New luxury condos hitting the market this year include Twenty Two Liberty, the Fallon Co.’s 14-story condo complex on the Fan Pier.
It’s unbelievable, but even as a bevy of new luxury towers burst onto the city’s skyline, downtown Boston faces a shortage of new condos.
Almost all the new residential construction over the past few years in the Hub has featured deluxe apartments, with just a trickle of condos.
And the number of listings downtown, already at all-time lows, is poised to hit new depths over the next couple of years before the next wave of condo towers, most now just in the planning stages, finally opens.
However lofty prices may seem right now in the Back Bay, the South End or Midtown, they are about to soar to Big Apple levels amid a mad scramble for the handful of condos on the market.
When it comes to crazy condo prices, we really haven’t seen anything yet.
“Clearly, real estate is a commodity,” said David Crowley, director of sales and marketing at Raveis Marketing Group. “There is no doubt the more inventory there is, the less price pressure there is.”
Sow how bad is downtown Boston’s condo shortage?
Well try these numbers on for size.
There are just 24 condos for sale right now in Boston’s top 18 condo towers, according to high-end condo marketing firm Otis & Ahearn. Think about that: Just 24 units out of a total of 2,180 at these top towers, or just about 1 percent.
Overall, the number of condos on the downtown Boston market is hovering around 275, or less than a month’s supply. A balanced market is six to eight months of supply.
Scarce listings have sent prices surging, with downtown condo sales over $1 million up nearly 50 percent as of November. Super high-end sales of $1,500 a square foot and up nearly doubled to 32, according to Otis & Ahearn.
“The whole market and neighborhood is exploding,” said Kevin Ahearn, president of Otis & Ahearn.
Blame The Recession
So how do we find ourselves in this strange predicament, with incredibly low inventory and downtown condo prices shattering records, yet no big new condo towers in sight to capitalize on this roaring market?
The Great Recession scared the dickens out of the big banks, who decided it was far safer to bankroll a monotonous stream of cookie-cutter luxury apartment towers than to take a big chance on something as risky and unheard of as condos.
Never mind the fact that condo prices in neighborhoods like the Back Bay, Beacon Hill, the South End and South Boston escaped almost completely unscathed from the Great Recession, resuming their relentless upward march after pausing for a few months back in early 2009. Not exactly a market filled with risk and peril, but, then again, I’m not a banker.
Sure, a few dozen multimillion-dollar condos are taking shape on Fan Pier and a couple other scattered locations, but from the Seaport to North Station, it has been one luxury apartment tower after another.
“It’s a function of the financial markets,” Crowley said. “It’s easier for these developers to get financing to build apartments. It’s very often a challenge for them to get financing for condominiums. It’s the route of least resistance.”
Now the good news is this is finally poised to change, with the new 61-story Four Seasons condo tower having just broken ground over near the Christian Science Plaza and the new Millennium Tower taking shape in Downtown Crossing.
Several other developers are in the planning stages, eyeing potential condo projects, Crowley said.
Considering Conversions
Deep-pocketed foreign investors and buyers are helping get some of these new condo towers off the ground, including a Swiss investor who will be bankrolling a new 31-story tower on Tremont Street facing Boston Common.
But there’s one big problem with this: None of these towers are open now and won’t be open for another two or three years, meaning the condo shortage is here to stay until at least 2017 or 2018.
Even the Millennium Tower, which is set to open mid-2016, won’t help much on the inventory front, with as much as half of its 422 condos already under agreement.
That means for the next two or three years, there will be apartments galore in downtown Boston, but little, if anything, to buy.
“It’s incredibly tight. The [new towers] can’t be delivered before 2017 or 2018, because you have to allow a three-year time period to build those towers,” Ahearn said.
Given the tight inventory situation we face over the next couple years, the 60th floor penthouse at the Millennium Tower, on the market for a stunning $37.5 million, doesn’t look so crazy after all.
The one wild card here is the prospect of condo conversions. Boston’s dozens of high-end apartment addresses, many of them built over the past few years, are already struggling to put heads on beds, to borrow a phrase from the hotel industry. They’re offering gimmicks such as three months free rent and gift cards worth hundreds of dollars.
Worried there may not just be enough super-wealthy 20-somethings to rent all these gilded new apartments, some developers are considering plans to convert units to condos, Crowley said. That could put hundreds of new condos on the market without a two- or three-year wait. Also, some developers with plans for new apartment towers are beginning to rethink things and are leaning towards changing over to condos.
It wouldn’t be surprising. After all, it doesn’t take a rocket scientist to figure out there is a fortune to be made building new condos in downtown Boston.
The only thing surprising here is that Boston’s normally savvy developers have gotten so far behind the eight ball.
