High Times Roll On For High-End Condo Market

If you’re looking for a high-end, luxury condominium, there’s more choice out there but you  won’t find any bargains in Boston -- or New York, Los Angeles, San Francisco, or even Miami. That’s right, Miami.

Boston Rising: "Residences at the Intercontinental", a new hotel-condo development.

And don't make too much of the credit crunch or the housing slump. It won't help you much in the high-end condo hunt.

“Our high end is surging,” says Boston realtor and marketing executive Kevin Ahearn, president of Otis & Ahearn, which controls 14.5 percent of the downtown market. “Pricing and fundamentals are as strong as they’ve ever been.”

As of mid year, transactions at Otis & Ahearn were running 7 percent over 2007, a record year when it netted $450 million in sales.

The company’s closely-watched market data are forecasting a record year in several metrics and the inventory level is now at just 3.6 months.

Sales of $1 million-plus units now represent almost 15 percent of the total, double that of 2004. As of late July, the number of $2-million-plus transactions had already surpassed the 2007 peak. The $3-million-plus segment is the fastest growing; 33 properties have closed, double that of 2004.

“The credit crunch has been digested to a large degree,” says Ahearn, who describes his customers as “not a very heavily-leveraged group.”

The high-end condo market may be powerful but it is not large. Data is also limited and local.

The $1 million-plus home segment -- condos, coops and single-family dwellings -- accounts for only 2 percent of existing home sales, according to the National Association of Realtors.

Nationwide, the median price of a condo was $224,200 in June vs. $226,300 for all of 2007, but up from the February 2008 bottom of $211,800.

Boston may be exceptionally strong right now, but other top metro areas, such as Honolulu and Chicago, have seen  increases over the past year, according to NAR data. Others –- notably Las Vegas and Miami have suffered sharp declines.

Courtesy of Corcoran Group Upper East Side, Manhattan

The New York metro area is flat overall, but in the fashionable Manhattan, high-end properties are appreciating, according to realtors there.

“It will be one of our best years,” says Pamela Liebman, CEO of Corcoran Group.

The median price for a luxury condo –- new or existing -- is up 19 percent to $4.37 million. On the exclusive Upper East Side, a three-bedroom unit was fetching  $3.65 million as of the second quarter, versus $2.17 million in 2007, according to the Corcoran Report. The very high end -- $10 million and above -- is at or near a record high.

“Buyers are certainly being more cautious and there’s more inventory to choose from,” says Liebman, who adds there are still “plenty of cash only buyers.”

That’s clearly a quality of the high end-market. Tighter lending rules are not a major factor, nor are contingency deals.

In Philadelphia, the number of transactions is down about 30-percent, but prices in top neighborhoods such as Society Hill are flat or higher, says veteran high-end realtor Allan Domb.

“For a small segment of the market there is opportunity out there,” says Domb.

Courtesy of Allen Domb Real Estate Parc Rittenhouse building in Philadelphia's Rittenhouse Square

As an example, Domb mentions the recent sale of a property in the $2-million range in exclusive Rittenhouse Square. The buyer had three other homes, including one in Florida.

“Astute buyers realize this won't continue forever,” says Domb.

That seems to be the case in southern Florida, an emblem of the distressed real estate market in recent years.

“You’ve already passed the bottom,” says Miami broker Peter Zalewski, who co-founded Condo Vultures in 2006. “Deals are pretty much gone in the proven, mature markets, with access to water.” Most notable are South Beach, Coral Gables Key Biscayne and Coconut Grove.

Zalewski says an analysis of 500 “coastal” properties in the $2 million-$10 million range in the MLS listing system shows 15 percent with price cuts, 10 percent with price increases and the remainder with unchanged prices over the past six months.

“That’s reflective of the confidence sellers have,” says Zalewski, who adds transactions have picked up significantly since July.

The median price in that group is about $3 million for a "trophy building on the sand” in Bal Harbour, right next to Miami Beach.  It has almost 3300 square feet with 3 bedrooms and 3 baths.

From Bal Harbour to Boston, the strength of the high end market is partly because of exclusivity.

“They’re not making anymore beachfront,” says Miami broker Ned Berndt, publisher/founder of Miami Condo Lifesyle.com.

Berndt says he’s seen a dramatic increase in the past 100 days. Inventory levels are down sharply from a year ago, when they were running at four years or more.

On elite Fisher Island –- three miles off the coast of Miami Beach, volume is holding and prices are up. Through June, 16 transactions averaged $3.8 million, versus 32 at $2.7 million in 2006.

In another generally hard hit area of the country, king condo is also alive and well.

In the Los Angeles market, for instance, volume is definitely down, but the “market is still healthy with a slight appreciation in some areas and a slight decrease in others," according to Steve Heiferman, who co-founded the Luxury Condominium Group in 1978 and works the so-called Wilshire Corridor, or Golden Mile, where the segment starts at about $2 million.

In California’s two other big condo markets, prices in the $1 million-and-over category are clearly outperforming the broader market.

Courtesy of Condo Vultures The Savan, Sunny Isles Beach, Florida

In the San Francisco Bay area, the median price for that segment rose 7.1 percent in the first half of 2008. Overall, prices fell 18.5 percent, according the California Association of Realtors.

“It’s the top area for people who have large cash reserves, strong balance sheets and the largest activity in luxury in condos,” says the group’s deputy chief economist Robert Kleinhenz.

Orange County’s luxury condo market has posted a median price gain of 9.4 percent, compared to a 23.1 percent decline overall.

“The wealthy are somewhat impervious to all this,” says Heiferman of the credit crunch and economic downturn.