The Residences at the InterContinental, a $300 million waterfront project at 500 Atlantic Ave., still has a number of high-priced condominiums for sale.
After three years of unprecedented sales, the luxury home market cooled in 2006 as buyers waited for prices to fall, forcing some developers to rethink their condominium projects.
“Demand has greatly diminished,” said Michael Albano, president of Metropolitan Boston Real Estate. “How long did you think we could sustain the kind of insane demand that we saw several years in a row? Like everyone else, luxury buyers are hesitant to pull the trigger because they’re unsure if the market has hit bottom.”
Sales of condominiums priced at $1 million or more in downtown Boston fell by 8.5 percent to 366 units last year, down from 400 in 2005, according to The Warren Group, the parent company of Banker & Tradesman. The luxury market echoed overall condo sales in the Hub as volume slipped 9.6 percent to 6,588 units last year, down from 7,286 in 2005.
Developers, brokers and housing experts insist that diminishing single-family home and condo sales is a correction and not a collapse. But some builders with condos in the pipeline are reconsidering whether they should switch gears and build apartments instead.
“The mix at One Kenmore could shift from condo to rental depending upon the market, and so could every other development in the permitting stages because condo sales are so soft,” said John Rosenthal, president of Meredith Management Corp, which is planning the 1.2 million-square-foot, mixed-use One Kenmore development with 668 residential units to be built over the Massachusetts Turnpike near Fenway Park.
Rosenthal said at least two major segments for buying high-priced homes in the city have dried up – at least temporarily. As it stands today, empty nesters are having trouble selling their suburban homes and young professionals are worried about the economy and their jobs – and both are putting the brakes on sales, he said.
Thomas Meagher, president of Northeast Apartment Advisors, a residential market research firm, said he has been contacted by some developers who are examining the potential of “reprogramming their projects to become rental instead of condominiums.” He declined to name the companies, but said at least one firm has switched a proposed 300-unit condo project in Boston to offices.
“The sun, the moon and the stars have lined up for apartments in an extraordinary way,” said Meagher. “There’s been a window of opportunity to create rental housing that hasn’t existed in Boston for two decades.”
‘A State of Paralysis’
As a result of shrinking sales, inventory levels have swelled in the luxury market, according to the MLS Property Information Network, the Shrewsbury-based company that lists properties for sale. At the close of last year, there were 209 condos for sale in the $1 million-plus range while the average number of days on the market was about 190, or six months. In December 2005, there were 173 units for sale with 157 average days on the market, or roughly five months.
Among the many developments with unsold units include the Residences at the InterContinental, the $300 million waterfront project at 500 Atlantic Ave. that opened last fall. Of the 130 units in the 21-story project, 67 – or 51.5 percent – have been sold, according to The Warren Group’s database that tracks sales at the Suffolk Registry of Deeds. A marketing spokeswoman for the condos said that, in total, 70 percent of the units are either sold or “under agreement.”
Several experts who declined to be identified said the Residences at the InterContinental faces several marketing hurdles including the Rose Kennedy Greenway and other infrastructure that is incomplete in front of the building, the project is located near a giant vent for the Big Dig, prices are too high and the water views are not spectacular. In contrast, the Mandarin Oriental on Boylston Street in the city’s Back Bay neighborhood has sold out. The Mandarin is under construction and is scheduled to open next year.
Two developers with projects under way or in the pipeline were not available for comment including Steven Samuels, president and chief executive officer of Samuels & Assoc. The Boston-based company has started construction on 1330 Boylston St. in the Fenway. The $100 million mixed-use project is planning 215 residential units.
In addition, Roger Cassin, managing partner of Winn Development, declined to be interviewed. Cassin is expected to make a decision shortly on whether to proceed with Columbus Center, a $650 million development to be built above the Massachusetts Turnpike in Boston’s South End, with 450 condos. The project has faced a funding crisis.
Jon Gollinger, founder of The Collaborative Cos., a real estate marketing firm, said potential buyers fear that if the market tumble continues they could lose equity immediately. For example, if a buyer puts 10 percent down or $100,000 on a $1 million condo and the market continues to slump, their equity could be lost.
“The overall marketplace is in a state of paralysis and there’s great trepidation,” Gollinger said. “Once buyers recognize that we’ve hit bottom, then they can feel confident and go out and purchase. But if buyers think prices will fall further, they’ll wait. The marketplace will decide the bottom, not when someone says it’s occurred.”
Albano said he believes that the empty-nester market is done – at least for now. “Folks in Sudbury, Weston, Wayland, Newton and Wellesley who were going to sell their home and move to Boston, did so when interest rates for a 30-year fixed-rate mortgage were less than 5.5 percent,” he said. “That same mortgage is nearly 7 percent now. Why would million-dollar buyers move now? Some people think that if you’re rich enough to afford a $1 million-plus house, you don’t care whether the market is in the toilet or not. But that’s absurd.”
Still, Kevin Ahearn, president of Otis & Ahearn, who routinely issues “market studies” that look on the bright side, insists that 2006 was a very strong year.
“Last year’s luxury market was rock-solid and give me it every year for the rest of my career,” he said. “It was fantastic.”
