Developers often reap better returns from building condos than from rental apartments. This is because condo prices are far more responsive to market moves than rents are, so in a strong market a developer can sell out of condos at rising prices faster than it would take to lease up an entire apartment building and sell it.
“Many developers would rather be building condominiums,” said Mr. Bazeli. “With condos, you’re paying down debt with every closing and then putting money in your pocket right away.” –WSJ
However, the trick to being a real estate developer is following the incentives. Tax increment financing (TIFS), historic tax credits, neighborhood revitalization tax credits, boat loads of cash, and big balls to invest in the un-investable, etc.. But mainly, in laymen’s terms its all about the financing, whether its for the consumer or builder if someone can borrow cheaply it will be done.
For condo construction to revive, “the millennials need to start buying,” Mr. Lev said.
Not so for condo construction, which has been slammed by tough rules on condo mortgages enacted after the housing bust as well as stronger demand among young people for rentals and tight lending conditions for builders.
In the first quarter, condo construction accounted for just 5.5% of all construction of multifamily housing in the U.S. That was the lowest ratio since the Commerce Department started tracking the figures in 1974, and far below the 24% average. –WSJ
Another obstacle cited by developers: construction loans. Matt Allen, chief operating officer of the Related Group, a developer based in Miami, said he can get a construction loan for roughly 75% of the cost of building an apartment complex. But lenders will cover only 50%, on average, of a condo complex’s cost because of the greater risk, he said.
Some developers now see hints of a condo revival on the horizon. Rising apartment rents provide renters more reason to buy instead of renting. Job growth is improving for young would-be buyers. And real-estate lobbyists say they are making inroads in Washington to build support for easing the FHA restrictions on condo mortgages.