The year of the condo in downtown Seattle
Looking mimelike in a brown turtleneck sweater and matching corduroy pants, David Thyer holds his hands out to show a large gray board mounted...
Seattle Times business reporter
Looking mimelike in a brown turtleneck sweater and matching corduroy pants, David Thyer holds his hands out to show a large gray board mounted on the wall in front of him.
The board contains a diagram of a 231-unit condominium he's developing in downtown Seattle, and it's practically covered with yellow magnets. Each represents one less unit that Thyer has to sell.
The number sold so far: 175 — more than enough, Thyer says, to satisfy his financial backers. "We're already past the finish line."
Thyer insists that Seattle isn't like other cities, where developers are struggling with an oversupply of new condos. There's a demand for condos in downtown Seattle, he says, drawing a contrast with the speculative buying frenzy that has led to a boom-bust scenario elsewhere in the country.
On Friday, political and business leaders met over breakfast at the Westin Hotel for an annual review of downtown Seattle. Real-estate economist Matthew Gardner shared Thyer's optimism, telling an audience of about 700 that demand for new places to live downtown will remain "very positive."
More than a dozen residential projects are in some stage of planning. They would add more than 3,000 units downtown if all were built, according to the city's planning department.
It's not clear how many of those would be condos versus apartments. Leslie Williams, the president of a local condo-marketing firm, says some developers who had intended to build condos are considering apartments instead. They like the economics of apartments as vacancy rates decline and rents rise.
Since 2004, five condominiums totaling about 700 units have been completed in downtown Seattle, an area that includes the retail district, Denny Triangle and Belltown. Those numbers are nearly certain to double and triple by the end of 2009.
Twelve condo projects for about 2,100 units are under construction, and several more are expected to start construction this year. Thyer's development, Olive 8, is scheduled to be completed in fall 2008.
Developers say the new condos will sell, but will they sell at the prices developers want?
"That's the $64,000 question," Thyer said. Land and construction costs continue to rise, ratcheting up the pressure on developers to raise prices or lose money.
Declining vacancies also are behind a surge in office construction. Downtown's office-vacancy rate dropped below 10 percent last year for the first time since the 2001 economic recession, signaling a landlord's market.
"I think we'll see a shift in what people think is the highest and best use" for downtown property, Williams said.
In Miami and Las Vegas, developers have had to drop their prices after condos outnumbered buyers.
Part of the problem is that many buyers regarded their new condos as investments and had no intention of living in them.
Amid concerns of an oversupply, those buyers — feeling no sentimental attachment — fled before closing their purchases, leaving developers with more condos to sell.
That's not happening in Seattle, said Dean Jones, president of Realogics, a local condo-marketing firm. Jones said developers in Seattle have learned from the mistakes made in Miami and Las Vegas.
Seattle was slow to recover from the recession, he said, and it didn't begin to post significant house-price appreciation until 2004. As a result, Seattle missed out on the speculative buying frenzy.
"Being in the upper-left corner of the country, trends may come to us a little bit more slowly," said Kate Joncas, president of the Downtown Seattle Association. "But then, we don't seem to be as much boom and bust."
Jones estimates that speculators accounted for 30 percent or more of all new condo purchases in Miami and Las Vegas, compared with "no more than 15 percent" in Seattle. Now, developers require buyers to disclose if they intend to live in their new condos in an effort to limit speculators, Jones said.
Ada Healey, a vice president at Vulcan Real Estate, said speculators represent a "very modest minority" of its buyers. Thyer, president of R.C. Hedreen, said he tries to limit speculators to no more than 5 percent.
"We don't want to be competing with them if we get to the end point and still have units to sell," he said.
Ten of the 12 condos under construction have sold about 1,200 of the 1,700 units to be built, according to a Jan. 28 report by Seattle real-estate agent Brett Frosaker.
Prices going up
At Olive 8, units go for an average of $790 a square foot, compared with $580 to $650 a square foot in Belltown, Frosaker's report shows.
Olive 8 is able to charge more, Frosaker says, partly because of its hotel component. The bottom 17 floors will have a Hyatt hotel. Floors 18 through 39 will have condos — and panoramic views that fetch top dollar.
Olive 8 is one of two hotel-and-condominium projects under construction downtown; the other is Four Seasons near Pike Place Market, where the price-per-square-foot exceeds $2,000.
The '1' Hotel and Residences is scheduled to begin construction this year at Second Avenue and Pine Street, with condos potentially fetching as much as $10 million.
Developers are betting that they'll persuade wealthy suburbanites to move downtown to be near their favorite restaurants, shops and cultural amenities.
As baby boomers see their children off to college, a two-bedroom condo in an urban setting might make more sense than a spacious home on a wooded lot.
Frosaker counts at least four projects where a significant portion of the condos sell for $1 million or more. Never before, he says, has downtown seen so many ultra-expensive condos come online at the same time.
"A lot of research shows there's a market for them," he said. "But it hasn't been proven yet."
Last week, developers held a champagne ceremony to celebrate the start of construction at Escala, where units range in price from $500,000 to $4 million.
Escala is going up at Fourth Avenue and Virginia Street, a short walk from 1521 Second Ave., where units under construction are selling for an average of $1.8 million.
"The sweet spot of the market is always the low end. The question is, what's the low end?" Williams said. "Five years ago, we would have said it's under $300,000. Now it's under $1 million. Pretty scary."
Meanwhile, developers see large pools of potential condo buyers in the office towers starting construction downtown.
Within the past few months, work has begun on a total of 790,000 square feet of office space at two projects in the Denny Triangle area.
Two more projects are expected to get under way in the area this year, for an additional 480,000 square feet of office space. All together, they would accommodate nearly 5,000 workers.
"You might cringe at condos that sell for $2,000 a square foot. But it would be twice that in New York," Jones said. "We're still, relatively speaking, a bargain."
Amy Martinez: 206-464-2923 or firstname.lastname@example.org