For the first time since the U.S. housing crash, new condominium towers are sprouting in downtown Boston, Seattle and Los Angeles as developers bet on the return of the riskiest type of residential real estate.
Buyers are signing deals to reserve units in two new high-end projects in Boston. A 41-story tower rising in Seattle is the first phase of the largest condo development ever in the city. In Los Angeles, a 22-floor building is slated for construction later this year, the first ground-up high-rise condo project downtown since 2005.
Construction cranes also spike the skylines of Washington, Houston, Miami, New York and San Francisco as financing gradually returns to a real estate class that lenders shunned for years. Condos are regaining favor after a surge in rental demand pushed the U.S. apartment-vacancy rate to the lowest level in a decade, sending urban rents soaring, while the inventory of for-sale housing remains historically low.
“We’re in the very early stages of a long recovery in condos,” Sam Khater, deputy chief economist forIrvine, California-based CoreLogic Inc., said in a telephone interview. “Now you’re seeing rental booming, but today’s renters are going to be tomorrow’s condo buyers.”
Builders broke ground on 22,000 for-sale multifamilyresidences last year, up 4.8 percent from 2012 and 47 percent from the post-crash nadir in 2010, Census Bureau data show. In the first quarter, 8.5 percent of the 71,000 multifamily units that started construction were built as for-sale properties, up from a 6.9 percent share a year earlier, according to the data.
That share is still far from what it was during the housing boom that peaked in 2006, when for-sale units made up 45 percent of multifamily home starts. Developers have since focused more on apartments, catering to formerhomeowners who lost properties to foreclosure and younger households headed by people who can’t afford to own or want more flexibility.
Condo builders were burned during the market’s collapse because buyers — often investors — were able to cancel purchases once prices started falling. The outlays of money required to build the projects before deals are completed make condos the riskiest form of residential property, said John Burns, an Irvine-based real estate consultant.
High-end condo construction started to perk up three years ago in Manhattan, San Francisco and Miami, which attracted wealthy, international buyers bearing cash. Now smaller markets are catching up as demand increases, inventory shrinks and lenders become more confident in a recovery.