The Charleston housing market is humming along again. Single-family home builders are slammed. Apartment complexes seem to be popping up left and right.
But the condominium construction market — it’s been left in the sawdust, for the most part.
Before the housing collapse plunged the U.S. economy into the Great Recession, the condo business was on fire, a seemingly can’t-miss real estate investment. Locally, numerous apartment complexes were converted to condominiums, fueled by buyers who were buying into the homeownership dream and by investors looking to score a quick buck.
Those days are long gone. Condo conversions are unheard of in the Charleston area, partly because many of those deals triggered construction-defect lawsuits, which in turn sent lenders running.
And newly built condo units are almost as rare. An upscale exception is coming together at the base of the Ravenel Bridge in Mount Pleasant, where East West Partners’ Tides IV is catering to high-end buyers. Slightly more than half of the 54 units have been pre-sold at an average price of $915,000. The seven-story building is set to open by late summer.
The same Colorado-based developer also plans to build a five-story condo project with 34 units over parking off Concord Street in downtown Charleston.
Some smaller projects are scattered throughout the Lowcountry, in pockets within existing neighborhoods, according to Michael Sally, president of the Charleston Trident Association of Realtors.
But condos aren’t the big moneymaker that they once were, at least right now. They’ve been supplanted by apartments, partly because the mobile millennial generation prefers to rent rather than own.
Also, Sally said, residential rental projects tend to be more profitable for developers.
“If you are going to pay the money for multifamily (land), you are going to put as many units on there as you can,” he said. “You can put more apartments than townhomes or condos on the property.”
Another challenge for condo builders is tied to a growing public policy debate about growth and housing.
“We are in a political climate in a lot of municipalities where people see that as too dense of a development,” Sally said. “They tend to not look favorably on it. ... The problem with that is you need a lot more land, and it creates a lot more urban sprawl.”
An official with the Charleston Home Builders Association has his own theory for why condo developers are lying low.
“People are opting to either rent or build or buy a house,” said Phillip Ford, executive vice president. “I’m not hearing much about the condo market.”
It’s also pretty quiet at traditional real estate loan offices. Condo developers aren’t seeking financing in this market, at least not from conventional sources.
“We are not seeing a lot of that,” said Mikell Richards, vice president and mortgage loan officer at South State Bank. “Most of that is being done through private capital.”
At the same time, he said, condo buyers are finding that lenders are slightly more receptive than they were a few years ago. But it’s hardly a return to the free-wheeling days of easy subprime credit that led up to the 2007 housing bust and financial crisis.
“The pendulum has swung back to a little more reasonable level,” said Richards, who is based on James Island.
He said South State looks at the strength of the condo association, including its insurance coverage, its rainy day fund and the number of owners who are behind on their mortgages.
“There are certain thresholds you have to meet that you don’t have to meet on a standard home purchase,” he said. “If the condo project is in litigation, it is pretty much a nonstarter. If there are construction defects, it typically won’t be a standard loan. ... The fear is you have a massive construction claim and a bankrupt builder. If there is not much in reserves, then it could impact the ability to pay back the loan and might result in a huge assessment.”
The Charleston Trident Association of Realtors combines condos and townhome activity in one category. Together, they have represented between 16 percent and 18 percent of all residential sales during the past five years.
Arnie Schaewe has owned a condo on the Isle of Palms for 25 years and has reached a point where he and his wife want to sell it. Before putting the Wild Dunes unit on the market, they are collecting data on pricing and timing to get the best deal.
“I will use specific MLS listing information to help us in our decision making,” Schaewe said.
Doug Holmes, an agent with Keller Williams Realty and a part-time professor at the College of Charleston who keeps up with local housing statistics, said the recession hit the condo business harder than the single-family home sector. The reason was that when the economy started coming back, most buyers turned to single-family homes as investments because they gain value more quickly, he said.
Now, demand for condos is slowly coming back, Holmes said.
“It’s getting better,” he said. “But I don’t think you will see it explode for any reason. Lending is so much tougher now. It’s extremely difficult to get a condo loan. Bank regulations make it more difficult than in 2008, which is a good thing. It’s keeping a cap on things and keeping things under control.”
Holmes also offered a prediction about the condo-conversion craze from a decade ago.
“There was a wave of that before because everybody was looking for a way to sell something because everybody was buying,” he said. “I don’t think you are going to see much of that anymore. It was not all that successful. Homeowners had to sue developers involved in conversions.”
Reach Warren L. Wise at 843 937-5524 or twitter.com/warrenlancewise.