Kansas City area condos are left behind in the housing recovery

Pity the poor condo.

While the metro Kansas City apartment market is hot, and prices, sales and construction of single-family homes have warmed to pre-recession levels, condominiums are still out in the cold when it comes to the recovery. And the condo market may get even chillier.

No new projects are in the works, and Realtors and owners are struggling to sell existing condos.

“The difference between buying a condo and a single-family home is night and day,” said Dan Farmer, a mortgage banker at Peoples Bank. “I ask Realtors to talk to me first before writing a contract.”

Living in a condo — basically an apartment-style residence you own rather than rent — wasn’t all that popular to begin with in Kansas City compared with more densely developed cities such as Chicago, New York or even Minneapolis. It’s so easy to get around here, and traditional homes remain relatively inexpensive.

In the years leading up to the Great Recession in 2008, a small condo boom did hit Kansas City, particularly around the Country Club Plaza and downtown. Then the bottom fell out, to a lesser degree here but big time in overbuilt places such as Miami, Phoenix and Los Angeles.

And while the metro residential market has revived the past couple of years — home sales were up 18 percent last month, and apartment occupancies average about 95 percent — condo sales remain sluggish.

The main reason is that lenders are still skittish about how badly condos tanked nationally during the housing crash.

As opposed to a purchasing a regular house today, condo buyers face much higher down payments in most cases. That’s because the big government-sponsored agencies that back the home mortgage industry, Fannie Mae, Freddie Mac and the Federal Housing Administration, have much more stringent requirements for condo developments.

“It’s pretty simple,” Farmer said. “In 2008, when we went into the housing crisis it was the highest level of foreclosures in our history. A lot of the foreclosures were condos because people were speculating in condos.

“That enormous amount of defaults in condos all over the country, especially in Florida, Arizona and California, led to tighter guidelines by Freddie and Fannie.”

John Moffitt of Coldwell Banker opened his Urban Living Center in the Crossroads Arts District at 1705 Baltimore Ave. in 2005 when the condo market was in its pre-recession heyday.

At that time, about 600 condos were on the market in the greater downtown area, and his hope was to nab a good chunk of that business by setting up a posh sales center.

“Five years ago, when the downtown renaissance was in full swing and jobs were being created, a young couple could have bought a $125,000 to $150,000 condo for $5,000 down and paid $1,200 per month,” he said. “Today, I have to come up with $25,000 down, and lenders don’t like having mom and dad helping them out.”

Which makes it very tough for people trying to sell condos. There are customers, but the higher down payments are an obstacle.

“I feel like we’re being penalized for what happened in Florida, Arizona, Nevada and California, and that’s not fair,” said Matt Zammar, a real estate agent at ReMax who specializes in condo sales. “I wish there was a regional approach to underwriting guidelines, but there’s not.”

Over the past few years, many condo projects planned in Kansas City failed to materialize, or developers changed their approach and went with apartments instead. A sampling includes an 17-story project proposed for 18th and Broadway that was never built and the same for an 18-story tower proposed adjacent to the historic Power & Light Building.

The Cordish Co. of Baltimore had planned to build a 35-story condo tower at 13th and Walnut streets, but that project was scrapped, and now a 25-story apartment building is in the works.

A St. Louis developer redeveloped the historic H.D. Lee and J.I. Case buildings in the Freight House District of downtown with the intention of selling the 223 units as luxury condos but switched to renting them instead. The developer of Gillham Row, which began 10 years ago as a condo project near Crown Center, recently announced it would be completed as apartments.

Same in the Northland, where the Ravello condo development planned for Briarcliff wound up becoming mostly rental apartments. In south Johnson County, the developers of Park Place in Leawood planned an eight-story condo building and wound up doing apartments.

And some condo developments, including the Western Auto complex and WallStreet Tower redevelopment projects downtown and the Mill Creek Terrace development near the Plaza, wound up holding auctions to dispose of their remaining units when sales lagged.

One of the highest-profile condo developments, the One Park Place tower near Penn Valley Park, formerly the BMA Tower, has sold 59 of its 108 condos, but that’s over seven years.

At this point, developer George Birt built the last condo tower in town, the 12-story 4646 Broadway project that opened near the Plaza in 2007. It took five years to sell its 18 luxury condos.

Currently, the primary test for the health of the Kansas City condo market is the 909 Walnut development. The 35-story Depression-era skyscraper was renovated into 159 luxury apartments in 2005 with the plan to ultimately sell the units as condos after five years.

Since sales began three years ago, just nine condos have been sold.

“We had good traffic and were optimistic about this year, and things were pointed well,” said Alan Waterman, a real estate consultant working with 909 Walnut. “This spring and summer have been dead; our traffic is two-thirds off.”

As a Realtor specializing in condos, Zammar is very familiar with the 909 Walnut building. He said the biggest issue is financing. Without Fannie, Freddie or FHA approval, down payments run up to 20 percent to 25 percent — and 909 Walnut recently lost its backing from those agencies.

“One of my biggest frustrations are some lending institutions are prohibiting this sector from bouncing back by their lending practices,” Zammar said. “If it’s a qualified candidate in terms of credit, income and stability, work with us. It’s a big frustration.”

Some frustrated condo buyers may opt to rent a nice place instead.

“When these luxury apartments come in with upgrades and amenities and you can rent it for $1,200 per month, some people say I’ll take that because I can’t come up with $25,000 for a down payment on a condo,” Moffitt said.

As of mid-August, Moffitt calculated there had been 187 condos sold so far this year in the primary urban market that includes greater downtown, midtown and the Plaza. That compares with 259 condos in that same area last year, 216 in 2011, and 250 in 2010.

Metropolitan numbers are hard to come by; statistics aren’t kept by the Realtors and builders associations.

Many of the sales, Moffitt believes, probably were older empty-nesters who had sold their homes and had the cash to purchase condos.

“The more mature demographic is maybe re-entering the marketplace, whereas the younger demographic won’t have a chance to do it,” he said.

Waterman remembers the Metropolitan, an affordable condo development that opened in 2004 in a former 1960s apartment tower at 600 E. Eighth St. Its 236 condos sold for $69,000 to $209,000.

“The Metropolitan condos went like gangbusters,” he said, “but now it has so many rentals in it that Fannie and Freddie won’t approve it. People have tried to sell and move on to the next thing but have not been able to sell and end up leasing it out.”

He described all the condos now being rented as a “hidden market,” and until those units are disposed of, there probably will be few, if any, new developments.

“If find it odd and disconcerting,” Waterman said. “I don’t find a trust level with condos when it comes to lenders. If I were in Florida or Arizona, I could understand it.

“But this is the Midwest. It was single-family houses that led the crash, not condos.”

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