It doesn’t take a genius to understand the enormous problem that developers and lenders are facing right now in the Bellevue condo market. If we consider basic supply and demand, we can speculate as to the severity of this issue.
Many of the new buildings in Bellevue right now are apartments. There are only so many tenants for the available space. Considering that we were in the worst real estate market in 90 years it would seem like a safe play right? Well, it was. What I mean by that is that just 2-3 years ago when many of these projects started the process of development, the Puget Sound area had a large amount In-migration. We had 30,000 plus job growth and our local economy was on fire.
One might be able to argue that at some point, it made sense to build these apartments to accommodate a lower cost of urban living. Especially when you compared buying a condo for over $700 per square foot. The only problem is, their is too much rental inventory in the Bellevue market. On top of that, you have struggling condominium towers that are too big for auction and much too large and expensive to convert to apartments. Even if you could, the rental rates would not be absorbed by the local lessee’s. That brings us to an important point: What does a developer do to sell its remaining inventory?
I’m not an expert. Nor do I envy these developers' situation. However, I sell condos and I feel that I understand what the market is looking for. You might not agree with me, but I have the magic number. Lower the bulk of your inventory to under $450pf. If you can, get those under $425pf. Buyers in this marketplace will not pay more. It is too risky. Condos were once the Belle of the Ball. Now, they are risk and one that most buyers will avoid until there is greater optimism on stabilized pricing. So my message is clear. Get there with your pricing and get there fast. There is no time to waste. As the economy improves you can always release more inventory at a higher price, but for now; lower prices across the board. You will meet the expectations of the buyers and they will gladly accept and promote your project.
Three reasons to do it now:
- Even if its extended, the tax will expire in less than 9 months. At best, it could go through June.
- The Fed changed its guidance, MBS will be purchased less and it will drive rates back up as we pull money out of the system.
- There is competition. Lower your prices and wrap your product with a big red bow.
This piece shouldn’t be taken the wrong way. I support our condo community and its developers just like I do our readers and the local buying pool. I just want to see our market recover. We have too much inventory. The inventory doesn’t pencil out as apartments. So it's time to set adequate expectations. Talk to your lenders, negotiate the loss, sell your units, and look forward to a better market with better returns.