Mondo Condo

Atlanta's condo glut is great for buyers - but not so great for sellers

A month ago, John Durrett put his condo up for sale. For his two-bedroom, two-bath home in Buckhead, Durrett is asking $340,000, which is about $20,000 more than what he paid for it in 1999.

Of course, asking and getting are two different things. When Durrett first bought his condo, loft-style living was still a novelty in Atlanta; in Buckhead, it was downright unprecedented. As someone who makes his living in the financial services industry, Durrett figured he was getting in on the ground floor, so to speak.

But it wasn't long before his investment soured. First, the company behind Buckhead Village Lofts, where Durrett had purchased, turned around and built a similar development just yards away. So much for novelty. Then the economy tanked. All the while, condos began springing up across Atlanta like mushrooms. From 2000 through the end of last year, fewer than 5,000 new single-family homes were built in the city. At the same time, developers erected more than 31,000 apartment and condo units. This year, 4,000 more condos are expected to be put up for sale in metro Atlanta, according to Kevin White, an analyst at Property & Portfolio Research. They have names like Spire and Eclipse, gleaming towers of glass and steel where you can toss salads on granite countertops and rinse your manicured hands beneath brushed nickel fixtures.

"There's a lot of condo construction," White says. "But it's well-supported by demand."

Indeed. Thanks to media hype, swank marketing campaigns and consumers' love of all things new, new developments are selling out, or coming close, before they're even built.

All of which leaves condo owners like Durrett in a bit of a pickle. Addresses that were once coveted pieces of property are now competing against shiny newcomers such as the Spire, going up now on Peachtree Street, or Eclipse, on Pharr Road in Buckhead. It is against this reality that Durrett, who just bought a house in Peachtree Hills, is listing his condo.

"I'm just trying to break even," Durrett says. He faces an uphill battle. In the Buckhead Village Lofts, 16 of his neighbors are also trying to sell - that in a building with just 104 units. But the statistic that may be most discouraging to Durrett comes not from those trying to sell, but from those who already have. In the past three years, other two-bedroom condos in the Buckhead Village Lofts sat on the market for more than 200 days. And when they finally did sell, the price was, on average, almost $30,000 less than the original listing price.

"I'm probably going to incur a loss," Durrett admits. "I tell my friends I may be the only person in Atlanta to lose money in real estate."

Not likely. The explosion of new construction in Atlanta has made condominiums as an investment far from a sure thing.

"You can't look at it as a short-term investment," says Janice Loose. Loose also lives in Buckhead Village Lofts, and is a real estate agent with Keller Williams Realty in Sandy Springs.

"What I tell my clients is, 'Don't expect to make a profit until you've been in your condo for at least three years.' That goes with any type of real estate," says Uri Vaknin, an agent at Coldwell Banker's Condo Store.

In Durrett's case, though, even five-plus years may not be enough to see much - if any - profit. The transient nature of the typical condo dweller doesn't help matters. A single person in his or her 20s buys a one-bedroom condo, finds a mate, and then is looking to upgrade to either a bigger condo or a house. That short turnaround can make condos an even dicier investment.

"Quite frankly, it makes renting more attractive," says Jay Glatting, a senior investment associate at Marcus & Millichap, a real estate investment brokerage company. "Most people are getting in with zero down, and certainly less than 20 percent down. They're leveraged to the hilt.

"In my mind, it's a high-risk investment. ... I wouldn't recommend buying a condo unless it's for five or six years."

Of course, some condos are an exception. The Metropolis, which opened in 2002 to much fanfare, is full of for sale signs. But despite the glut - around 80 of the 498 units are on the market - the average selling time is just 60 days and sellers are getting close to their asking price. So far this year, one-bedroom Metropolis condos are fetching an average $223,000 - $40,000 more than the average price for a one-bedroom two years ago.

Still, developers presumably couldn't care less about the resale market. As long as their new developments are selling fast, they'll keep putting them up. Why? The profit is staggering. It's not unusual for developers to sell a unit at a 20 percent profit, Glatting says. So a condo that costs $200,000 to build sells for $240,000. Multiply that $40,000 difference by 200 units and the developer has earned an $8 million profit.

"That's a good deal [for developers]," Glatting says. "Lenders are willing to fund them. And until a building like Eclipse doesn't do well, they're going to keep coming out of the ground."

All this is good news for buyers. As long as developers keep beefing up the condo supply, sellers will be more and more motivated. In fact, average prices citywide are going down. In May, the average selling price of a metro Atlanta condo was $186,593, a 5.6 percent decrease from the previous May. And that's been a pattern.

"Prices have been adjusted to compete with the number of units on the market," says Tom Multhaup, vice president and managing broker at Morris and Raper. "It's a great time to buy a condo."

Small comfort to Durrett.

"I learned a valuable lesson in all this. It's called density. You can create density very quickly [with condos]. You can't do that with single-family housing. If I had to do it all over again, I'd have bought a single-family home six years ago."