Condo market goes sour

Demand for downtown units falls victim to troubles in home-sales market

RALEIGH -- When York Properties started marketing One Eleven Seaboard last year, more than 100 potential buyers vied for the 51 condominiums planned next to restaurants, a grocery and other shops on the northern edge of downtown.

But when it came time to put money down, only 15 buyers came to the table. Construction on the Peace Street project, which was expected to have already begun, is on hold. "The market is just gone," said George York, executive vice president of the Raleigh company, hopeful that the spring would bring enough buyers to break ground.

The crunch that has slowed sales of homes across the country is cooling demand for downtown condos. Last year, 117 units were sold in the burgeoning center city, down 8 percent from 2006, Downtown Raleigh Alliance data show.

About 100 new units were added to downtown Raleigh's stock of 550 condominiums last year. Another 690 units are under construction. And almost 900 more are on the drawing board.

Now Darwin is stepping in.

Developers who snared pre-sales by offering the best amenities in high-profile projects in the most sought-after locations are surviving, if not thriving. Highwoods Properties, for instance, converted nonbinding reservations to hard contracts -- a year ahead of schedule -- for each of the 139 condos it is building at RBC Plaza on Fayetteville Street.

But those who haven't broken ground, lacked marketing or amenities to lure buyers, or simply bet on a part of downtown that isn't ripe are re-evaluating plans as demand slackens. Some developers are scaling back proposed projects, delaying construction until demand picks up, converting for-sale units to rentals or just abandoning plans.

The changes are most evident in blocks west of the Glenwood South entertainment district:

* Momentum Group of Wilmington, which planned 42 condos at 630 North, at Boylan Avenue and North Street, cut back to 32 residences. The project was to have been finished by the end of the year. Construction has not started.

* Construction on the 14-unit Boylan Flats, on Boylan Avenue near Peace Street, also has yet to begin. Its developer, CentreLine Properties of Raleigh, initially hoped to finish them late last year.

* Sheffield Barry Properties of Raleigh in November sold 410 N. Boylan Ave., a site where it planned to build the 18-condo Glen on Peace, to focus on other projects.

* Crosland of Charlotte abandoned sales at 712 Tucker. Instead, it is offering the 179 units off Boylan Avenue to renters.

While willing buyers still exist, able buyers are fewer. Tighter lending standards are making it harder for some would-be buyers to qualify for mortgages. Others who need to sell a home before they buy a condo are stuck.

Meanwhile, qualifying first-time buyers and those able to take another mortgage are turning to sure-thing projects and reaping newfound borrowing power. The average rate on a 30-year fixed mortgage issued in North Carolina has been 5.5 percent this year -- the lowest first-quarter average since 2004, according to Bankrate.com.

"It's giving us a shot in the arm," said Ann-Cabell Baum Andersen, the Glenwood Agency broker who handles sales at the West, where at least half of the 170 condos are under contract. "People are coming out of the woodwork. I have not had as much activity in a January-February time frame than I have this year."

Rising mortgage rates could bring uncertainty about demand, so some established developers proposing condos in prime locations are taking precautions.

Charter Square Developers expects to anchor the south end of Fayetteville Street with two towers of offices, shops and condos. But the group has considered a just-in-case scenario including rentals in one of the towers.

Powerhouse Plaza, a 10-story hotel-office tower proposed last month, was among the first downtown-tower plans in recent years to exclude condos. "The lenders are liking this project because it doesn't have condos," said Gary Cline, a partner in the project.

Two blocks south, York Properties is considering plans to build offices and condos on Hillsborough Street. But presales at 1 Eleven Seaboard could influence what is ultimately built there.

"If we had to build it today," York said, "we would build few, if any, condos."