Economic Update – For-Sale Residential Developers Turn to Incentives

It’s no secret that for-sale multi-family properties most everywhere are moving as slowly as glaciers in the days before global warming. Not only has it been difficult simply to get financing for the purchase of a multi-family unit, but there are also other obstacles for buyers. Earlier this month, for instance, Fannie Mae added new fees to condominium loans, even for those buyers with high credit scores, and some lenders are refusing to make loans on condos that aren’t occupied by the seller. But that isn’t keeping developers and brokers from dreaming up incentives to drum some interest in their properties. Such diverse gambits as free cars and no-extra-charge housekeeping have been reported, but perhaps more fundamentally, so has financial assistance to buyers. In Atlanta, for example, Cousins Properties has rolled out a measure it calls the Cousins Assurance Program, which essentially will assume unemployment risk for buyers of condos from Cousins. Under the program, buyers who lose their job within three years of the purchase can walk away from the condo with no foreclosure or adverse impact on their credit history. Tom Bell, CEO of Cousins, told CPN that the program has gotten the attention of potential buyers. “It directly addresses the most prevalent issues facing our buyers, which makes all the difference,” he said. “Times are tough, but the program is serving as an effective catalyst to get buyers off the sidelines. Our on-site traffic has increased 300 percent since we announced the program.” Developer incentives aren’t limited to U.S. properties, either. In beleaguered Mexico, DINE, master developer of resort/second home properties on the Pacific Coast of that country, has begun offering (in conjunction with development partners) developer financing for some of its properties, especially condos and other residences at Punta Mita, a secluded peninsula north of Puerto Vallarta. “We don’t believe in bringing prices down, so instead of that, we’re offering incentives for new buyers, particularly developer financing,” Andrés Rossetto, managing director of resort development for DINE, told CPN. Not so long ago, no one in Punta Mita’s generally wealthy target demographic would have been interested or needed developer financing, he added. But now it’s getting the attention of buyers. Rossetto stressed, however, that such incentives are meant to deal with the (hopefully) short-term problems posed by the recession and tight credit, and not as a substitute for the company’s long-term plans for Punta Mita. “In the long term, we believe in the original plan,” he said, which calls for a mix of hotel/hospitality properties and upper-end residential properties on the peninsula. Currently, besides a number of residential projects, a Four Seasons hotel and a St. Regis hotel are open and operating at Punta Mita, along with detached villas served by the hotel operators and two Jack Nicklaus golf courses. Eventually, after the worldwide recession ends, DINE plans to oversee the development of more residential properties at Punta Mita, plus another Four Seasons and a Ritz-Carlton, as well as a destination spa. But sellers of residential units aren’t the only ones hurting in the current climate. According to Reis Inc., the vacancy rate for the 79 largest U.S. rental apartment markets has risen to 7.2 percent as of 1Q09, the highest level since 1Q04. Asking rents are also down, and renters are expecting concessions more than they used to. In the wider financial world, Thursday’s big news was the bankruptcy of Chrysler Corp., this time with no Lee Iacocca at the helm to oversee a revival. Wall Street reacted to this latest development from Detroit by giving back gains early in the day Thursday to end up roughly where it started. The Dow Jones Industrial Average lost 17.61 points, or 0.22 percent, while the S&P 500 dropped 0.1 percent. The Nasdaq eked out a gain of 0.31 percent.