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   ARTICLE   |   From Scotsman Guide Commercial Edition   |   June 2005

High-rise-condo phenomenon fuels financing opportunities

As the high-rise-condominium phenomenon spreads like wildfire across the country, financing opportunities for lenders also are expanding rapidly. The potential for loan origination has dramatically increased through forward commitments to finance entire projects, multiple units in a project or just individual units.

High-rise condos are no longer limited to traditional downtown areas such as New York City and Chicago. Spearheaded by savvy developers, hundreds of towers containing thousands of units are popping up across the nation.

In more suburban markets such as California’s Orange County, the lure of urban living is a recent phenomenon. Limited inventory and diminishing land have resulted in fewer new-home choices in suburban communities. In addition, an aging population of empty-nesters is seeking a simpler, lock-and-leave lifestyle.

The market demand for housing in urban areas is even growing substantially among young singles and childless, professional couples. Builder magazine reports that homebuyers from foreign countries are also interested in high-rise condos. These buyers sometimes are more in tune culturally with high-rise living and take advantage of the weak U.S. dollar. Especially in revitalized urban areas, city living has become more attractive to a wide spectrum of people.

Urban living has its positive attributes. Higher-density housing in urban areas offers people the attractive advantage of working, shopping and playing where they live. Urban locations offer more lifestyle variety than suburban life in terms of stores, restaurants, libraries, theatres and entertainment — with little or no driving.

As a result, Orange County’s 40 years of suburban living is evolving into an urban-development market. There, builders are looking back to cities for new opportunities for higher-density housing. In fact, the Orange County cities of Anaheim and Santa Ana have put out the welcome mat to reputable developers willing to build high-rises in those communities. Recently, Santa Ana even insisted that a developer include a high-rise in its mixed-use project, which the city had just approved.

Developers hungry for high-rise-condo projects also are thinking outside the normal channels. For instance, in downtown Los Angeles, a long-vacant office tower is being converted into luxury condos. The developer soon plans to launch sales at 1100 Wilshire Blvd. with more than 40 floor plans, including luxury penthouses on the top floors. The 37-story office tower was completed in 1986 with the expectation that its dramatic design and Wilshire address would attract large corporate tenants seeking a landmark building. Unfortunately, the market thought otherwise, and the granite-and-glass structure sat vacant for nearly 20 years, until now.

In addition to demographics and limited-land availability, high-rise condominiums are popular because of their many amenities, experts say. This has created a growing demand for the high-rise-luxury, “vertical” lifestyle. Many urban residents have high expectations about where they live and in what they live. They want luxury interiors and state-of-the-art amenities more common in fourand five-star hotels.

“Younger or older, they consider themselves to be trendy, and they want to live in a place that is as trendy as they are,” says Dennis Serraglio, a marketing director for a Southern California developer.

Comparable in many ways to amenities in five-star hotels, options in high-rise condominiums typically include floor-to-ceiling windows with panoramic views, hot tubs, exercise rooms, barbecue areas, game rooms and business centers, as well as extensive gardens and trees, a security lock and a “go” environment. Some even offer valet parking, 24-hour concierge, around-the-clock building surveillance, a resort-style auto plaza and an elegant lobby.

As high-rise living becomes more popular in Southern California and grows “out of the box,” it also attracts buyers who do not fit the mold. They include retired empty-nesters; young childless, wealthy couples; successful singles; and retired baby boomers with great wealth. Such affluent individuals prefer to swap a yard for 24-hour concierge services, security and simplicity. Most definitely, these buyers are a highly qualified pool of borrowers with equity and borrowing power, which drive home the need for this purchase-money financing opportunity.

Today, lenders who partner with high-rise-condo developers will ensure continuous future originations from this rapidly growing housing segment. The high-rise-condo market is expected to continue to fuel financing opportunities for lenders at high levels for years. Whether it is because of demographics or a desire for luxury living, high-rise condos seem to be taking the residential market by storm.


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