Anyone Home? Unstable Tampa Condo Market Leaves Units Vacant, Investors Scrambling

The unstable nature of the condominium market has plenty of Florida real estate professionals on high alert, if not concerned. Today’s Tampa Tribune tells the story of a local man who saw big money-making investment potential in Tampa condos just 16 months ago, and who is now trying to escape before things go up in flames. His experience speaks volumes as to the shifting of the area’s real estate landscape.

Lance Ponton, Jr., bought FIVE condominium units on Harbour Island in September 2004, before they were even built. The 27-year old made down payments of 10 percent on each one, and hoped to sell them for a huge profit as soon as the building was completed and his deals closed. The problem? When it got to that point, he found that everyone else in the building was doing the same thing.

Ponton couldn’t unload them in a hurry and ended up making thousands of dollars in mortgage payments for 10 months on all five condos in the ParkCrest Harbour Island community. He was able to sell four units eventually, banking between $50,000 and $100,000 per. With one more unit still on the market, Ponton’s goal is to slip out of condominium investing before he starts losing money.

“The market was really good, but it has changed, and it’s time to move on to the next hot thing,” Ponton said.

The rise in mortgage rates over the past several months (with more increases expected in the coming year, as the Federel Reserve looks to curb inflation), a swelling inventory of condos and growing skepticism about prospects for quick profits have triggered a slowdown in the condo resale market in downtown Tampa — and in large part, statewide.

Many real estate investors such as Ponton are finding out the hard way that the days of selling units, or contracts on pre-construction condos, within hours or days, are over. In other words, don’t expect you’ll have an easy time flipping properties like you would have even a year ago. It’s taking months, if not longer, to find buyers. Some sellers are having to lower their asking prices, according to real estate agents who specialize in condo sales.

This could spell trouble. Not only for the many thousands of owners hoping to unload their condos quickly, but also for developers. More than 30 condo projects are in the development stage in and around Tampa. Most builders are still in the process of obtaining permits, trying to attract buyers and lining up financing, having yet to officially break ground.

The problem is that many developers rely heavily on investors to raise enough money up front, in order to persuade major lenders to finance the projects. With short-term investors shifting their interests (and capital) away from urban condos, developers are now facing the task of marketing more to people who want to live in the buildings full-time (imagine that) or keep the units as long-term investments at least. Suffice it to say, that’s a tougher sell.

Making the problem worse across Florida are completed projects that sit half-empty in spite of strong sales. Some buildings that sold out during construction have few full-time residents, thanks to the investors who bought them looking to flip them, or people buying a second home. The lack of full-time residents makes it difficult to attract shops and tenants. Many potential buyers are turned off by buildings that are like ghost towns.

“It’s more difficult to attract end users right now,” said Jason O’Neil, of Palermo Real Estate Professionals in Tampa, referring to buyers who plan to live in the units full time. “It’s not impossible, though, and I think it will level off as investors sell.”

One example is the 18-story Parkside of One Bayshore, across from a Publix Supermarket at Platt Street and Bayshore Boulevard in Tampa. The complex has been completed for just over nine months. Every one of its 104 units sold out during the construction stage, but only 20 percent of the owners have filed for the Florida homestead exemption, a tax perk that limits the increase in taxes on a person’s primary residence.

In other words, if you don’t live there as your primary residence, you won’t get protection from the state on any mill rate increases, which are tied to the real estate’s assessed value. The lack of primary residents indicate that many owners aren’t living in buildings such as this, and that there are more condo owners looking to sell than looking to buy.

“If you have under 50 percent homestead in a building, it’s usually heavily investor-owned,” said Warren Weathers, chief deputy property appraiser at the office of the Hillsborough County Property Appraiser. “Only time will tell if those units are sold to end users. In the meantime, we’ll probably see a lot of renters.”

Despite signs of the downtown condo market cool-off, developers continue to come forward with proposals. Some developers have restricted investor buying at the request of banks and other lenders, however. Some investors, such as Jason Barrett, a resident in the Parkside complex, are worried and anxious to get out of this market.

Barrett had luck selling one condo in Parkside, but had to lower his price significantly to compete with all the other listings. He plans to sell his current unit in four to five years and will not be acquiring any additional units in the meantime. He also owns a condo in Sarasota and a “condotel” unit on Anna Maria Island, and hopes to sell both soon.

“I’m spread thin now and that’s not a comfortable situation,” he said.

The lesson learned? There is a real estate bubble when it comes to some condo developments, and if you are an owner looking to get out, you may have to lower your asking price by a wide margin. If you’re a prospective condo buyer looking at Florida home loans, be advised that the market for condos is very much in flux, and that you may not be able to sell the unit for a profit unless you are willing to wait several years.