Marketing and Development Work Together in This Florida Project.
Condominium development is demanding and difficult, but when the timing and market variables are in place it also can be rewarding. With so many conditions affecting the market, a program designed around phased development — which minimizes market risk both for the developer and the lender — has been an important strategy in recent projects.
Current market conditions that favorably affect condominium development include attractive interest rates, an aging baby boomer market seeking less upkeep but more luxury, and a growing economy. Combine these with waterfront or golf course views, and some of the key elements for successful condominium development are in place.
The condominium developer’s target market should determine unit sizes, amenities, and rules and regulations of the association. This requires close attention to local demographics.
Florida Ocean Views
The Barringers project, two seven-story, oceanfront condominium buildings located in Indialantic, Fla., is an example of how these strategies in condominium development can play out. The luxury development has evolved over three years in two phases, the first of which sold out and the second of which nearly is sold out.
The Barringers project was built in a product market that previously had not been tested, according to local appraisers. An oversupply of product priced from $125,000 to $225,000 warranted a move below or above this price range in order to distinguish this product among the hundreds of other units in the market.
The Barringers’ location was more conducive to trying a higher price range; regular condominium units have sold for $259,999 to $325,000, with penthouses running $525,000. The project has three condominium floor plans ranging from 2,864 square feet to 3,020 sf and penthouse floor plans ranging from 3,000 sf to 4,300 sf.
Competing against numerous products in a market makes distinguishing a product wise. But this requires a careful eye toward marketing. In many cases, the cost to create distinction through marketing and product upgrades can outweigh potential profit.
With the Barringers, product quality was key — and it increased significantly over what the local product market offered. Four redesigns were required to create a product that was unique enough to stand out, while remaining within a reasonable price range.
Phase II includes three-bedroom units with two or two-and-a-half baths, as well as penthouse units. Special features include private two-car garages, private oversized balconies, and cove molding in living and dining rooms.
In addition, restrictive association covenants were put in place that did not exist in many other local condominium properties, making it the first product in the area to require completely owner-occupied units — no rentals allowed. This strategy assumed that owners would take better care of their units and the building.
The problem with this approach was in the appraisal process, which did not have a basis to support such a leap of faith in exceeding the standard lender term. This double-edged sword required careful maneuvering. Due to the limited parameters dictated by construction lenders, the only way to overcome this weakness was to meet and exceed the lender parameters.
In prior experience, banks’ approach to lending was more of a liability than an asset for condominium construction. If banks cannot adjust to the many unexpected issues that arise in development, the developer may have to deal with fixed parameters that may cause as much harm to a project as changing market conditions.
To save the time and money it takes to restructure a package if it misses lender targets, the Barringers was developed around lender parameters during the project-planning phase. In doing so, the largest challenge was meeting the 50 percent presale requirement. Discounting prices was necessary in order to meet this parameter, as well as substantial marketing costs.
When seeking financing for the Barringers project, it appeared that most of the traditional bank lending sources had dried up in the marketplace.
However, niche lenders in the market have made financing less daunting. Niche lenders understand the weakness in the lending market and accommodate this demand with loan programs that work around the realities of development, rather than the fixed preconceived concepts of development. For the Barringers, a relationship was established with a real estate investment trust lender that specializes in construction lending.
Quality control for condominium construction is another vital development issue. Today’s buyers are well aware of the horror stories surrounding condominium living and construction. The initial owners will be the developers’ greatest marketing tool or the kiss of death for the project. The extra dollars spent here should be looked at as an investment that continually will pay dividends long after the developer is gone. Numerous sales that came directly from owners who appreciated the quality efforts have benefited the Barringers.
Condominium development often costs about 20 percent to 30 percent more than apartment development because of construction type and quality finishes. However, upscale, multistory class A apartments are comparable to class A and B condominiums.
Many municipalities have different construction code limitations that can frustrate developers in identifying the construction type most suitable for their product. Oceanfront products (post-tension construction) have 140-mph wind-code requirements. The Barringers exceeds that requirement by more than 30 percent. This was marketed as part of the quality features of the project.
However, finishes are the most important item in terms of quality control for condominiums because that is what the buyers see the most. Attention to detail is a priority. Finishing teams should be designated to finish the units in a timely and professional manner. For the Barringers, quality-control inspections regularly occurred throughout the project and increased in emphasis throughout the finishing process.
Frequently, developers push to close units before making sure buyers are happy and building finish details are completed. In the big picture, the dollars needed to make sure all issues are addressed and finishes are completed to meet the buyers’ expectations are miniscule. The benefits that come from taking this extra effort will accrue through more sales and opportunities.
Research and Quality
Development and marketing work hand and hand with each other in condominium development. Much of the research and information obtained within both areas comes from observing the errors and malfeasance of poor quality in the market and understanding the cause and effect of quality vs. average construction. Such research combined with an eye for quality can help brokers who desire involvement in condominium development.