Livin’ the condo (foreclosure) life

Barbara Sanz has never missed a mortgage payment, but the plunge in real estate is punishing condominium owners like her anyway.

Four years ago, she bought her first condo in a glassy new Miami tower when the building was filling up. Now nearly one in six residents in the 43-story building is battling foreclosure and their contributions to the building association are shrinking. Each of the remaining owners has had to chip in an extra $1,000 assessment and $50 more a month for cable and Internet. That is on top of Ms. Sanz’s $450 monthly maintenance fee.

Even though she pays more, her building has broken washers and dryers and unusable exercise equipment, and her hallway is spotted with mold.

“It’s not fair,” said Ms. Sanz, a 32-year-old event planner. “The first two years, I enjoyed all of the benefits of living in a condo. I’m disappointed now. I hate the way the building looks.”

When people buy condos, they expect their monthly fees will cover many of the responsibilities that they would otherwise have as owners of single-family homes, like cutting the grass and paying the water bills. Now many find themselves nagging each other in the hallways to pay their assessments and adding special fees while haggling over chores. In Miami, Chicago and San Diego, condo owners are adjusting to the economic woes, sometimes by mowing themselves and working shifts for building security — all while lamenting their lost community.

“What motivated people to go into the condo market in a way that led to overbuilding was the expectation that it would be easier than owning a home on a maintenance basis,” said Sam Chandan, chief economist at the real estate research firm Reis. “The downside is that your fate is tied to 50 or 100 other people who may stop making their condo payments.”

Many of the numbers compiled on home sales specifically exclude condos, which account for one out of eight homes in the nation, and that missing data may be masking just how weak the housing market really is. Sales of existing condo units were down 26 percent in March from a year earlier, compared with an 18 percent decline for single-family homes, according to the National Association of Realtors.

The pain in the condo market, mostly in urban areas, may not only be deeper than in the rest of the housing market during this downturn but more prolonged. Bargain hunters say they are reluctant to buy into a building even when the upfront cost seems low because they might have to pay unexpected fees as distressed neighbors default on their mortgages or just stop paying the association fees that cover everything from taxes to pool maintenance to air-conditioning repair.

Marcus & Millichap Real Estate Investment Services, which is based in Encino, Calif., estimates that nearly 202,000 condo units will be added this year to the pool of 574,000 added nationally in the last five years. Next year will bring 94,166 more units onto the market.

“We have not even approached the bottom and will not approach the bottom until 2009,” said Hessam Nadji, managing director of research services at Marcus & Millichap.

The shabby condition of some condos means potential buyers insist on especially steep discounts on foreclosed units. Alessandro Comoglio, a 34-year-old investor from Italy, recently visited six apartments in Ms. Sanz’s Miami building with a real estate broker. Mr. Comoglio was surprised to find worn-out hallway carpeting and orange foreclosure stickers partly scratched off the doors in such a new building.

His willingness to spend stopped short of $200,000 for the condo units, which once sold as high as $700,000, according to the broker, Peter Zalewski. Mr. Comoglio also wants a written guarantee that he would not have to pay more fees.

“Nobody knows if the worst is yet to come,” he said. “Nobody knows how much prices will continue to drop.”

Rosa Rodriguez, a resident and property manager at Parkview Point Condos in Miami Beach, says her former neighbors have left her with so many problems that she would never buy a condo again. The 38 foreclosures in her 244-unit building and the unpaid dues nearly cost the residents running water because the building could not pay its bills. The building abruptly stopped repairing its ceiling lobby and left its wiring and ducts exposed when the board ran out of money. She avoids answering questions from visitors about ceiling repairs.

“We’re not going to tell them we don’t have any money,” she said. “That’s embarrassing.”

Buildings with few units can suffer even if it just one owner falls into trouble. Doris Wilson, who owns a one-bedroom apartment in a building in the Bronzeville neighborhood of Chicago, struggled to get a lender to pay $2,500 in association fees after it foreclosed on one of the seven units in her building. The bank eventually paid the money, and the association has since been able to paint its wrought-iron fence and clean the sewer system.

Still, Ms. Wilson worries that the expected sale of the foreclosed unit at about $94,000 will hurt neighbors who paid or refinanced their units for three times that price. In the short term, she dislikes asking her neighbors to pay an extra assessment of nearly $220. She dreads going to monthly condo board meetings, and she avoids some neighbors who are struggling to pay the additional fees.

“It’s personal,” she said. “Here they are going through a hard time and you have to ask them to pay.”

Marki Lemons, a Chicago real estate broker, says that investors are hesitant to buy properties with many foreclosures because of the possible problems. Some buildings with four to eight units have had so many foreclosures that their condo associations have disbanded and windows have been boarded up. In these cases, she does not even want to represent sellers, because buyers cannot get financing and will have to pay all cash. Sellers will be disappointed by those buyers’ offers. “They’ll probably give 20 cents on the dollar,” she said.

So far, the Manhattan market has been largely spared, in part because of foreign owners who never sought a quick profit. By the end of the year, about 15,000 units will have been added during the five-year condo boom in Manhattan, according to Miller Samuel, a real estate research firm.

Jonathan Miller, the company’s chief executive, said that foreigners, who have bought up to a third of these new condos, typically put in more cash and plan to hold for some time.

“They’re in it for the long-term equity play,” he said. “They’re looking for a 10-year hold.”

Those who fear a downturn remember that Manhattan co-op prices suffered so much during the housing downturn of 1989 to 1993 that buildings had a hard time luring buyers. This financial instability hurt New Yorkers at all economic levels. Some recall neighbors handing over their Fifth Avenue apartments for $1 because they could not afford the maintenance fees.

Condo owners across the country are trying to ride out the slowdown. Since 2004, when Mark Mills bought his two-bedroom apartment for $622,000 in the 210-unit GasLamp City Square condo in downtown San Diego, 10 of his neighbors have succumbed to foreclosure. The building now has a $115,000 shortfall in its budget because residents failed to pay their condo dues.

He resents neighbors who have rented units they cannot sell to 20-somethings, who leave beer bottles in the lobby and hold late-night parties. He is tired of the constant beeping of a smoke alarm in a vacant unit, indicating a battery needs to be replaced. Still, Mr. Mills is staying because he expects he could get only about $550,000 for his home.

“We couldn’t sell it for what we bought it for,” he said. “I’m in it for the long haul.”

12 comments ↓

#1 Condobubblehead on 05.17.08 at 8:03 pm

In the New York Times article substitute – New York with Toronto, Miami with Calgary and San Diego with Vancouver – and the article reads like living the condo life in Toronto, Calgary and Vancouver a year from now.

#2 Jim on 05.18.08 at 1:00 am

I am thinking of grabbing 100K and going shopping down south. I should be able to get some foreclosure for cash no? Personnally I love to see exposed wires when I buy. A dirty pink carpet is usually a bonus. And don’t get me started on cat urine! haha!

Florida has weird tax laws for non residents. Arizona & Nevada have direct flights from Calgary and flying to Vegas is usally a decent deal because of the casinos.

Time to do some homework I guess.

#3 J6P on 05.18.08 at 2:48 am

Does it ever make sense to own a condo? Lots of depreciating building, and little appreciating land.

CONdo indeed. Rent.

#4 SMWhite on 05.18.08 at 8:42 am

The fun and excitement has only begun south of the border. Men like Dean Baker, Robert Schiller, Peter Schiff and Nouriel Roubini (Now I can add Garth as the primary Canadian source) aren’t excited with the prospects of the housing market in the USA(or world-wide) anytime soon. I’ve been listening to these guys and they have been bang on the money on whats taking place over the past 4 – 5 years. A year of hard living is expected in the USA housing market this year, the market isn’t anywhere near bottom. Get your calculators out and do the “value investing math”, they are still overpriced. Instead of politicians dicking around with bail outs they should be letting the market correct itself, no reward for stupid and bad behavior please!

USA will keep dropping for the next couple years and move sideways a la 90’s Japan for ten years after that…

Gives Canadian snowbirds lots of time to pick up a sweet little retirement home in the next five!

#5 Dom-GTA on 05.18.08 at 9:22 am

Wow, what a living hell. Good thing according to Scotia, CMHC et al this can never happen in Canada.

Some of those people pushing RE so hard today really need to be taken to task when this implodes. Not that they will of course, it just makes me feel better when I pretend and wish they will.

Good Luck

#6 vultur on 05.18.08 at 11:21 am

Does it ever make sense to own a condo? Lots of depreciating building, and little appreciating land.

CONdo indeed. Rent.
_________
Seems to have worked out pretty well on the island of Manhattan over the past 100 years.

#7 vultur on 05.18.08 at 12:23 pm

I’d be worried if I bought a unit at the Four Seasons in Toronto for $1,500/s/f though, or worse One Bloor East for $800/s/f.

That doesn’t make any sense to me.

#8 jrochest on 05.18.08 at 2:09 pm

Vultur — yes, in Manhattan, where people have lived in apartments and brownstones for more than a hundred years, condos make lots of sense. And in Paris, in Hong Kong, in London and in all other dense urban centres where houses are out of the question, condos work. After all, the world is outside your door: you don’t spend that much time at home in a major city.

In our downtowns they’re good too — although I’m pretty sure that TO’s condo market is overbuilt by a massive order of magnitude, and will correct. At which point, I’ll buy one).

But in the suburbs — Surrey, Whalley, Oshawa — and in small towns, condos are stupid. More expensive than a house and too small for kids. Bah humbug.

#9 vultur on 05.18.08 at 3:29 pm

Fair points Jroch. At under $400/s/f Toronto condos are still not dramatically overpriced in today’s hyper competitive market. Construction costs are probably in the $200/s/f range with all the added soft costs and development fees it doesn’t appear as if the developers are getting a huge profit margin when the last dollar is collected.

I agree there has been enormous speculation that could lead to a fairly large glut of cookie-cutter units flooding the market this year and probably for the next couple years, however, it’s not as if Toronto is seeing runaway condo price increases and with its steady migration patterns you’d think the market would only pause as sales catch up to supply as opposed to crash from widespread gambling on higher prices at completion.

For evidence of a REAL condo bubble, read this little nugget of nonsense:

http://www.theglobeandmail.com/servlet/story/LAC.20080517.BCMASON17/TPStory/?query=vancouver+condo

(vultur shakes his head in disgust)

#10 ex-vancouveriste on 05.18.08 at 6:09 pm

[…] the glamorous condo life? Garth Turner’s Greater Fool blog features a New York Times article on luxury condo […]

#11 brazer on 05.20.08 at 8:23 am

Home Depot results hit hard by U.S. housing meltdown
May 20, 2008 at 6:51 AM EDT

http://www.reportonbusiness.com/servlet/story/RTGAM.20080520.whomedepot0520/BNStory/Business/?page=rss&id=RTGAM.20080520.whomedepot0520

#12 redshirt on 05.21.08 at 12:07 am

Maybe they can’t make any more land, but boy can they make a lot of listings.