Article Courtesy of The New
York Times
By CHRISTINE HAUGHNEY
Published May 15, 2008
Barbara Sanz has never
missed a mortgage payment, but the plunge in real estate is punishing
condominium owners like her anyway.
Four years ago, she bought her first condo in a
glassy new Miami tower when the building was filling up. Now nearly one in
six residents in the 43-story building is battling foreclosure and their
contributions to the building association are shrinking. Each of the
remaining owners has had to chip in an extra $1,000 assessment and $50
more a month for cable and Internet. That is on top of Ms. Sanz’s $450
monthly maintenance fee.
Even though she pays more, her building has broken
washers and dryers and unusable exercise equipment, and her hallway is
spotted with mold.
“It’s not fair,” said Ms. Sanz, a 32-year-old
event planner. “The first two years, I enjoyed all of the benefits of
living in a condo. I’m disappointed now. I hate the way the building
looks.”
When people buy condos,
they expect their monthly fees will cover many of the
responsibilities that they would otherwise have as owners of
single-family homes, like cutting the grass and paying the
water bills. Now many find themselves nagging each other in
the hallways to pay their assessments and adding special
fees while haggling over chores. In Miami, Chicago and San
Diego, condo owners are adjusting to the economic woes,
sometimes by mowing themselves and working shifts for
building security — all while lamenting their lost
community.
“What motivated people to go into
the condo market in a way that led to overbuilding was the
expectation that it would be easier than owning a home on a
maintenance basis,” said Sam Chandan, chief economist at
the real estate research firm Reis. “The downside is that
your fate is tied to 50 or 100 other people who may stop
making their condo payments.”
Many of the numbers compiled on home
sales specifically exclude condos, which account for |
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Peter
Zalewski, a broker for Condo Vultures Realty in Miami, led an Italian
investor, Alessandro Comoglio, through a dimly lit hallway to an
apartment for sale recently. The lights are turned down to save on
electricity costs, as owners forced out by foreclosure have left fewer
tenants to pay fees.
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one
out of eight homes in the nation, and that missing data may be masking just
how weak the housing market really is. Sales of existing condo units were
down 26 percent in March from a year earlier, compared with an 18 percent
decline for single-family homes, according to the National Association of
Realtors.
The pain in the condo market, mostly in urban areas,
may not only be deeper than in the rest of the housing market during this
downturn but more prolonged. Bargain hunters say they are reluctant to buy
into a building even when the upfront cost seems low because they might have
to pay unexpected fees as distressed neighbors default on their mortgages or
just stop paying the association fees that cover everything from taxes to
pool maintenance to air-conditioning repair.
Marcus & Millichap Real Estate Investment
Services, which is based in Encino, Calif., estimates that nearly 202,000
condo units will be added this year to the pool of 574,000 added nationally
in the last five years. Next year will bring 94,166 more units onto the
market.
Evidence
of hard times in a condo in Miami: top, multiple brokers’ lock boxes
for vacant apartments; and foreclosure notices on apartment doors.
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“We have not even
approached the bottom and will not approach the bottom until
2009,” said Hessam Nadji, managing director of research
services at Marcus & Millichap.
The shabby condition of some condos
means potential buyers insist on especially steep discounts on
foreclosed units. Alessandro Comoglio, a 34-year-old investor
from Italy, recently visited six apartments in Ms. Sanz’s
Miami building with a real estate broker. Mr. Comoglio was
surprised to find worn-out hallway carpeting and orange
foreclosure stickers partly scratched off the doors in such a
new building.
His willingness to spend stopped short
of $200,000 for the condo units, which once sold as high as
$700,000, according to the broker, Peter Zalewski. Mr.
Comoglio also wants a written guarantee that he would not have
to pay more fees.
“Nobody knows if the worst is yet to
come,” he said. “Nobody knows how much prices will
continue to drop.”
Rosa
Rodriguez, a resident and property manager at Parkview Point
Condos in Miami Beach, says her former neighbors have left her
with so many problems that she would never buy a condo again.
The 38 foreclosures in her 244-unit building and the unpaid
dues nearly cost the residents running water because the
building could not pay its bills. The building abruptly
stopped repairing its ceiling lobby and left its wiring and
ducts exposed when the board ran out of money. She avoids
answering |
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questions
from visitors about ceiling repairs.
“We’re
not going to tell them we don’t have any money,” she said. “That’s
embarrassing.”
Buildings
with few units can suffer even if it just one owner falls into trouble.
Doris Wilson, who owns a one-bedroom apartment in a building in the
Bronzeville neighborhood of Chicago, struggled to get a lender to pay $2,500
in association fees after it foreclosed on one of the seven units in her
building. The bank eventually paid the money, and the association has since
been able to paint its wrought-iron fence and clean the sewer system.
Still, Ms. Wilson worries that the expected sale of
the foreclosed unit at about $94,000 will hurt neighbors who paid or
refinanced their units for three times that price. In the short term, she
dislikes asking her neighbors to pay an extra assessment of nearly $220. She
dreads going to monthly condo board meetings, and she avoids some neighbors
who are struggling to pay the additional fees.
“It’s personal,” she said. “Here they are
going through a hard time and you have to ask them to pay.”
Marki Lemons, a Chicago real estate broker, says that
investors are hesitant to buy properties with many foreclosures because of
the possible problems. Some buildings with four to eight units have had so
many foreclosures that their condo associations have disbanded and windows
have been boarded up. In these cases, she does not even want to represent
sellers, because buyers cannot get financing and will have to pay all cash.
Sellers will be disappointed by those buyers’ offers. “They’ll
probably give 20 cents on the dollar,” she said.
So far, the Manhattan market has been largely spared,
in part because of foreign owners who never sought a quick profit. By the
end of the year, about 15,000 units will have been added during the
five-year condo boom in Manhattan, according to Miller Samuel, a real estate
research firm.
Jonathan Miller, the company’s chief executive, said
that foreigners, who have bought up to a third of these new condos,
typically put in more cash and plan to hold for some time.
“They’re in it for the long-term equity play,”
he said. “They’re looking for a 10-year hold.”
Those who fear a downturn remember that Manhattan
co-op prices suffered so much during the housing downturn of 1989 to 1993
that buildings had a hard time luring buyers. This financial instability
hurt New Yorkers at all economic levels. Some recall neighbors handing over
their Fifth Avenue apartments for $1 because they could not afford the
maintenance fees.
Condo owners across the country are trying to ride out
the slowdown. Since 2004, when Mark Mills bought his two-bedroom apartment
for $622,000 in the 210-unit GasLamp City Square condo in downtown San
Diego, 10 of his neighbors have succumbed to foreclosure. The building now
has a $115,000 shortfall in its budget because residents failed to pay their
condo dues.
He resents neighbors who have rented units they cannot
sell to 20-somethings, who leave beer bottles in the lobby and hold
late-night parties. He is tired of the constant beeping of a smoke alarm in
a vacant unit, indicating a battery needs to be replaced. Still, Mr. Mills
is staying because he expects he could get only about $550,000 for his home.
“We couldn’t sell it for what we bought it for,”
he said. “I’m in it for the long haul.”
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