faster than a speeding condartment

the skyline view above this post no longer exists. first place, now renamed something totally different in an effort to re-brand and de-stigmatize it, occupies this elbow on the river. i will only call it first place since, afterall, that's what it was named in the first place. it was a condominium development. it failed. but, they're still condominiums. that is to say - you could go to mandel group and purchase one today.

what about the other failed developments in our market? people are asking regularly about the extent of condominium oversupply in the market. how many months (years) of absorption are needed to consume all of the available units? when will we fully understand the extent of the losses? when will another condominium deal ever be developed? can any of the remaining proposed deals happen, or like palomar will they ride their horse out of town?

i find the questions nearly impossible to answer, and it's my business to be able to answer them. here's the problem as i see it: i don't even know how many condominiums are available in the market. i choose to define a condominium as a housing unit you can identify this year and buy this year. i mean close on it and move in. if a unit is rented until 2010, is it an apartment or a condominium? what is that exactly?

take landmark on the lake. it was a failed apartment-to-condo conversion. a third party purchased ~100 units at a steep discount, and is able to carry them almost indefinitely as apartments. they are rentable, and they are renting. they are also purchasable. so what are they? if they don't have to be absorbed as condos, are they fairly included in a market inventory number? are they apartments? is every single one different?

consider next park lafayette. that deal is an absolute mess right now. construction has stopped. there's apparently no more construction funds available. there are no residents. what are those units? you probably can't (and it seems one almost certainly shouldn't) buy and close and move into one this year. there has been talk that someone bought a chunk of units to rent. they hired a leasing person. but i don't understand when someone could even move in. so are they apartments or condos?

finally, consider the apartment market. for many years, the apartment market has been well-defined. mandel developed the overwhelming majority of new market-rate construction apartments downtown. new land also entered those waters. today, mandel group is developing the north end and lighthouse is developing bridgeview. both of those deals rely on new market tax credits, and the north end received a substantial tif. the market still doesn't seem to support new construction apartments without some creative financial engineering.

i think both of the new deals will do well. but i think we can no longer think of the apartment and condominium markets separately. we have to consider the impact of what i call the condartment. these are units owned as condominiums, but they walk, fly and quack like an apartment. some in the business would call them the "shadow apartment market". many are rented by individual condo owners. some, like landmark, are rented en masse by a larger entity. but they sure seem to me to be more like apartments than condos.

so, when people ask how many years of oversupply we have, i struggle to find empirical evidence to support a strong answer. i think the apartment deals under construction and even several of those proposed will do well. but i also think that they have competition that fights dirty. condominiums are typically built differently than apartments. by that, i do mean nicer. if those nicer ones are rented in the meat of the competitive apartment market, it could be like coming to a knife fight with a gun. some of the others like river renaissance and park lafayette sit unfinished. those may ultimately be finished more like apartments. that might be a fairer fight.

i know this: it's harder than ever to figure out what condominium is worth buying. some, like the breakwater, are finding a measure of market (if not aesthetic) success even in this market. others, like park lafayette, have some meaningful but as yet undefined failure looming. mandel group and the broker may be the only folks to make any money at all at first place. it's hard to say with any level of comfort whether buyers there will realize investment returns. it's hard to even price condominiums, because credit has become so much more complicated. demand is down profoundly. supply is up profoundly. frankly, i think there may be "condominiums" with zero value: they're really just apartments waiting to happen, they just don't know it yet.

so in response to the question about the over-supply of condos, the answer could easily be that they will never be absorbed AS CONDOS. if they become apartments, they are no longer condos. the condartment is a chameleon, but it can't change its colors forever. at some point, it will need to become defined because financial realities prevent it from being both indefinitely. until we know which condos are really apartments, it's nearly impossible to project absorption accurately.

finally, the question about when another deal will ever happen is a good one. i think we can assume there will be condominium transactions every single year. a deal will happen when a developer thinks (and then achieves pre-sales to support it) that s/he can achieve the necessary market-share of those transactions to support their deal. the days of developer hubris and the "if you build it they will come" mentality are gone because the lenders won't play that game. once the scavengers pick the carcasses of failed deals clean, and once our macroeconomic realities improve, we will see deals again. realistically, i think it could be years away.

all of this, by the way, results imho from the fact that we have NEVER been in a state of market equilibrium in milwaukee for condominiums. until 2000, there were almost no condominiums. then, for the next 5 years we felt the seat pressing against our asses as the market accelerated at supernormal speeds. somewhere likely around 2004, we hit the apex of our growth curve and decisions were made to push forward on the deals that failed or are failing now. through 2006 we thought we were enjoying the ride. the speed was fun. transaction pace was exceptional. but, it was only because we lost sight of the horizon. that speed was actually a free fall: our ass was pressed to the seat, but we were nose down. since 2006, we actually have been pressed up against the ceiling as the market accelerated back to earth at those same speeds. now we're finally low enough to the ground that we see impacts, and craters, all around us. but the gun was fired years ago. the round is only hitting the ground now. the condartment is the bullet.

i got a new drug (~5 months ago)

this is the first time i've written in a while. i don't really know why it's taken me so long, other than the fact that there's so much craziness in the world around me. of course, maybe i'm just projecting...

my daughter rowan is unbelievably fun and rewarding. something about your child smiling is beyond therapeutic. it's the perfect amnesiac. in that moment, you instantly forget about things like, say, global recession, economic doom and financial market meltdowns. you forget the ship has hit the iceberg. you can't hear the band playing its final song. all the negative just slips away.

yes, i am saying that my child is the perfect drug. no hangover. not impeded when operating heavy machinery. total bliss when taken regularly. definitely performance enhancing. not regulated. don't need to go to a bad neighborhood to get it. don't need to hide it from loved ones. no intervention necessary. huey lewis got nothing on me.

when i look into her perfect eyes, and they dance with the smile when she sees me, i melt into a puddle of unconditional love and devotion. and it doesn't go away with poopy diapers. now THAT is a powerful drug.