Boston Condo Developers Struggle Amidst Rising Interest Rates and Sluggish Sales

Boston Condo Developers Navigate High-Interest-Rate Climate Amid Sales Downturn

The real estate market in Boston has experienced a significant shift in recent years, with a slowdown in home sales presenting a challenge for condo developers. Over the past few years, Boston has seen a boom in high-end condo construction, resulting in the delivery of hundreds of multimillion-dollar units. However, the rise in interest rates has impacted initial sales targets, prompting developers to secure loans to bolster their finances and explore new sales tactics.

The Impact of Rising Interest Rates on Condo Sales

The surge in interest rates has not only affected the sales of new condos but has also reduced the inventory of existing condo owners looking to sell. This, in turn, has slowed down new construction. As a result, new condo buildings are likely to face less competition in the coming years. According to Sue Hawkes, Managing Director of The Collaborative Cos., absorption for new condo buildings has fallen nearly 50% in the last year due to high interest rates.

Developers Turn to Loans Amid Sales Slump

The persistent high-interest-rate environment has led some developers to seek new financing to offset their previous debt, as sales have not met their initial projections. For instance, Cronin Development recently secured a $240M loan for its 114-unit St. Regis Residences, Boston development in the Seaport from Cottonwood Group. The condo building, which began selling in 2019, is 55% sold.

Innovative Sales Strategies to Spur Activity

In an effort to stimulate activity, developers are employing innovative sales strategies. Cronin Development, for example, put 10 units up for a "limited inventory bid sale" in October, with the minimum bid set 20% below recent comparable sales. All 10 units were sold to cash buyers, although the prices were not disclosed.

The Role of Inventory Loans in Extending the Runway

Inventory loans are proving to be a lifeline for developers, offering more relaxed terms and providing a buffer that developers can use as they wait for more units to sell. These loans allow developers to pay off their initial expensive financing and receive lower interest, more patience, or more favorable terms.

As Boston condo developers navigate the high-interest-rate climate, they are finding ways to extend their runway and ride out the sales slump. By leveraging loans and innovative sales strategies, they are positioning themselves to weather the current market conditions and prepare for a potential upswing in the future.