Phoenix Attached Projects in Trouble

Implications: The question many looking from the outside-in may soon start asking is, “How many buyers are there for $300 / square foot to $800 / square foot housing in Phoenix?”  As the single-family market bottoms out, the answer will come.  Hopefully the timing is sooner rather than later.

Analysis: Suburban, garden-style condo and townhome developers felt the sting of the downturn in early 2006; as single-family detached prices fell rapidly, attached prices were pushed in the same direction.  Selling “lifestyle” in a suburb is difficult when buyers seek out the lowest priced options.  Higher priced, infill options, held up better in ’06.  Now, though, the stress of the slowdown is showing in these higher density housing developments, even as more opportunities come to market.  

The second largest lien filed this year in Maricopa County, the subject article starts out, was filed against the developer of The Summit at Copper Square.  Summit is a downtown Phoenix luxury condominium development.  While developer David Wallach suggests the lien is a “’procedural matter’” that is “’not unusual’”, buyers that have closed on units may think otherwise.  In a condominium development, a lien on the building is a lien clouding the title of every unit in the building.  

Summit is not the only development experiencing financial troubles.  The high-rise, luxury condominium development Centerpoint, located in Tempe, is in need of a $50 million cash infusion.  Avenue Communities successfully convinced its lender Mortgages Ltd. Securities to step down from its first lien position to attract another financier to step in with a loan (“Centerpoint needs $50M to complete Tempe high-rises”, Phoenix Business Journal, May 23, 2008).  

In and near Scottsdale a number of mid- and high density developments have popped up during the last 18 to 24 months.  Data collected by Belfiore Real Estate Consulting shows slow sales in most.  The only significant demand appears to be for the few plans priced under $300,000.  

Tomorrow, Trammell Crow will attempt to auction off 35 townhouses in its Westgate City Center community The Quarter.  Market-watchers were stunned to see, in the midst of a downturn, the apparent strength of the immediate market when the developer reportedly sold all 171 townhomes priced from $450,000 to $700,000 (at sell-out) in just 7 months.  Over the course of 2007, unclosed units came back to the developer; the 35 units are what remain to re-sell.  

Clearly, not all attached developers believe the market for high-end attached product is all that dire.  Two weeks ago, Statesman opened The Metropolitan in Chandler.  While pricing has yet to be released for the high-tech mid-rise units planned, Statesman representatives shared plans for units ranging in price from the high $200,000s (1,150 square feet) to the high $600,000s (2,000 square feet).  

The question many looking from the outside-in may soon start asking is, “How many buyers are there for $300 / square foot to $800 / square foot housing in Phoenix?”  As the single-family market bottoms out, the answer will come.  Hopefully the timing is sooner rather than later.