The Wall Street Journal reported this weekend that in cities across the US, namely Miami, instances of foreclosure and condo development bankruptcy are increasing. The problems are emerging as some buyers who signed contracts to by new condos two to three years ago, when construction was just starting, seek ways to back out as they encounter trouble getting financing in the suddenly dicey mortgage market. Falling prices are forcing appraisals down, so banks aren’t willing to lend the full amounts that people committed to in the sale contract.
Boston appears to be bucking that trend slightly, or at least serving up a different flavor of the same end result. Consider that Bostonians continue to lay down large deposits on units in condo developments that are far off on the horizon, with what on the surface, appears to be little to no concern over obtaining financing when the occupancy date approaches, and final checks have to be written (take for instance the Mandarin Oriental, which is practically 100% sold, and will not open until June 2008, as well as 45 Province, which is on track for a 2009 completion, but is experiencing strong sales, and large deposits, thus far).
Where condo developments seem to be experiencing issues in Boston is not so much on the consumer financing end, or consumer demand for that matter, but on construction costs that have increased to levels that do not allow developers to turn a profit on making the project a reality. Take for instance, Columbus Center, which was approved years ago, but has not broken ground due to rising construction costs that erode project profit potential, the Broadluxe that is currently foreclosed upon by TD Banknorth for various construction cost related issues, the original Channel Center effort that saw a whole block purchased by a developer, only to see a small portion of the area developed, or perhaps most recently, the announcement that East Pier (Portside at Pier 1) in East Boston may flounder because developers anticipate not obtaining the profit levels for which they had hoped.
However, a broad brush stroke story on the state of the entire US provides little insight into the local market here in Boston. Despite the four above-mentioned condo development projects experiencing issues, be that temporary or permanent, construction still continues and will continue. Take for example The Clarendon and Russia Wharf (to name only two), both of which have recently broke ground on new construction in the Back Bay and on the Waterfront respectively.
With the little consistency that is seen (or unseen) in even the Boston market, it leads one to question whether the failure of certain condo development projects in the city are simply a result of particular developers seeking to take advantage of the demand from three to four years ago (the time when planing and permitting took place) , and a lack of planning and foresight to build proper safeguards into their projects.