PHILADELPHIA – In a city cluttered with condominium construction, Old City 205 aspired to shine as an ultramodern residence for the well-heeled with its zinc and glass facade, loft-style homes and windows that span floor to ceiling.
Too bad no one will get to move in now: The $40 million project in Philadelphia's Old City neighborhood won't break ground after the housing market softened and increasingly picky buyers balked at its price tags from $400,000 for a studio to over $2 million for a three-bedroom penthouse.
Brown Hill Development, the company behind the project, noticed slower traffic and decided it didn't want to be left with unsold units, said partner Greg Hill.
From coast to coast, developers are nixing or delaying condominium projects as home sales decelerate, construction costs soar and lenders start to balk at financing units that might not sell. What's making it worse is the glut of high-priced condos and too few people who can afford them.
"We've gone through the biggest real estate boom in the last eight or nine years and some of these projects haven't started yet. Do you think they're going to start building now?" said real estate executive Allan Domb, dubbed Philadelphia's "condo king."
In Las Vegas, projects nixed include high-profile developments such as Aqua Blue, a $600 million, 825-unit luxury condominium-hotel resort that counted Michael Jordan as an investor; the $3 billion, 4,400-unit Las Ramblas resort, backed by George Clooney; and Ivana Las Vegas, a $700 million, 945-unit tower named after Donald Trump's ex-wife.
Related Las Vegas, one of the two developers for Las Ramblas, had cited rising construction costs and slowing sales for the cancellation.
In South Florida, canceled condo developments include 1390 Brickell Bay and ICE in Miami, Fort Lauderdale's The Waves Las Olas, and Promenade in Palm Beach County. WCI Communities Inc., a luxury home builder based in Bonita Springs, Fla., said in June that new orders for its high-rise condominiums fell by 84 percent in the second quarter. The company will now go forward with only three to five condo projects in 2006, down from as many as 15 to 17, mostly in Florida.
With housing looking increasingly anemic, it's not surprising that developers are bailing out.
Domb said he's gotten about half a dozen phone calls over the past four weeks from developers asking if he would like to buy their properties.
In May, the volume of apartment-to-condo conversions plunged to $334 million from $1.65 billion a year ago, said Gleb Nechayev, senior economist at Torto Wheaton Research, a real estate research firm in Boston owned by CB Richard Ellis. The all-time high was $4 billion, hit last September.
Builder confidence, as measured by the National Association of Home Builders/Wells Fargo Housing Market Index, fell in June to its lowest level since April 1995. Confidence took a hit due to rising mortgage rates, high home prices and investors and speculators fleeing the market.
The index surveyed builders of single-family homes, where the sales decline hasn't been as severe as for condos.
Jack McCabe, chief executive of McCabe Research and Consulting in Deerfield Beach, Fla., said desperate developers with finished condos are offering plenty of incentives in South Florida.
Freebies range from one year's free mortgage to the use of a yacht or upgraded kitchen packages. McCabe thinks some developers might even sell units at cost if condo sales continue to weaken.
McCabe considers the condo market, especially the luxury end, at risk of a crash. Over the next few years, he sees prices falling by double-digit percentages.
The luxury condo surplus is to blame. McCabe said about 25,000 condos are under construction in Miami-Dade County, with two-thirds costing $700,000 or higher; another 25,000 units have gotten building permits and 50,000 have been announced for future construction.
McCabe said the median household income in the county qualifies local buyers for a $225,000 home, so the luxury units are targeted mainly toward affluent, out-of-state buyers.
Meanwhile, speculators have driven up prices by flipping units, he said. But they're now leaving the market — driving down demand — and putting up for sale properties they own, adding to the glut.
Aside from Miami, he said areas at risk include Boston, San Diego, Las Vegas, Seattle, Chicago, Orlando, Fla., Washington, D.C., and Manhattan.
A big part of the problem is that many condo projects are priced high, in part because developers have to recoup the high prices they paid for land. But most buyers can't afford it.
"The sweet spot of the market is probably $250,000 to $700,000," Domb said. "That's what the majority of the population can afford. Many condos are priced higher. That's part of the problem."
Tell that to The Donald. Real estate mogul Donald Trump told The Associated Press he's going ahead with his 45-story waterfront luxury high rise called Trump Tower Philadelphia.
"It's doing fine," Trump said. "It's been intense. So many people want to move there."
He added interest has been high for the project, which he said doesn't surprise him because his name sells.