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A condo calamity in the making?

Brighton Development has pulled out of the Portland condo project proposed for this site between South Second Street and Washington Avenue.
Photo by Daniel Corrigan
Brighton Development has pulled out of the Portland condo project proposed for this site between South Second Street and Washington Avenue.


A bike ride down Chicago Avenue in Minneapolis feels like a tour of an abandoned city. Foreclosures have decimated a 10-block area of homes, duplexes and condos. A few blocks away, giant “buy here!” banners wave in the wind and do dances of desperation on downtown condo facades.

Minneapolis condo owners, in particular, are getting pummeled as the subprime mortgage saga unfolds, prices continue to fall and the glut grows.

Average condo prices for the Twin Cities area fell more than 5 percent to $199,845 for the year ending in November, according to the Minneapolis Area Association of Realtors, while single-family home prices dropped 1.6 percent to $273,515.

But there’s an irony in the decline in condo prices and the rise in the number of units on the market: People who want to buy them are finding it increasingly difficult to get a loan.

The reason is that lenders are much warier of so-called mixed-use dwellings — buildings that house residential, retail and office units — and buildings that include both owner-occupied and rental units. Even strictly residential buildings with as little as 10 percent in rentals are considered risky to lenders.

All of this is hitting the downtown Minneapolis condo market especially hard because 10 of the 14 major residential developments with active, city-approved permits are mixed-use projects.

Minneapolis now has a four-year stock of condos, or almost five times the current inventory of new and existing single-family homes, according to a recent report by Metrostudy, a housing market-research firm. The 13-county Twin Cities area is suffering from serious condo overdose as well: There are 4,608 brand-new condos on the market and more than 3,000 previously owned units for sale, according to Metrostudy. That adds up to a 30.8-month supply of condos for the entire area.

The new loan gymnastics
Given the current slump, expensive condos will likely wind up empty for a while. Even if you could afford to snatch up one of the thousands of vacant spaces (just 49 of the 1,044 brand-new condos on the market in November were under $150,000), according to the Minneapolis Area Association of Realtors Housing Outlook report [PDF], the new requirements make it such that you’d have to perform various acrobatic acts just to get approved.

Take, for instance, my friend 31-year-old Sam Osterhout, who has a credit score of 780 (in a range of 330 to 830, that’s seriously excellent), a well-paying full-time gig, and was willing to put down around 37 percent of his condo’s value. He simply wanted to move into an uber-modern window-filled condo on Washington Avenue that smells like fresh paint and new shoes.

His loan process, which began in mid-August, became such a hassle that his first mortgage consultant quit, saying he couldn’t find a single lender in town who could guarantee a closing.

So why were banks turning away such a stellar candidate as Osterhout? Because Osterhout was buying into a downtown Minneapolis condo building that is zoned 60 percent commercial and 40 percent residential. Even Osterhout’s wad of cash and payment history couldn’t keep banks from running from him like emus under attack.

Condo sellers aren’t faring much better. Paul Stepnes spent more than $500,000 restoring a building overlooking Lake Calhoun. He turned the duplex into two high-end condos, replete with modern amenities like heated underground garages, hand-carved fireplaces, crown moldings, and granite countertops. The works.

The pristine condos, reduced since they first went on the market by as much as $200,000, have been sitting vacant for more than a year. “We’re going to have to sell them at a loss; we do realize that,” says Stepnes, whose rehab work has appeared in magazines like Midwest Home. “What else can you do? They’re at a great price. It doesn’t make sense.”

As for Osterhout, he eventually snagged a loan through Wells Fargo in early October, but only after he delivered 10-grand in earnest money and endured three different closings that were all met with more questions and lender reluctance.

“Did Wells Fargo open last week?” Osterhout jokes. “If the mortgage companies continue with this caution, buyers like me will opt out of the market — I was two hours from doing so — and we’ll find ourselves with an insurmountable glut of empty properties and no one willing to finance them.”

Sam Osterhout
Photo by Molly Priesmeyer
Sam Osterhout endured three closings that were all met with more questions because he was buying a unit in a mixed-use development.


The ‘warrantability’ factor
The steep decline in the condo market has to do with a whole mess of factors including appraisal rules, condo saturation, developer saturation and something called “warrantability,” the criteria lenders use to determine a condo’s loan-risk factor.

According to Vince Hunt, a senior mortgage consultant at Lakeland Mortgage in St. Paul, it’s especially difficult to secure a condo loan in mixed-use developments.

For lenders, these condo buildings must pass “warrantability.” Ronny Loew, a mortgage banker and equity strategist at First Horizon Home Loans in Edina, says if a condo building is warrantable, it has passed certain thresholds that lower the loan risk, like having more owner-occupied units than renter-occupied.

Buildings with even as little as 10 percent in rentals are considered risky. Yet in an effort to not eat dirt, many developers are turning those could-be condos into rentals. The result? Further exacerbation of the condo glut.

It’s worse for condo owners trying to sell: “A building that has more than 15 to 20 percent commercial-use is also higher-risk because of the number of businesses that fail,” Loew says. Put another way, you’re considered more of a loan risk if you have what “could” amount to lousy neighbors.

Investors and other problem neighbors
Yet another neighbor issue is compounding the condo problem. Unlike with single-family homes, which have a wider reach when it comes to appraisals, condo owners are at the mercy of their next-door neighbors’ home value. If a neighbor is forced into foreclosure or has to sell quickly, it affects the price of every condo in the building. And foreclosures show no sign of abating any time soon. In the third quarter, there were 2,363 foreclosures in Hennepin and Ramsey counties, according to RealtyTrac. That’s a 102 percent increase from the same time last year.

Add investor concentration — where investors still own a large share of the units — to the volatile mix of cut-and-run neighbors, appraisal rules and increasing rentals, and the problem swells. “Investors still have control of so many buildings,” Hunt says. “That makes it much harder for owners to sell.”

So, how many condos “sold” in the Twin Cities currently are investor-owned? That’s the million-dollar question. “There’s no way we can know that,” says Ryan Jones, the Twin Cities director of Metrostudy. “That’s a national question. Everyone wants to know that.”

Developers pulling out
In 1998, the Minneapolis riverfront’s affinity for condos spilled into all downtown neighborhoods. It started with renovations in the Historic Milling District, led by the North Star Lofts on Portland Avenue and Second Street and expanding to the Stone Arch Lofts and Washburn Lofts, all projects from Brighton Development.

Fast-forward to nearly a decade later, and Brighton Development has pulled out of two major downtown condo projects: Washington Live-Work and the Portland. The condos at the highly touted mixed-use Two Twenty Two, which will house the downtown Minneapolis Whole Foods at the former Jaguar dealership on Washington, are all but dead.

The Bridges in St. Paul is still a dream on paper. Mozaic, the major Uptown mixed-use building with condos starting at $250,000, has yet to break ground in Minneapolis. And the Nicollet on the Mall, another mixed-use project, which was supposed to become the city’s largest residential trophy, is dying on the vine.

According to Matt Mullins at Maxfield Research, a Twin Cities real-estate research company, Mozaic has sold only 71 units, less than 50 percent of the proposed spaces. Unlike the condo heyday of two years ago, when developers were granted construction loans with only 35 percent of the units in purchase agreements, lenders today require as much as 65 percent pre-sold.

City sticking with mixed-use plans
So what will become of all these proposals and empty lots?

“The current situation just means that more projects will come through the [city approval] process again,” says Barbara Sporlein, director of planning for Minneapolis. “They may have multiple land-use applications, or a variance or two. They will have to then apply all over again if that’s the case.”

Even so, the current City Plans that guide urban development call for a number of mixed-use options. The yet-to-be-approved Uptown Plan, for example, has Mozaic at its center, a fancy and modern beacon of a bustling community of the future.

“We are already hearing that [C.A.G. Development, Mozaic developers] are probably coming back with revisions,” Sporlein says. “They have to come back if they have any changes in uses, size and site plans.”

One thing developers aren’t required to have approved is whether land use is for condos or rentals. “We do not regulate tenure,” Sporlein says. This isn’t exactly good news for current condo dwellers.

Still, despite the current four-year stock and a building history in the 1980s paved with developer bankruptcies and condo defaults, not everyone is convinced there is a looming crisis that needs to swiftly be averted.

“We’re concerned about it, too” Sporlein says. “Clearly. We keep an eye on stalled projects that still have room for approval. But these are cycles developers are used to.”

Sporlein says the Minneapolis planning commission has no intention of altering its plans for mixed-use developments throughout the city. “We don’t change plans every time there’s a swing in the market,” she says. “Our policies encouraging mixed-use development along transit corridors are still standing and still strong.”

Meanwhile, all around the Twin Cities, developers are holding empty plots of land where all that stands are signs promising an upscale, urban life with high-priced trimmings.

Experts predict the current glut will reel us into the 1980s condo crisis all over again, when the excess left behind a string of unsold condos and loan defaults that caused downtown home prices to sink deep into the Mississippi.

But so far there is one glaring difference between the two decades of condo-a-plenty: Few of the condo leftovers this time around could be refashioned as affordable rentals. According to the Realtors Association, nearly 70 percent of the newly built condos in Minneapolis are priced at $250,000 and above.

Molly Priesmeyer writes about real estate, veterans and arts for MinnPost. She can be reached at mpriesmeyer [at] minnpost [dot] com.

Comments (16)

  1. Submitted by Matt Loskota on 12/07/2007 - 10:52 am.

    Molly, thanks for the opportunity to clarify, and apologies for a few typos. Chris, thank you for your comments as well.

    In additional to information directly from developers and sales agents, I obtained figures from the RMLS (Regional Multiple Listing Service of Minnesota, Inc.). The search criteria used: Area 302, off market date 1/1/07 or after, status of pending or closed or comp sold, construction status as previously owned.

    “According to MLS statistics Jan – Nov 2007…”

    Buildings considered under construction are:

    The Herschel in the North Loop and The Whitney in the Mill District have closed & occupied homes, with others waiting to be finished as they sell.

    Zenith on 2nd Street in the Mill District – is over half sold, is enjoying good activity and is scheduled for completion in late 2008.

    Phoenix on the River is over half sold and will begin delivering homes in mid 2008.

    730 Lofts in the North Loop near the new ballpark was among the top-sellers in 2007 and will close its first homes in January.

    Harvester Lofts in the North Loop on Washington at 6th will deliver its first homes next week.

    The Ivy near the city center has delivered and is nearly sold out.

    “Can you show me that 4,000 of the 4,700 ‘new homes’ are sold?”
    Yes. After first looking at a list of all the condo buildings downtown, I then determined which were new construction/new conversions/etc., added the number of homes in each, and then added up the sales in each. I did not include properties that have been removed from the market or never were for sale. It’s time consuming and difficult to keep up with current numbers, as not all developers and agents put everything on the MLS – we do the best we can to have accurate information. I’d be happy to join you for a cup of coffee to examine the data.

    It’s frustrating to continually read about the down side of the current market. In anticipation of the opportunity to share some positive information with you in person, I will apologize for the tone of my comment – and will join you in standing by the facts and the message of the comment. The perspective of those who have had a good experience is overlooked too often.

    For perspective, I searched the MLS this morning using the criteria: Area 302, off market date Jan 1st through December 31st of each year, status of pending or closed or comp sold.
    2000 = 231 sold homes
    2001 = 324 sold homes
    2002 = 368 sold homes
    2003 = 430 sold homes
    2004 = 864 sold homes
    2005 = 1363 sold homes
    2006 = 831 sold homes
    YTD 2007 = 738 sold homes

    One last source for perspective – The PMI Group has recapped the three worst housing price declines in its Fall 2007 Economic Real Estate Trends report:

    Chris, I appreciate your situation and can assure you that I am not intentionally telling untruths, I indeed live here on the same planet with you, and don’t think I’m mistaken.

    Were my comments self serving? Certainly it’s in my interest to try to share the other side of the story, and made no effort to hide from it. When the mass media and the bloggers publish headlines meant to sell ads, it’s important to remind readers that the sky isn’t falling, and there are hundreds of new homeowners in Downtown Minneapolis.

    With your permission, I’d like to reprint your comments in their entirety and reply on my blog, You are not alone as the market weathers the current correction. If you choose not to continue the conversation, I wish you well.

  2. Submitted by Matty Lang on 12/04/2007 - 11:37 am.

    I think a part of the problem here is the lack of price diversity in the market summed up in the last sentence of the story. The other major part (in my opinion and in my experience) is out dated evaluation tools employed by lenders. The city’s policies of encouraging mixed-use development along transit corridors is on the right course as transportation costs will continue go up in the future. The problem with the lenders is that they are not including the transportation savings of living in a mixed-use development where a private automobile is not needed in their due diligence in making loans.

    Having the condo market full of upper end units obviously limits the numbers of potential buyers in the market. One way to bring more buyers into the market is to decouple auto parking from the condo like Portland, OR has done. Structured automobile parking in an urban environment can cost up to $40,000 per stall. Giving potential buyers the chance to purchase the unit without the parking can help increase affordability. I own a condo in a mixed-use development and I tried to buy it without the parking as I don’t own an automobile. City ordinances prevented the developer from selling me the unit without the parking.

    I can’t comprehend how lenders could evaluate mixed-used being risky in any long term economic picture. I can see it short term, but in the long term the single family home in the exurbs which requires its owner to drive a personal automobile back and forth for all of its daily needs is the obvious loan default risk. The mixed-use dweller has far greater control over their transportation expenditures, especially if the development is truly mixed-use and all needs can be satisfied on foot, by bicycle or on transit.

  3. Submitted by James Nordgaard on 12/04/2007 - 08:51 pm.

    It was an interesting article. But I’m still unclear on why the banks are afraid of mixed use properties. That is, why do banks have (presumably) no problem giving a mortgage to a condo in a building with just condos, but won’t for a condo in a building with rental units, or office space or retail? Wouldn’t rental units in the area potentially drive down prices as much as rentals in the building? And why would businesses in the building make a difference?

  4. Submitted by Matt Loskota on 12/05/2007 - 01:17 pm.

    An unfortunate story – both in accuracy and tone. As sales manager of the Edina Realty office in Downtown Minneapolis I’d like to offer some clarity of the facts.
    Would you find it interesting to know?:

    According to MLS statistics Jan – Nov 2007, in Downtown Minneapolis, the average price for previously owned homes (condos) has increased over the same period a year ago? The increase is just under 2%, but an increase nonetheless. The number of homes sold over the same period is just 3 less than the previous year at around 350. Where’s the condo calamity?

    Again, for previously owned homes, there were 336 listings for sale on Dec 3. Over the year, the market has absorbed an average of 31 units per month – leaving us with under 11 months of inventory. A seller’s market certainly – but where’s the calamity?

    When it comes to new construction in Downtown Minneapolis, would you find it interesting to know?:

    Over the past few years, over 50 buildings have been finished – including newly-built, conversions from rental apartments, and renovated warehouses.

    If we include those few buildings that are currently under construction, there are over 4,700 new homes in the Downtown area. Over 4,000 are sold.

    When it comes to developers pulling out, the example of Brighton and The Portland is used. In that neighborhood, the Mill District, there are 12 newly-finished buildings in the past few years, including over 400 apartments converted to condos in Riverwest. Those 12 buildings are over 80% sold. If you take out The Bridgewater, the neighborhood is over 90% sold. And the Bridgwater has been the fastest-selling project Downtown, with over 100 new buyers this year alone.

    When it comes to developers pulling out – let’s look at other neighborhoods:

    North Loop: 19 new condo & loft buildings – over 1,500 new homes with less than 175 for sale. The neighborhood is 89% sold, with 730 Lofts, The Herschel and The Harvester Lofts selling more units every month. The only project cancelled has been Two Twenty Two – was a smart business decision made some time ago – old news, thanks.

    East Bank: over 550 newly finished homes, over 80% sold in 8 new buildings. The numbers here include The Phoenix, which is one of those luxury buildings. It is under construction, adding a story every week, and has sold extremely well this year. Nobody’s pulled out. In fact, one developer is optimistic enough to plan a new multi-building development called East Bank Mills.

    Elliot Park: 6 finished developments with nearly 800 units, 90% sold. The 1010 Park Avenue project never started a sales effort and may come back in yet another form.

    Loring Park: 4 finished developments – less than 10 homes remain unsold. One project, the Eitel Hospital site (which never started a sales effort), has been changed from 490 condos to rental apartments.

    If the goal is to paint a bloody picture and have a calamity to have something to write about in the future, bravo! Reporter bites dog again.

    As someone who’s livelihood depends on the condo market, I have to ask, where’s the calamity? And in it’s absence, why use such inflammatory language?

    Regarding prices – Downtown is more expensive than other areas. So is Edina. So are lots on Lake Minnetonka. Manhattan real estate regularly sells for over $1,000 per square foot. Here in Downtown Minneapolis, we remain affordably under $300 per foot. Over 50% of all homes sold this year sold for less than $300,000; over 70% were under 400,000.

    Regarding the gymnastics involved in securing financing. I’m truly sorry for your friend, and I’m sure there are other’s who have shared his plight. Makes me wonder if the 700 homes that have closed Downtown in 2007 were all cash deals.

    The loan officer in our office has been closing loans all year in buildings all over the city. My suggestion to those finding it difficult: find a capable loan officer – one who understands condo financing and has a track record of closing loans. The good ones are priced competitively, but realistically.

    That great rate you get from your “buddy who’s a loan officer” or the random loan guy down the street becomes quickly irrelevant when the loan doesn’t close.

    Our market is doing just fine. Where’s the calamity?

    Further reviews and numbers from the 2007 Downtown real estate market are at

  5. Submitted by Molly Priesmeyer on 12/05/2007 - 03:44 pm.


    Can you provide the source for these figures you list below, as well as the names of the “few buildings that are currently under construction”?

    Can you show me that 4,000 of the 4,700 “new homes” are sold?

    “If we include those few buildings that are currently under construction, there are over 4,700 new homes in the Downtown area. Over 4,000 are sold.”

  6. Submitted by Chris Douglas on 12/05/2007 - 07:59 pm.

    Matt, I am sorry to have to be this blunt, but you are either: A. seriously mistaken; B. intentionally telling untruths; or C. live on another planet.

    I have bought and sold and built five condos in the Twin Cities since the early 1990’s and I can tell you that it has never been worse. There IS a calamity, in fact, it is as near a market collapse as we could come. Your numbers are off- of the listings downtown, do you factor in units taken off the market unsold?

    I have had a 2 bedroom, 2 bath condo listed in the Village of St Anthony Falls lofts for sale since June. We have lowered the price several times, last time a couple of months ago to $18,000 BELOW what I bought it for new. We offered flat screen TVs, it is in perfect condition with many upgrades including thousands in designer paint and window coverings and not a single offer in six months. Our Realtor has done everything possible except wear a clown suit and offer face painting and donkey rides to people walking by. We are forced to move back from CA to reoccupy it because of the market. And it isn’t the unit, there is too much inventory and too few buyers who can get jumbo loans.

    In case you think it an isolated experience, we put down $34,000 on Mozaic 16 months ago now. Not a shovel of dirt has been moved and as the story and the developer have confirmed, still less than 50% of units of sold. All of us buyers have been left hanging in the wind for almost a year and a half with virtually 0% chance of it being built now. In fact if it is built, I’ll wash your car for you every week for a year if I am wrong. And there are many, many developments in the same situation. All anyone needs to do is look at the condo map in the Downtown Journal to see the number of developments half sold or less. Yes, some have sold better, but they are very few.

    A more cynical person might wonder if your positive view and thrashing of Molly’s excellent reporting is more than a little self-serving, since Edina Realty acts as the selling agent for many of the new developments going up and reaps fat commissions? Funny how the Association of Realtors reps always paint such a positive spin on the current situation, when one can see for themselves by reading city and other objective statistics that the housing market, especially condos, is in the toilet.

  7. Submitted by Molly Priesmeyer on 12/06/2007 - 12:07 pm.


    Thanks for your story. It is true that Matt’s Edina Realty office represents the “well-selling” condos he cited in his comments. That is why I asked him to please provide sources for his claims, as the numbers obviously are different from the ones provided by Maxfield Research (an independent firm), MAAR, and others. Matt has a serious stake in the downtown market. The new downtown buildings that office represents are listed here:
    And I still stand by all of the numbers and facts in the story.

    As for others, do you have similar stories to Chris’? Did you find selling or buying a condo to be difficult? Or was it a breeze?

    I’d love to hear your stories, too. And, of course, Realtors also are welcome to weigh in. But please provide verifiable proof of your claims. Thanks!

  8. Submitted by James Nordgaard on 12/06/2007 - 02:57 pm.


    I don’t know much about the condo market. I’m still interested to know just why the banks consider condos in mixed use developments as more risky than non-mixed use ones.


  9. Submitted by Molly Priesmeyer on 12/06/2007 - 05:22 pm.


    Thanks for your question. Sorry if that wasn’t clear.

    For lenders, “warrantability” depends on a number of factors. For example, a property is considered a riskier investment if developers still have control of the building. Until at least 75% of the building is sold, control rests in the hands of developers, not the condo association. This means that, in an effort to fill the empty holes and collect some cash, developers can do anything they wish with the building–like turn unsold spaces into rental units, or sell spaces to retailers that might fail.

    If any of the units are turned into rentals, or the retailers fail and bail, it drives down the costs of every unit. That makes lenders leery, and buyers less likely to receive a loan, or at least one that’s fair.

    Because condos are sitting vacant, and many of the buildings are investor-controlled, this makes their warrantability unlikely and adds to the glut.

    Most lender rules state that commercial/retail units cannot exceed more than 20 percent of a building’s space. The “marketability” of the retail spaces/commercial spaces impacts prices and saleability of the condo units. And no one can easily predict the success of a business, or even it’s marketability. For these reasons, lenders view mixed-use units as riskier investments, which is why they are subject to stricter guidelines.

  10. Submitted by Thomas Swift on 12/07/2007 - 12:12 pm.

    The self serving evaluation of Matt aside (not that I blame him for looking after his own interests), I think that this can be reasonably said to be a near complete rejection of the City of Minneapolis’ delusional “sustainable urban core” plans.

    It is one thing to spout socialist platitudes about gathering people of differing socio-economic status into shared living space, but quite another to have to face the economic realities of the all but assured failure of such a plan.

    Too, mortgage bankers could not help but take notice of the city’s penchant for supporting the business plans of under-capitalized “mom and pop” businesses at the expense of successful franchises.

    Conversely, it was my observation that it was the combination of a small but vocal group of capitalist hating activists and a sympathetic city council that sank the “Bridges” project in St. Paul.

    Jerry Truein’s vision was just the sort of environment that today’s affluent empty nesters are looking for.

    Of course that didn’t sit well with people who believe that such a development fails unless it has a requisite number of section 8 tenants in residence…

    Excellent story Molly.

  11. Submitted by James Nordgaard on 12/08/2007 - 10:54 am.

    Molly, thanks for the explanation.

  12. Submitted by Chris Douglas on 12/10/2007 - 01:00 pm.

    Matt, please feel free to publish our conversation here on your blog, provided you publish my reply.

    I disagree with your assessment and my view is that you are choosing your examples to portray what you want to. As most people are aware, data can be used to tell any story that ones wants to. I have some interesting statistics and information for you, and not my own, but gleaned from the Minneapolis Area Association of Realtors’ website, which I assume you are a member of. The data below is from the December 2007 Housing Supply Outlook report and can be found here:

    (12/07 condo data only)

    Inventory of Homes for Sale, Previously Owned +14.75% over 2006
    Months Supply of Inventory, Previously Owned 10.8 months, +32.5% over 2006
    Home Sales Last 12 Months, Previously Owned -13.4%
    Homes Sales Last 12 Months, New -29.4%

    A further historical comparison shows an even worse picture:

    Inventory for Sale (new and existing) 12/04 1,940, 12/07 3,082
    Sales Previous 12 Months (new and existing) 12/04 4,627, 12/07 3,529
    Months Supply of Inventory (new and existing) 12/04 5.0. 12/07 10.5

    You provided six examples of buildings that are well sold to make a case, but neglected to show the entire picture. How many developments have stalled or been canceled? How many are in limbo and how many are sitting with a few sales or are only half-sold? Many. Rather than regurgitate what people can see for themselves, I’ll simply point them to the Downtown Journal’s Condo Watch page. Take a look at the successes…. and the failures.

    And if the market is so good and there is no meltdown, can you explain to me why the Nicollet (where Edina Realty is lead sales broker) only has 59 units sold and 50 units reserved out of 350+ after more than two years of sales?

    I know you have a job to do Matt, and that is to encourage people to buy and sell, but you do a disservice to the hard working Realtors out there as well as ordinary home owners and buyers when you try to minimize and gloss over serious market problems such as the Twin Cities are experiencing. I find it somewhat insulting as an educated, informed person who is able to analyze and synthesize data for myself, to be asked “what calamity?”.

    We’ll have to agree to disagree, but I believe the facts are behind Molly’s reporting and my statements. Do you mind if I also post your comments on my blog?


  13. Submitted by Matt Loskota on 12/12/2007 - 07:56 pm.

    Chris, thank you. Your comments are posted at

    Regarding the numbers provided from the Minneapolis Area Association of Realtors: printed on the report is, “…for residential properties in the Twin Cities 13-County region.” The “further historical comparison” looks to be the same.

    My previous remarks and information, on the other hand, have been limited to Downtown Minneapolis.

    A summation of the 45 developments listed on the Downtown Journal’s Condo Watch:
    Cancelled = 1,
    Foreclosure = 1 (never started sales),
    Sexton II and The Wave belie short explanations & are covered well at,
    Reconfiguring plans = 2.

    Proposed = 9 (haven’t started sales, haven’t started construction),
    In pre-sales = 3.

    Finished = 21,
    Under construction = 6.
    Of those 27:
    Foreclosure = 1,
    Individual developments over 50% sold = 22,
    All 27 developments combined = over 75% sold
    (according to the published numbers).

    There are over 25 additional new developments in and around Downtown which are no longer listed on the Condo Watch because they are long-finished and sold out or nearly sold out. I’ll soon post the list.

  14. Submitted by Brad Gilmore on 12/14/2007 - 01:26 pm.

    Congratulations to Molly Priesmeyer for writing the most sensational, inaccurate headline. Very effective. And Congratulations to Daniel Corrigan for taking the most sensational, inaccurate photograph. Take a picture in any other direction and you’ll see what downtown really looks like. By the way, Chicago Ave is two blocks away. And congratulations again to Molly Priesmeyer for writing a long rambling article about a subject she seems to know very little about. I challenge you, Ms. Priesmeyer, to write a new article about the truth. More specifically, the truth about the positive aspects of living downtown. I guarantee you this new article will be far more sensational that nonsense you think is the right subject to sensationalize. If you’re not up for the challenge, I will be happy to write it for you.

  15. Submitted by Chris Douglas on 12/19/2007 - 05:46 pm.

    I would like to first comment to Brad that I don’t think Molly stated there were not positives in living downtown, the story, which is accurate, is that due to the meltdown of financial markets, loans, especially jumbos are hard to get even for well qualified borrowers and the inventory is at a peak with developers still churning out more. I live downtown and love it and love my place. It’s beautiful and a great location, however I can’t sell it and many neighbors in our development are in the same situation.

    For Matt, OK, if you would like to ignore the greater Twin Cities area meltdown and look at only downtown stats, then great.They are not rosy either. Again, you pick a few examples to try to state there is no problem. I disagree with you completely and the facts support me I believe.

    The 100 Report, taken from the Minneapolis Area Association of Realtors site:

    Downtown Minneapolis data only:

    New listings are down and sales for November were up. However–

    YTD sales in downtown Minneapolis are down 41.5% from 2006

    % of list price is 96.7% compared to 2006

    Avg. days on market until sale is up 43.1% from 2006

    Condo/townhouse inventory is up 36% over 2006

    You also didn’t answer the question asking why Edina Realty hasn’t sold more units at The Nicollet?

  16. Submitted by S Olson on 01/05/2008 - 09:57 am.


    Interesting article, but you write it as if the lenders were simply setting up a ridiculous flaming hoop of “warrantability” for all the condo-buying dogs to leap through before getting their bone (mortgage, as it were).

    I approach this question with the perspective of someone who’s owned rental units for the last twenty years. In the past few years there’s been a great influx of new investor-owners of rental units in my market area, and I’ve been amazed and amused by how ignorant these amateur owners are about the practical and economic reality of the residential rental business.

    The logic behind not wanting to own a condo that’s primarily owned by renting landlords is that it’s subject to going downhill quite fast. If it does, and if the value of the condo underlying the mortgage goes down, then the bank is left owning a valueless scrap of paper rather than a valuable collateral asset that can be sold.

    In the case of an apartment building, that’s owned by a single property owner who deals with a single mortgage bank, the banker has pretty clear recourse if the building starts going downhilll, and the owner defaults on his payments. What’s the bank’s recourse if a condo mortgage defaults? The bank gets hold of a partial share of an asset.

    What happens if the various condo owners get in financial trouble and quit making their association fee payments, which includes shared maintenance and repair and common heat and utility. What happens to an individual condo owner if the condo developer is broke, and the other individual-condo owners aren’t kicking in their share? Does he heat the whole building himself? If the roof starts leaking, then what?

    A owner-occupant has a much stronger impetus to take care of his home, whether it’s a detached house or a condo/co-op. An investor who’s losing money on the deal is far more likely to simply cut his losses.

    I think these considerations help explain why banks in New York, for example, are much more enthusiastic about lending to buy a unit in a co-op building, as opposed to a condo. The main difference between the two is that co-ops are much more strongly controlled by the owners, and they almost all require that the owner’s of individual units be owner-occupants.

    As a final thing, I’d point out that condos in the Mpls market may be priced so high that they’re simply economically unviable. Using a rough rule of thumb that mortgage costs of a rental unit will be 1% per month, a $200,000 condo will have a mortgage cost of $2,000 per month, $24,000 per year. Add on (I’m guessing) annual costs of $2,000 for taxes, $1,500 for insurance, and $8,000 annual assessments to the condo association for dues and maintenance. This results in an annual cost of about $35,000.
    On the income side, start by assuming that your unit will be vacant 10% of the time; I use the simple rule of figuring on ten months of income per year. This also covers my management, marketing, legal, and business costs.

    This works out to mean that this hypothetical rental unit will have to rent for $3,500 per month for the owner to just break even. To make a 10% return on investment of a 25% equity share in the original purchase cost you would have to add:
    200,000 X .25 = 50,000
    50,000 X .10 = 5,000
    5,000/10 (months of rental)=500 month return on investment.

    Which kicks the rent up to $4,000/month. Is there a strong market for 2-3 bedroom condos in downtown Mpls at that rate? Dunno. I haven’t rented in Mpls since 1974, when I went to the U of M, and paid $125 a month for half a duplex on 6th Street off Cedar.

    The problem is that an amateur gets himself into this business with a 100% mortgage at a teaser owner-occupant rate, totally mis-estimates his costs, and finally just tells himself that the real estate market is so hot that he can’t go wrong no matter what!

    Good luck to them. I wouldn’t dream of owning stock in a bank that would lend money to this kind of idiocy.
    Stephen Olson

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