John Loomis for The New York Times
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.
May 15, 2008
Collateral Foreclosure Damage for
By CHRISTINE HAUGHNEY
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
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 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.
“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 questions from visitors about ceiling repairs.
“We’re not going to tell them we don’t have any money,” she said.
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.
John Loomis for The New York Times
Peter Zalewski, a Miami broker, led an Italian
investor, Alessandro Comoglio, through a condo
building with foreclosure trouble.
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
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
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
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