Seattle is awash in new luxury apartments, with tons more set to open in the next 18 months or so. But just try buying a new condominium in Seattle.
With the exception of Luma — a luxury condo building on First Hill that sold out a few months after completion in 2016 — virtually no condos have been built in recent years due to what local real estate experts call a perfect storm of factors. And that means an extremely tight to nonexistent supply of both new and existing condos, a blow for some first-time buyers who were relying on condominiums as an affordable entry point for home ownership.
“Why is there a condo shortage? Well, it could have to do with the number of quality Seattle condo projects currently involved in lawsuits or arbitration,” says Fionnuala O’Sullivan, managing broker and owner at Gerrard Beattie & Knapp, a Seattle real estate company. The core of the issue is the Washington Condominium Act, which includes provisions requiring developers to warranty their construction work for four years.
Basically, it comes down to the fact that anyone who builds a condo in the city will likely face some form of legal action, says Matthew Gardner, chief economist for Windermere Real Estate. To offset that likelihood, developers feel compelled to buy “insurance” against a lawsuit, so they choose to build apartments that can later be sold to institutional investors at a good price.
And don’t expect developers to convert local apartments into condos anytime soon. The economics seldom pencil out when adding up the costs of purchasing the property, making improvements, paying taxes and covering other expenses.
“You can’t start repairs until the last tenant leaves,” Gardner explains, “so you have no revenue coming in in terms of rent, but [the mortgage] stays the same.”
One rare new downtown condo development coming on the market is Nexus, a 41-story, 382-unit complex in the Denny Triangle neighborhood. Dean Jones, principal and owner of Realogics Sotheby’s International Realty, which represents Nexus, says such is the pent-up demand for new downtown condos that hundreds of potential buyers lined up last year, including some who spent the night waiting in line, to put down a $5,000 refundable deposit for right of first opportunity to purchase when the homes are officially released for sale.
Ben Kakimoto, a condo specialist with Keller Williams Realty, says he knows of only two other condo complexes underway at present: Gridiron in Pioneer Square, with 107 units, and Hendon Condominiums, a boutique-style development of 32 units on Phinney Ridge.
“We are shocked how few condos there are [under construction],” Kakimoto says. “There is such a need.”
This story was originally published in Seattle Business Magazine.