High-end condos sell luxury, but few are buying

Times were good when Robinson Development Group Inc. got in on the condo market. The company built the 15-story Harbor Heights in downtown Norfolk. Its slogan: "Lifting Luxury to New Heights."

Sales came quickly at the mixed-use building that boasts a grocery store on its ground floor and quick access to shopping, restaurants and Norfolk's cultural events. By the end of 2007, just months after its first residents moved in, more than half its condos had sold.

Then the market withered.

Last year, the developer sold five additional units at Harbor Heights. Today more than a third of the building's 99 condos still are vacant.

"Everyone's just concerned and cautious about what's going on in the economy," said Chris A. Sanders, vice president of Robinson Development. "I don't know that they can't afford it. They just don't want to stretch their income in this environment."

Nearly 2,500 high-end multilevel condo units were built in South Hampton Roads and on the Peninsula since 2000, according to Residential Data Bank, a Suffolk-based housing market research firm. The figure doesn't include any older buildings renovated and converted into condos.

Even before the housing market took a turn, economists had wondered whether builders were oversaturating the area with multilevel condos.

"There are a lot of signs that the condo market, especially in Norfolk, is softening a great deal," James V. Koch, an economist and former Old Dominion University president, said in 2006. "I look at the significant increase in supply that is yet to come and that puts out warning flags that there is a storm ahead."

A report released in January by Residential Data Bank found many condo developers in the region could count on their fingers the number of sales contracts they landed last year. The firm studied 27 new multilevel condo buildings, all with three levels or more and served by an elevator, and reported that fewer than 100 contracts were written in 2008. Based on last year's abnormally slow sales pace, the firm estimated it would take 10 years to work through the inventory.

"Nobody is looking," said Anna Sturm, who with her husband, Jeff, bought a unit at The Welton Lofts on Monticello Avenue in Norfolk in February 2006. The Sturms needed to sell when Jeff, a Navy officer, got orders to move to the Seattle area. They put the condo on the market at the beginning of 2007 and had no luck. In a bid to recoup some of their lost mortgage payments, they found a renter.

"Looking back, it was probably stupid to buy it, but hindsight is 20 /20," Anna Sturm said.

After their renter moved out in January, the Sturms again listed their condo, this time for $315,000, about $15,000 less than they paid.

"I have absolutely no idea how long we'll keep it," she said, wondering whether her husband will get orders back to Norfolk in a few years.

Economists and real estate experts say the problem for multilevel condo sellers is two fold. As sales of traditional single-family homes have shrunk to their slowest pace in more than a decade, retirees and empty-nesters who may have considered downsizing to an urban condo have been unable to sell their homes.

"The backbone of the whole market is the detached single-family market," said Art Collins, president of the Connecticut-based Collins Enterprises LLC, which has built several condo complexes in the area. "That sector has to be doing well before the rest of the market is."

At the same time, investors looking to buy a condo as a second home or rental property have all but left the market amid the economic downturn.

"For a large segment of the population, a condo is discretionary," said Koch last week. "So it's something that can very easily be cut out. A regular single-family residence is something that can't be cut out."

Not all condo projects are suffering. Lower-priced attached condo buildings in the $200,000 range such as Southmoor Village, a Virginia Beach project by The Dragas Cos., and single-family detached condo developments in the $340,000 range, such as Terry Peterson Residential Cos.' Sajo Farm, have sold well. Both are in suburban environments and are geared toward value.

The waning demand for multilevel condo developments is evidenced not only in the slowing sales pace. Two major Norfolk condo projects - Granby Tower and the Spectrum at Willoughby Point - fell through after losing financing since the housing downturn began. The developer of the Willoughby project announced this month that the project is facing foreclosure.

"Typically, attached housing is more sensitive to market swings than detached housing," said Lou Haddad, president and chief executive officer of Armada Hoffler, the developer behind the Westin Virginia Beach Town Center Residences, where the majority of its 120 units cost more than $500,000.

To date, the Westin has sold 88 units, but only seven in 2008, according to Residential Data Bank.

However, Haddad said he did not think the market had become overbuilt during the boom years. As a result, he doesn't expect many condo developers to begin reducing prices to stoke sales.

"We have a very limited supply of high-rise condominiums in Hampton Roads," he said. "Yes, the market might be slow, but there's certainly no reason for us to discount."

For Mark Barr, the developer who completed Franklin Condominiums in Norfolk last year, success in 2009 could be measured by a single sale.

"The fact is that we've had not one contract, not one sale," he said. "But we are constantly having multiple groups of people by to look at the condos."

Prices in Barr's 19-unit building on the corner of Brambleton Avenue and Duke Street start at $560,000. Fortunately for Barr, retail space on the bottom floor is occupied. Also, he moved his development company's offices there to save money and take advantage of unused space.

"We're going to struggle through to get the first two or three units sold this year," he said. "It's timing. I think it'll be next year before we see any significant sales activity."

At Harbor Heights, several of the building's units have been under contract for more than a year. Buyers have asked to push back closing dates until they can get other homes sold, Sanders said. "We're choosing not to enforce the terms of the contracts," he said.

Robinson Development planned for it to take at least three years for all the condos to sell, though Sanders said he'd hoped otherwise. "It's not a question of if, but when our units will sell," he said.

One of Harbor Heights' most recent buyers is Dave Stefano. He closed on a ninth-floor, two-bedroom condo last year.

"It was originally an investment property," said Stefano, 52, who runs a small general contracting firm. "And then everything in the world changed."

Stefano moved to Florida in 2007, shortly after signing a contract to buy the unit for $460,000. He said he decided to close on the condo rather than lose his deposit and recently put it back on the market for $435,000.

"We're just checking the market," he said. "We're not in a big hurry to sell. We really like it. It's just not very practical for us, living down here."

Stefano's also testing the waters for the rental market, offering the unit, already decorated, for $2,500 a month.

Josh Brown, (757) 446-2318, josh.brown@pilotonline.com