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Originally published May 20, 2012 at 4:58 PM | Page modified May 21, 2012 at 4:09 PM

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Downtown Seattle condos are finally filling up

The glut of condos that hit downtown Seattle right during the real-estate downturn is disappearing as buyers move back into the market.

Seattle Times business reporter

Downtown new-condo supply disappearing

Click image to zoom. Most projects completed between 2007 and 2010 have sold out. (Graphic by Mark Nowlin / The Seattle Times).

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The past few years haven't been good ones for condo developers in and around downtown Seattle.

They brought about two dozen new projects to market between 2007 and early 2010 — just in time for the real-estate crash.

Hundreds of pre-sale buyers backed out. Some developers converted their buildings to rental apartments. Others lost their projects to lenders.

Many slashed prices, in some cases more than 40 percent. Even so, sales remained tepid.

Now, however, the market finally seems to be bouncing back. Here's some of the most compelling evidence:

Early this year the biggest downtown project, Escala, began raising prices a hair on some units. And it did so quietly, without the splashy advance announcement developers sometimes make just to scare up business.

On average, condos in the 31-story tower have been selling for 99 percent of asking price so far this year, according to listing-service reports. "As we sell units and have less supply, we will continue to raise prices," Erik Mehr, who heads Escala's sales team, said recently.

It's been about four years since anyone associated with a downtown condo project said anything remotely like that.

Market analysts agree the balance between condo supply and demand has shifted recently — if only because most of the supply, at long last, is gone.

Many buildings have sold out, and "most of the others have been cherry-picked," says Seattle real-estate economist Matthew Gardner.

Of 2,500 new condos delivered in downtown, Belltown, Lower Queen Anne and South Lake Union during the market's darkest days, fewer than 250 developer-owned units remain unsold, according to county records.

That number drops below 200 when you count pending sales expected to close in the next few months, according to statistics compiled by Realogics Sotheby's International Realty, which markets several of the new buildings.

And there are no new projects in the pipeline — developers and lenders have sworn off condos for now.

"We've been saying for a long time that at some point the inventory was going to disappear and the opportunity was going to slip away," says President David Thyer of R.C. Hedreen, developer of 39-story Olive 8.

"Now it's finally happening."

There's more unsold inventory in downtown Bellevue, where more than 350 condos in two giant projects, Bellevue Towers and Washington Square, still haven't sold.

But Bellevue Towers, like Escala, raised prices 1 or 2 percent earlier this year on some models that were close to selling out.

That's what's supposed to happen in a healthy market, says researcher Glenn Crellin of the University of Washington's Runstad Center for Real Estate Studies.

For the most part, the new-condo backlog has sold off slowly and steadily. County records show no big bump in overall sales recently — in fact, closings at several big projects are behind last year's pace.

But brokers and market analysts say those numbers don't yet reflect a surge in activity this spring. "Buyers are just more confident now about the economy and real estate," says Matt Goyer, who blogs about new in-city condos at Urbnlivn.com.

Those buyers include young professionals, empty nesters, investors and folks seeking second homes. Some come from out of state or overseas. Some are former downtown renters.

Some of them have been watching the market, and waiting, for years.

Downsized commute

Dave and Kari McGrath started looking for a downtown Seattle condo in 2009, in part to put an end to hellish, three-cornered commutes.

They have one car. She works downtown, he works in Lynnwood. He drives her from their Woodinville home to Lynnwood to catch a bus in the morning, and in the evening drives downtown to pick her up.

Trouble was, they couldn't sell their five-bedroom, 3,400-square-foot house. And they needed the proceeds to buy another home.

The McGraths watched from the sidelines, frustrated, as condo prices fell. Then, this spring, they put their house on the market again, and it sold in just two weeks.

So this month they signed a contract to buy a one-bedroom, 823-square-foot condo on the 37th floor of Olive 8. Kari, 49, can walk to work from there. Dave, 52, says his commute will be "a piece of cake compared to what I've been doing."

Low mortgage-interest rates helped persuade them to buy now, the McGraths say. So did the shrinking downtown inventory — they'd already seen some floor plans they liked in other buildings sell out. "We didn't want to miss out," says Kari.

Other recent buyers tell similar stories. Gene Burrus, a Microsoft lawyer, rented in a downtown condo building for four years. While he intended to buy eventually, he says, "there was no sense of urgency."

But Burrus kept an eye on the market, and in recent months he watched for-sale inventory in his building shrink and units there sell for higher prices than he'd expected. He worried his rent would rise.

Last month he closed on a two-bedroom condo at Fifteen Twentyone Second Avenue. "We definitely got the sense that now was the time," Burrus says.

Stephan Schier, also a renter, bought a two-bedroom at Escala the same week. "I don't think prices will get this low ever again," he says. "The price to build a unit like the one I have is prohibitive."

Most industry insiders agree it probably will be several years before the next big downtown condo project breaks ground.

Developers are wary. "You'd have to see a lot more stability in the for-sale housing market first," says Dan Ivanoff, developer Schnitzer West's managing investment partner.

Schnitzer was finishing four big projects with a total of 1,000 condos in Seattle and Bellevue when the economy tanked. Two were converted to apartments; despite steep price cuts, the other two didn't sell out until last year.

Schnitzer won't jump back into the condo market anytime soon, Ivanoff says.

Lenders won't finance big new condo projects now, the UW's Crellin says. With downtown Seattle's high land prices, only high-end projects will pencil out — and sale prices haven't bounced back enough yet to make them work.

At Escala, for instance, despite the recent price increases, "We're still selling units at prices where you couldn't build a new tower and make a profit," says sales manager Mehr.

Escala's owner, a real-estate arm of Deutsche Bank, is resigned to losing money on the project, he says. The only question is how much.

Most observers expect the remaining developer-owned condos in Escala and other new buildings will sell out in the next year or two. Where will the new condo supply come from after that?

Dean Jones, brokerage Realogics Sotheby's president and CEO, expects some condo owners who bought near the market's peak, then watched the value of their units plummet, will put them up for sale as prices recover. That "shadow inventory" should meet some of the future demand, he says.

Still more probably will be met by developers who convert their apartment buildings to condos, Jones adds.

But he doubts there will be too much of that. Apartments in many new buildings are too small and lack the quality finishes to easily market as condos, Jones says. What's more, some newer projects built as condos — but converted to rentals when the market turned — have since been acquired by investment firms that intend to hold them as apartments long term.

The bottom line is, there's not much new inventory on the horizon. And that's helping to drive the condo market now, analysts agree.

"The whole conversation has changed," Jones says. "Over the last six months or year, people seem to have agreed there's no benefit in waiting any more."

Eric Pryne: 206-464-2231 or epryne@seattletimes.com

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