Fort Worth Star Telegram,
By
Mitchell Schnurman: Downtown Fort Worth has a condo
glut, with far too many high-priced units. In downtown Dallas, the
problem is 10 times worse.
It’s not Miami, where thousands of condos sit vacant, or Phoenix,
where the median price of condos has dropped 43 percent in the
past year. But Dallas has a big surplus of condos for sale,
including a five-year supply of million-dollar units. It has more
than 400 new, finished, vacant properties. And its foreclosure
postings have quadrupled since 2007, accounting for 1 of every 4
condo postings in all of North Texas this year.
This bubble trouble was not unexpected. Three years ago, downtown
Dallas was swamped with commercial construction, and developers
were flooding the area with new housing. Even the Federal Reserve
Bank of Dallas took notice.
"There is growing concern about overbuilding of condominiums and
townhomes in Dallas, and contacts fear that it will end badly,"
the bank wrote in the June 2006 Beige Book.
That warning didn’t slow construction. In the next year, the
downtown area started 662 additional condos. By last summer, the
Mandarin Oriental, which had announced plans for a tower with 90
units, said it was walking away from Dallas, because the luxury
market was overbuilt for both hotels and residential.
Well, the building boom has practically stopped. The area had just
55 condo starts in the first half of 2009, according to research
firm Residential Strategies.
But the overhang persists, especially on high-priced units. The
downtown Dallas area, which includes four ZIP codes, currently has
1,035 condos and town homes listed for sale. Ninety percent are
listed for more than $134,000, the median condo price for all of
North Texas, and more than half list for $300,000-plus.
The past decade has shown that there’s a significant market for
downtown living in this part of the country. But just how deep —
and wealthy — is it?
Downtown Fort Worth has 87 condos on the market now, a 30-month
supply. In the priciest segment, condos selling for $950,000 and
up, downtown Dallas has 123 listings, enough to last more than
five years at the current sales rate.
Six to eight months is considered a healthy inventory supply.
Nationwide, there was a 12-month supply of existing condos in
August — not great, but better than our major downtowns, and the
national trend has been improving slowly.
Excess supply, combined with a surge in foreclosures, is hurting
prices. Through September, the median price for condos and town
homes in North Texas declined 3 percent. In a large swath of
downtown Dallas, the median price fell 15 percent — and that’s for
units that are selling.
Many others are being converted to rentals. One 1,700-square-foot
condo at the Azure tower was listed for sale for 375 days, even
after the price was cut to $1.1 million. Eight months after being
pulled off the market, the condo was leased for $4,400 a month.
This year, 11 units at the Azure have been leased, while only one
has been sold, a trend that’s been seen at condo projects in
downtown Dallas and Fort Worth.
The hardest thing to rebuild is confidence," says Kenneth Cox, the
broker and owner of DFW Urban Realty. "It’s been a lot easier to
rent out condos than to sell them, because people don’t want to be
locked in right now."
Their caution is understandable. In the first 10 months of 2009,
460 condos and town homes in downtown Dallas were posted for
foreclosure. That’s up from 113 for the same period two years ago,
according to Foreclosure Listing Service in Addison.
"We’ve been through cycles like this before with condos," says
George Roddy, who compiles local foreclosure data. "But we’ve
never had the problems concentrated in such a small area. The
question is, how long will it take to work out?"
Roddy won’t hazard a guess, but Ted Wilson of Residential
Strategies says it will take about two years. He’s optimistic,
because new construction has stopped and downtown Dallas remains
attractive, especially with the new Arts District coming online
and stoking enthusiasm.
"We’re in the healing process, but at least downtown Dallas has
reached the point of critical mass," Wilson says. "A lot of people
have decided they like the downtown lifestyle, and they don’t want
to deal with long commutes. Condos are here to stay."
Others says it will be a five-year workout or longer, in part
because the lending environment is much stricter.
Government-backed loans won’t work for many Dallas condos, because
they’re priced well above the federal maximum. Even on
moderate-priced units, high vacancy rates or a lot of rental units
can hurt appraisals and rule out FHA loans.
While Fort Worth’s condo market looks a lot like Dallas’ — with
too much supply and too many properties selling for more than the
median price — the supply is so much smaller that it seems
manageable.
What many may not realize is that Dallas has become so much
larger. It has about 50 percent more households citywide, but its
downtown population has been surging.
In 1996, fewer than 200 lived downtown, according to the advocacy
group Downtown Dallas. Today, the city counts more than 30,000
residents there, including those who live in the nearby Uptown and
Victory Park areas.
Downtown Fort Worth has about 4,000 residents.
When people talk about the housing bubble, they’re usually
referring to prices that soared and crashed — the pattern in
Florida, California, Arizona and Nevada. Texas never had a great
price spike, but there was a construction and transaction bubble,
says James Gaines, an economist at the Texas A&M Real Estate
Center.
"Everybody worries about over-building, but whenever they get a
deal together, they go ahead and do it," Gaines says. "That’s the
mentality of a free market."
Overkill is one of the natural consequences.
