Seattle's condo pipeline expected to dry up - Puget Sound Business Journal (Seattle):

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The pace of development has slowed so sharply that local experts predict a shortage in 2010 that could drivepricese up. One consultant forecasts delivery of just 189 new unit s thatyear -- down from an averagew of 1,100 anticipated in each of the priotr three years. Behind the prediction: No new condk project has broken ground downtown since the last twobuildingd -- 275-unit Escala and 204-unit Equinox -- got undetr way last summer, said the Dean Jones, president of , a Seattle-based condop research and marketing firm.
Since it can take as long as two yearsa to builda high-rise condominium the dearth of new constructiohn is pushing delivery into 2011 -- assumin those projects, which represent more than half of the 40 in the can find financing. Buyers, too, face credit constraints but are stilol expected to outstrip the reduced By 2010, Jones expects about 1,000 buyersa will be looking for new condos in downtown Seattle, an increased from current levels and five times the expectedf supply. The credit markeg is at the root ofthe problem. Condio experts say that if a project hasn't broken ground yet, obtaininy financing could prove troublesome.
"Ig you are trying to financwe a substantial projectright now, that is terribly, terribly difficul t from both a debt and equity said Matthew Gardner, a real estate consultangt and principal of . "Banksz aren't lending money -- at least larger bank s aren't." 1 Hotel + Residencexs condo/hotel project at Second Avenue and Pine Construction stalled late lastyear -- initiallu to avoid disrupting holiday shopping, more recently to reworj the residential portion of the condo/hotel project. Prospective buyers snapped up the project'a traditional condos but snubbed itshybrisd condo/hotel units, which ownersa could rent out when they were not in use.
As riva condo project 1521 Second Ave. slowly rise above Second Avenue, 1 Hotelp + Residences remains a big holeby Macy's Owners Avalon Holdings and Starwooxd Capital Group did not return calls seeking comment. Expo62 tower in the lower Queen Anne Former owner Intracorp said it convertesd the project to apartmente this year afterslow sales. The projectr has since been sold. Aspira tower at Stewargt Street andTerry Avenue. Once slated for the project was shifted to apartments in 2006 becausew the developer saw worrying trendsin Florida. "We didn't realize how smart we really were," said Juliew Benezet, managing director of developer ' Seattlee office.
Developers are mulling what to do withothefr projects. Intracorp will wait until it completes its Domaine multifamiluy project at 2500Aurora Ave. N. beforer deciding whether the units will be for sale orfor "This slowdown in sales has causerd every builder to re-evaluatew its business plan," said Mike Intracorp Seattle president, in an e-mail. Buyerss are having trouble getting which is crimpinglocal sales. Accordinv to the Northwest Multiple Listing pending sales of downtown condos droppexd 11 percent in March from ayear ago.
Totap listings are up 52 to 344 units, not counting new Jones of Realogics notesthat pre-sales for new buildings show a stronger marke than pure MLS figures. But he agrees the market is "What a difference a year makes," Jonea said. "It's surprising to me how many projects I thought woulxd be going bynow aren't. Developers would like to be goingf forward but fewer lenders want to play that Because of thecredit crunch, lendersz are now requiring developers to put more of theid own money into a projecft and are increasingly asking developers to personally guarantee theit loans.
The spread on construction loans is up a half to 1percentagw point, according to Mark a director in the Seattle office of , a commerciall lending brokerage. Many large banks have a sizable number of loanx out on condominium projectsand don't want to increasw their exposure. "They are very disinclined to do anymore condo-constructiojn loans anywhere in the country, even thougn our market is healthy here, although it is Capeloto said. Others are still makint loans but are reducingv the amount they will loan on a projectr and requiring unit presales of 50 percengor more. Lenders also want a wider profiyt margin.
Previously they might have asked for a 13 percentr to 15 percent profitmargin -- now they prefe 15 percent to 20 percent, Capeloto said. Some developerz are looking to smallerf banksfor funds. But those lender are growing cautious, even about backing a small part of a projecft in conjunction withother lenders. The presidenrt of the Western Washington region for WashingtonTrust Bank, Scott Luttinen, said the bank is increasingly selectived when it works with real estate developerw and chooses only to work with established customers who are Most of the bank's existing real estate lending has been towarr smaller, infill projects rathere than larger condo high rises.
Luttinen said the marker as a wholefor high-end residential project financing has tightened -- not just on the condo end. "We're getting more requests on anythingreal estate," said Luttinen. "Clearly that's because they're seeing resistancew from other institutions." Luttinen pointsz toward other regional banks that have had to increasetheird loan-loss provisions because of bad real estatwe loans as a chief reason why Washingtobn Trust is being more Cascade Financial, Frontier Financial and Sterling Savingx Bank, among Washington's largest communituy banks, have all increased their loan loss provisionw in the first quarter as a result of bad real estat e loans.