Exclusive: November Condo Sales Volume Strong, Prices Moderate

We've updated the AustinTowers | urbanspace Downtown Austin Condo Market Index for November, 2009 and, for the sixth month in a row, MLS sales volumes have increased in comparison to previous year numbers. On a per square foot basis, year-to-date prices are down about 5% over the comparable 2008 numbers.

Month
Sales
Avg. Price
$/SF
Avg SF
Avg Year
% Ask
ADOM
Nov-08

8

$460,973

$322
1,361
1989
93%
151

Nov-09

13

$292,018

$286
1,022
1995
96%
78

Change

63%

-37%

-11%
-25%
5.80
4%
-48%

In the month of November, 13 downtown Austin condo units were transacted on the MLS: 5 more than in November of 2009 with an 11% lower price per square foot. In addition, the % of asking price jumped significantly from 93% a year ago and 87% in June to a more typical 96%. Average days on market for units that sold came in at 78, an enormous 48% drop over last year. There are many units that have been on the market for a long time, especially larger and nicer units which have not been moving. The most expensive unit sold in November was $554,750. Continuing a trend toward lower priced units, nine units sold for less than $300,000 including a tiny 454 square foot unit that sold for $110,600.

Sold units were in seven projects including 360 (3), Penthouse condos (3), Milago (3), Five Fifty 05 (2), Railyard (1), and Towers on Town Lake (1). Units in 360 carried the highest price per square foot during the month with an average of $374/SF.

As always, the results show the weakness of the MLS. While 13 units sold through MLS, additional units went ton sale at tSpring and other new projects outside of the MLS. While the MLS numbers continue to show growth in transaction volume, it is difficult to know what is happening in the broader market as sales office transactions are rarely included in the MLS numbers. For example, no Spring units have appeared in any of the MLS sales reports this year.

See the full index here.





New 27-Story Condo/Office Project Announced!

For the first time in a very long time, a developer has announced plans to construct a new 27-story downtown condo and office tower. The developer is proposing to build a tower of up to 350 feet on the vacant lot between Whole Foods and Austin City Lofts. The announcement is a clear sign that the downtown market is stabilizing and expected to improve dramatically over the next few years.

The building is being proposed by Schlosser Development, a local firm with a significant track record in the 6th and Lamar neighborhood. Schlosser developed the Whole Foods headquarters, the Home Away headquarters across the street, the Officemax building just South of Whole Foods, and the REI / BookPeople building just to the North. This appears to be the company's first tower project.

As proposed, the new building would include:

- Street level retail and parking on the lower floors

- 16 stories of office space

- 90 condo units on the top seven floors

- A companion building on the 2.7 acre site would include three levels of commercial office space with parking and street-level retail. The smaller building allows full utilization of the site which is partially in a protected capital view corridor

Since zoning limits development on the site to 120 feet, a variance would be required to build the project as proposed. The tow buildings would comprise a whopping 600,000 square feet.

The announcement of such a large condo and office project is another sign of a downtown market resurgence. In this case, the developers may have been inspired by the recent leasing of 52,000 square feet of office space on a nearby project to HomeAway. There has been very little new office capacity added downtown over the 5 years: the last large scale office project to be constructed downtown was the Frost Bank Tower which was completed in 2004.

$200M Project Approved for South Shore of Ladybird Lake

The Austin City Council granted final approval for the $200 million Grayco Lakeshore development on the South sure of Ladybird Lake just east of I-35. In exchange for approving the development of the first four buildings, the Council required the developer to contribute $3.1 million to support affordable housing.

The massive project will include as many as 1,200 apartments and nearly 100,000 square feet of retail. Despite the financial crisis which has depressed development in Austin and across the country, Grayco has continued to aggressively push for development of the site. Under the revised plans, Grayco will replace a four building 520-unit apartment complex with as many as 1,200 new apartments.

The most notable element of this project is its scale: Grayco’s plan seems to be to create an entire district, a whole new neighborhood to attract residents to this emerging near-downtown market. While the final plans have not been released -- and the developers have hinted that the final proposal may be less urban -- the scale of the project is certain to remain large.

Sabine & Star Riverside Posted for Foreclosure

Two troubled downtown condo projects -- Sabine & Star Riverside -- have run into financial problems and been posted for foreclosure.

The failure of these projects is a combination of market conditions and their own troubled history. The Sabine is a troubled 10-story office building conversion project at Sabine and West Fifth streets that was completed in 2007. With 44 of the 80 units unsold and litigation between residents and the developer over sued faulty and unsafe elevators and leaks, sales of units have slowed dramatically. With the current foreclosure, an agreement is apparently underworks that will transfer control of the building to the building's homeowner association. With the majority of units unsold, an auction is a likely next step to raise additional capital to make the lenders whole.

Star Riverside has had an equally difficult time getting off the ground. As an expensive project located on the wrong side of the lake and the wrong side of I-35, Star Riverside has been repeatedly reinvented as the result of changing market conditions and neighborhood concerns. Construction was halted two months ago, with only the parking garage about 80 percent complete. With prices starting at more than $600K, the low-rise project East of I-35 and South of downtown faces tough odds for success. With the economic decline, the project has lost key financial support.

Despite the bad news, both projects claim that deals will be reached before the projects are but up for sale in the January 5 foreclosure auction. For Sabine, the news is another blow to existing residents who will likely see the remaining units sold at a a significant discount. For Star Riverside, it's hard to believe the project can be created without a significant repositioning that better matches pricing and configuration to the location and current market conditions.

Analysis: Understanding The Density Decision

This is an important week for the future of downtown development. Over the last few years, the City has advocated dense downtown development as an alternative to suburban sprawl, traffic, and high infrastructure costs. On December 17, the Austin City Council is scheduled to vote on proposals to require developers to provide community benefits such as affordable housing, child care services, or cultural spaces.

While the proposal sounds reasonable, it is unclear whether the proposal will result in high density and new services (good) or higher downtown costs and reduced density (bad). The fact is that the proposal has real costs for the developers and the tenants looking fo housing, companies thinking about moving downtown, and retail entrepreneurs looking to open shop downtown. The proposal will inevitably lead to higher downtown costs for future projects.

In making this proposal, the City is treating density as a luxury that needs to be sold. While similar proposals have passed in Seattle, Tampa, San Diego, Portland, Denver, Nashville, Vancouver and Calgary. Some of these are great cities. But it's hard to compare the forces that have shaped these environments to the specifics of downtown Austin.

The real question is this: Is downtown density a good thing?

Over the last decade, Austin's policy has advocated strongly for downtown density. And there are many reasons why downtown density makes sense: the environmental impact is minimized, public transportation is easier, sprawl is reduced, and tax revenue is high compared to the services and infrastructure required.

Today, unfortunately, Austin is not a high density city: even the central downtown area is relatively low density compared to the core of other major cities. Of the top 25 cities, Austin is the 20th most dense city. In Texas, Houston, Dallas, and San Antonio all have higher levels of density than Austin. If you you think Houston is sprawling, than you probably won't like Austin in a few decades if current growth rates persist. El Paso is the only large Texas city with a lower level of density than Austin.

While many people question whether downtown development is good or bad, there is no better way to improve population density. A dense urban core is vibrant, ecologically-friendly, and traffic-friendly. It is the best antidote to sprawl. While downtown development won't stop sprawl in Austin, it is the first step in the right direction. It provides people who want to bike to work or walk to dinner with an alternative that hasn't previously existed in Austin.

Over the coming couple of decades, Austin will double and triple in size. We have two choices: One is to expand endlessly into the hill country with new sub-divisions and the traffic and environmental impact they bring. The second is to grow downtown smartly with real density. While painful sprawl may be inevitable, every 300 unit downtown project saves 100 acres of land from development while making the city more vibrant. We need downtown parks and services, but we should tax downtown developers and penalize density, especially when we are not willing to do the same with the developers driving suburban sprawl.

Austin: #1 For Being Ranked on Lists

Austin is no longer a well-kept secret. It seems that hardly a week goes by where Austin does make a list of the top places to live or work or bike or to be indoors or to be outdoors or just about anything else that can be listed. So, thanks to Sam Thacker who created a list of Austin lists in the Austin Business Insight Examiner.

Here are some of the highlights:

- The Milken Institute ranked the Killeen-Temple-Fort Hood MSA as second in the country behind Austin for overall best performance in creating jobs.

- In October, Business Week and The Brookings Institute ranked Austin #2 out of 100 metro areas with the highest metropolitan growth product (MGP) and employment potential.

- In October, CNN-Money ranked Austin #9 as one of the best places to launch a business.

- In October, Portfolio.com ranked Austin #1 out of 100 of the largest cities in the country for job creation. San Antonio, Houston, and Dallas/Ft. Worth all ranked within the top five.

- In September, The Austin Business Journal and IHC Insight named Austin and San Antonio as the first two most likely large American cities to bounce back to pre-recession employment. Of cities highlighted by IHC 6 of the top 20 are in Texas.

- In August, Forbes ranked Austin as the least stressful city to live in out of 40 it studied. Factors it considered were housing values, traffic congestion and unemployment.

It's no secret that Austin is a great place to live, but it is great to hear that the local economy ranks among the strongest in the country. With high potential for job creation, migration, and economic growth, Austin has the key ingredients to exit the economic downturn and see real estate appreciation ahead of the pack.

Austin Home Listings Slide by 20%

The Wall Street Journal is reporting that the number of homes listed for sale has declined in many U.S. cities in November, reversing a strongly negative trend.

In the 27 metropolitan areas covered in the ZipRealty survey, housing inventory dropped by an average of 28% over the last year and 2.4% during the last month. In Austin, the number of home listings slid by 19.8 percent over the last year and 3 percent between October and November.

The slide in inventory is a positive step: it means that supply and demand are returning to a more normal balance after a very difficult year. While seasonal trends will cause inventories to rise again in January, it's the year-over-year trend that is most important.

According to the Journal, the one month change is less significant as "Inventories typically decrease modestly in November compared with the previous month, according to Zelman & Associates, a research firm. Over the past 25 years, the average change has been a decline of 1.8%."

The Journal also notes that the exact level of supply is impossible to pin down, partly because multiple listing services don't include all the foreclosed homes that banks are preparing to put on the market. As of the end of October, banks and mortgage investors had 639,000 foreclosed homes for sale across the U.S., Barclays Capital estimates. That's equivalent to more than 10% of expected U.S. home sales this year. The bank-owned homes are largely concentrated in Florida, California, Arizona and Nevada.

The MLS also excludes newly constructed downtown Austin condo units that are not being sold by realtors. This means that most of the units in the Austonian, Four Seasons, W, Spring, and other projects are excluded from the inventory numbers. Since the same was true last year, the 12 month change does seem to be a significant development.

$500B in Home Value Disappears

According to ZIllow, Total home values in the United States fell $489 billion in the first 11 months of 2009. A large drop, to be sure, but it marks a significant improvement from 2008, when homes lost a total of $3.6 trillion in values. In addition, about one-third of the markets we covered (48 of 154) had gains in total home values. The Boston metropolitan statistical area (MSA) topped this list, gaining $23.3 billion. Last year, the Boston MSA lost $53.4 billion.

On the other end of the spectrum, the Los Angeles MSA’s housing market lost the most dollars in 2009 — $60.8 billion. But even that was a significant improvement from 2008, when the MSA lost $345.8 billion. The LA market has actually performed quite well recently, having seen six consecutive months of monthly gains in home values as of October, but the strong negative performance earlier in the year dug the overall market a large hole early on.

View the full report
here.

New: Urban Lifestyle and Residential Guide (Free)

I just received my free copy of urbanspace's most recent Urban Lifestyle and Residential Guide (Get it here for free). The latest edition was released in October and includes profiles on more than 100 condo and rental projects near Austin's urban core. It is the most comprehensive list of cool places to live that we have seen. In addition, it includes hundreds of great urban spots from Justine's to Lustre Pearl to East Side Showroom.

Through special arrangement with UrbanSpace, a free copy of the new 44-page guide will be mailed to any AustinTowers reader who requests one. To get your copy of the guide -- click here. It's a great resource -- get one while they last!



You can get your free copy of the Guide here.