purchasing it, obtaining approval for federally-backed mortgages, and in some extreme cases in metro Atlanta, wholesale auctions that offer condos at fire sale prices.
The people charged with moving thousands of condo and townhome units for sale across Georgia have resorted to more dramatic tactics after massive price reductions last year failed to lasso in enough buyers.
Developers have been forced to reach for more creative but not more expensive methods to entice buyers. While it was once the fashion to give away cars to buyers who signed a contract to purchase a condo, more stringent federal guidelines now restrict the amount of money developers can spend on incentives.
Metro Atlanta, not surprisingly, is more squarely in the scope of the condo market meltdown, with some 6,000 units on the market. But cities across Georgia, including Columbus, Athens, Augusta and Savannah, have a surplus of condo properties that potential buyers either don't want or cannot finance. In many cases, buyers who had signed contracts to purchase a condo simply walked away from the deals when the stock market crashed in September. That left many condo developers marketing units they thought they had already sold.
Leah Braxton, of the W.C. Bradley real estate firm in Columbus, is marketing condos in the Eagle and Phenix building, a converted cotton mill along the Chattahoochee River in the city's downtown.
She said the company does not intend to lower unit prices because "we want to uphold the values of the people who have already purchased." Condos at Eagle and Phenix range in prices from $154,000 to $569,000.
But Braxton has launched an incentive program that, depending on a client's needs, may include closet systems, hardwood floors or washers and dryers in shell units that have not been finished in the 88-unit first phase.
"Financing for condos dried up in March of 2008," Braxton said in a telephone interview last week.
She added, "Because of crazy things other people did, I only have one preferred lender for this project. I don't have FHA approval. That's a definite problem," referring to the government-backed mortgage program guaranteed by the Federal Housing Administration.
W.C. Bradley has sold only 27 units, or about one-third of the project's 88 units. A year ago, Braxton had set a goal of selling 40 units in 2008. The company won't begin work on the second phase until two-thirds of the condos in the first building sell. In the meantime, Braxton said she is eager to learn how other developers around the state are spurring sales.
In Atlanta, where condo building and conversion exploded in the last five years, developers have dealt with oversupply in more extreme ways. For example, Viewpoint in Midtown has slashed more than $100,000 off the prices of some two bedroom units, which now sell for under $300,000.
Other buildings have rented rather than sold units. The Reynolds on Peachtree, a 130-unit property in Midtown, has relied partly on the cachet of a boutique restaurant in the ground floor of the building to create buzz. Many properties have created profiles on social networking sites such as Facebook, where one can also find ads for nearby condos. And in a few cases, developers have converted some buildings to rentals, abandoning any hope of sales.
Some developers who have received approval for residential complexes have postponed marketing the properties and are moving more slowly with construction. For example, in Augusta, the developers behind Forest Place, a 33-unit townhome complex within the city limits, plan to build the project piecemeal in order to avoid an inventory glut. The developers are pouring slabs for the initial five units, and if one sells, they will begin to build a second phase, said Andy Higgins of Meybohm Realtors in Augusta, which is marketing the properties.
It's one of several strategies in play. In addition, Higgins said he and his partners will pay buyers' closing costs. They have priced units at Forest Place between $89,900 and $109,900, below the threshold of most single-family homes in the Augusta area.
Nonetheless, Higgins said he worries the current housing bust will diminish buyers' interest in city living.
"We are definitely concerned about that," Higgins said.
The condo and townhome market is a subset of the wider real estate market, where agents say no one is buying. Through the third quarter of last year, sales of single-family homes, apartment condos and co-ops in Georgia had fallen 16 percent, according to the National Association of Realtors.
"I'm doing very little of anything," said Dirk Howell, a real estate agent with Coldwell Banker Upchurch Realty in Athens, as he distributed flyers for a property he is marketing. "There's very little you can do. I don't think the buyers are there. And what little money they have, they are sitting on it. A lot of them are worried about their jobs."
While many say the boom years produced too many housing units, developers and real estate agents say the main obstacle to closing sales today is financing. The nationwide credit crunch that began last year means developers often cannot obtain or hold onto financing for new projects, and prospective buyers cannot land mortgages.
"Banks that were willing to finance projects three or four years ago are basically locked down and comatose," said Emory Morsberger, chairman of The Morsberger Group in Lawrenceville, whose Ponce Park project will include the rehabilitation of City Hall East in Atlanta. "To move a project forward in this market it has to be a superstar project. Average projects don't work now."
The tight credit climate has driven more developers to pursue eligibility for loans guaranteed by the Federal Housing Administration. Obtaining FHA approval gives buyers access to federally-backed mortgages that require smaller downpayments and often include closing costs and taxes. Newly-built condos are well-positioned for approval because the FHA mandates more stringent building inspections before granting mortgages. Indeed, some of the properties that have received FHA approval including Villa Sonoma, a resort-style condo property in Dunwoody are decidedly upscale.
"[Buyers] would not be able to get financing otherwise," said Robert Hughes of Urban Realty Partners, who's marketing The Reynolds on Peachtree, an FHA-approved condo building in Atlanta. "That is why other projects are not doing as well."
While in the past bankers have declined to lend money to people with poor credit, developers say many credit-worthy buyers are being turned away in this market.
Egbert L.J. Perry, chairman of The Integral Group, which built Renaissance Walk in the Sweet Auburn area of Atlanta, said lenders are demanding much higher credit scores from prospective buyers. That's taking a toll on Perry's efforts to market the building, and it's part of the reason the company has agreed to lease-to-purchase arrangements with some buyers.
When officials at Integral began selling the condos a year ago, they thought they would have sold 75 percent to 80 percent of the units by now. But 60 percent of buyers who signed contracts before the stock market plummeted in September did not see the transactions through to closing, said Valerie Edwards, the company's executive vice president
It remains unclear when the housing market, and by extension demand for condos, will turn around. Real estate agents and developers in Columbus and Augusta are confident the market will improve more quickly in those cities because of an expected influx of military buyers. For example, thousands of additional military personnel will soon relocate from Fort Knox in Kentucky to Fort Benning in Columbus.
But others are preparing for a longer haul. Edwards of the Integral Group said she thinks it will take two years before demand returns, given the increase in the unemployment rate. In the meantime, Edwards, who's, said she's developing Internet strategies to market Renaissance Walk, including a series of Webisodes launching this month that show live performances from promotional events held at the complex.
"You have to face reality. Not much product is moving right now," Edwards said. "You really need to wait it out."
Jeanne Bonner is the senior business writer at Georgia Online News Service. [full bio]
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