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Capitol Hill poised for a condo comeback amid rising prices

Amid all the residential development on Capitol Hill in recent years, practically none of it has been geared towards condos. That could be turning around.

The first condo building to be built on First Hill since 1982 is holding its grand opening this month. Soaring 24 stories high, Luma brings 168 high-end condos to the neighborhood. Meanwhile, just across I-5 from Capitol Hill at Howell and Minor, the massive 374 unit Nexus condo building is already 80% reserved and developers have not even broke ground. Luma Condominiums is a CHS advertiser.

Another sign condos may be making a comeback is a slight uptick in condo conversions. Conversions of rental apartments to condos practically came to a halt around Capitol Hill in 2008, but earlier this year a small building near Prospect and Broadway E converted five units to condos, according to city data.

Seattle has had nine total units converted to condos in 2016, the most since 2009, also the year the last condo conversion happened on Capitol Hill. In 2006, just before the housing market went bust, there were 2,338 condo conversions citywide.

Underlying those indicators are condo prices, which are quickly on the rise on around the region. Condo prices in King County jumped 12% from last year to $335,000, according to September data from the Northwest Multiple Listing ServiceJohn Deely, a managing broker at Coldwell Banker Bain, told NWMLS that entry-level housing in Seattle is the most in demand, fueled by the steady stream of young tech workers.

As an example, he said a recent open house for a condo listing in the South Lake Union area drew more than 100 visitors in a single day. Tech workers continue to dominate the primary buyer demographic, he said, adding that a significant number of their parents are relocating here to purchase properties close to their children.

Condo production is impacted by outside market fluctuations just as much as any other commodity. The 2008 housing market crash appears to have had a stifling effect on condo conversions as well. In 2007 1,626 Seattle apartments were converted into condos in 79 different buildings. In 2009 only 19 units were converted in two buildings.

Apartments are still by far the product of choice for developers. In July, Seattle topped the list of major U.S. cities with the fastest rising rents. Average rent in Seattle skyrocketed 9.7% over the past year, beating out San Francisco.

One interesting wrinkle in the previous condo slowdown are covenants on many new buildings that prevent condo conversions for five years. The covenants, well-known to developers but perhaps less known to those outside real estate, mean developers can avoid a costly additional layer of inspections that goes along with new condo construction. With some of Capitol Hill’s most intense construction occurring within that time frame, it is possible some of those buildings may convert.

It is an often heard refrain that increased homeownership in a neighborhood is desirable as residents are more likely to be involved in their community and invested in its upkeep. Capitol Hill EcoDistrict recently began pushing back on that narrative with its renter power initiative, which seeks to organize renters around key political issues in the city. The EcoDistrict’s is holding a renter power summit September 24th.

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4 thoughts on “Capitol Hill poised for a condo comeback amid rising prices

  1. I believe the 5 year window is when developer is free from liability due to any construction defects which is the driving factor to make them apartments first. There were many lawsuits back in the 90’s – 2000’s from HOAs suing developers for defects. Therefore, its more attractive to build apartments then convert down the road.

    Now that our housing market is again healthy, I expect some of these newer complexes to convert. There are a lot of people hungry to buy (especially overseas buyers) but with limited inventory its difficult. When these conversions start happening, I expect the rental market will be even more frightening.

    Seattle needs to loosen its restrictions on height again and start building more taller buildings. Seattle can’t build out, might as well start building up.

    • I would think also a lot of overseas buyers that might be (however temporarily) dissuaded by Vancouver’s tax on foreign buyers might look to Seattle. But by the time Seattle sees any significant supply of condos, Vancouver buyers will have figured out the loopholes. At least the first set of loopholes.

    • Foreign buyers in Vancouver are doing that now by placing the homes in the names of friends or relatives who have citizenship in Canada. Or, their pockets are so deep that 15% is inconsequential. I’ve heard there is also lack of oversight.

      Their tax isn’t without controversy and it may be overturned in court. I like the purpose and that taxes collect are of benefit to 1st time buyers, renters and homeless.