Misguided Philly Condominium Developers

Big-brained idealists with little local real estate knowledge have been breaking ground new condominium developments in record numbers in the past decade here in the US. Not every ground breaking is indeed Ground-Breaking, nor are such events good news for the overall health of any given real estate market. According to Realtor.com, there are currently 22,578 condos currently on the market in Miami Florida. The effects over oversaturation can be devastating to a local real estate market. Since all real estate is local (you can’t buy a 3000 sq ft split level across from Central Park for $159,000 as you can in say Little Rock, AR), values are determined within a particular geographical location by a variety of non-market driven factors: the properties cache, it’s location, amenities, size, condition, etc.

However, real estate values are greatly also affected by simple supply and demand. With the surge of new construction projects littering the US in the past decade, such developments not only flood the condominium market with a plethora of inventory, thereby possible reducing prices, but can add to the perception of a stagnant real estate market. More inventory has an ability to chill a potential buyers sense of urgency. A high substitutability factor of available condos can quickly knock the wind out of any new buyers’ sails as well. Furthermore, an oversupply of non-performing condos can pave the way for future foreclosure. Upon resurfacing, those condos come back on the market, and have a tendency to shock the local real estate market with artificially low asking prices, causing the entire market to react. Missing a target market is devastating to the developer looking to make a fortune on his or her latest project. Building large condos with “neighborhood breaking” asking prices, or developing the wrong style of building for a given location or demographic can wreak havoc for a developer and the unlucky neighborhood that gets saddled with such a misnomer.

The model for any new development project that works in New York City, is not going to work in St. Louis. How is it that the phrase “When in Rome”, doesn’t apply here? It does. Local real estate markets benefit when a developer does his or her homework, and can match a product with it respective marketplace. Downtown Philadelphia has recently seen a half dozen high-profile new construction projects crash and burn prior to a shovel hitting the dirt. From poor planning to a lack of local real estate research and good old fashioned listening, developers are packing their bags prior to unpacking their bags. In some cases, perhaps for the best, such projects have not been built. “The market could have easily absorbed a few of these projects, should it have been based upon logical and solid research” according to Jim Thornton, of Prudential Fox and Roach Realtors in downtown Philadelphia. “Developers who don’t know the area, and try to fit our landscape into their mold, are in for a bit of a shock”.