Condo aversion: Craig's Barracks West a cautionary tale

A search of the local multiple listing service (MLS) shows 202 condo sales in the greater Charlottesville area in 2011, a 40 percent increase over the previous year that was noted in November in the market snapshot report released by Nest Realty. While these numbers can't match the soaring figures we saw in 2006, the upward trend seems encouraging, although the backers of the condominium conversion at Barracks West might disagree.

As Hook readers may recall, a spate of condo conversions in 2005 helped contribute to record sales figures the following year. Purchases of converted condos at both Hessian Hills and Carriage Hill were brisk, to say the least, and developer Hunter Craig attempted to replicate the success he enjoyed at Hessian Hills near Barracks Road by undertaking another conversion at the nearby Old Salem apartment complex, which he purchased for $31 million via a firm called Cheetah Investment Company.

Since then, Cheetah has sold only 99 of the 364 units. According to county records, many of those sales were made to other investors, a fact borne out by MLS data, which show a total of five active listings in the Barracks West complex, all investor-owned. 

Over the past three years, Cheetah has moved just 23 units, and resales have been even slower. Since January, 2008, the MLS has recorded only five sales, all bank-owned and none selling for more than $94,900. With one listing clocking in at realtor-rattling 868 days on the market and with resales coming in much lower than original prices, it’s easy to see why the slowdown in the condo market has led to speculation that condo conversions may soon become condo reversions, a situation that has become a reality in other American markets.

Perhaps that’s also why Cheetah recently enlisted the help of a national firm to list and market Barracks West in one big chunk. It's at least the second time Cheetah has tried to unload Barracks West wholesale. Although the firm, the Mid-Atlantic MultiFamily Group of Jones Lang Lasalle, requires that interested parties sign a confidentiality agreement in order to access all the details, managing director Al Cissel did confirm that the asking price for the remaining 265 units lies in the $27-$28 million range.

The marketing materials focus on the strength of Charlottesville’s economy and rental market, but they also suggest that a potential buyer considers interior renovations. It seems that many of the units have not yet been upgraded, perhaps giving credence to the opinion expressed in an earlier Hook article that some conversions are apartments merely spruced up with a fresh coat of paint and new carpet.

Upgrades are well and good for an investment company that intends to use the Barracks West complex as a rental community, but the early buyers seeking to sell their condos are the ones who are really suffering. It’s no secret that lending requirements have grown increasingly restrictive, and this is perhaps more apparent when it comes to condominium financing than any other type.

In order to be eligible for FHA financing, a condo complex has to be FHA approved. Among the criteria: that over 50 percent of units be owner-occupied, a requirement that Barrracks West doesn’t meet. While it’s possible for the FHA to approve certain buildings within a complex, calls to the agents listing the five available units reveal that none of them are approved.

FHA certainly isn’t the only financing option available for condos, but conventional lenders require larger down payments and typically have their own sets of restrictions about the ratio of investor-owned to owner-occupied properties.

Bottom line: it seems likely that the members of Cheetah are poised to lose some money because, unlike Craig's infamous Biscuit Run development, which was bailed out by taxpayers, there's little chance of turning Barracks West into a state park. But the real pain may be felt by the smaller investors, the individuals who bought condos in this project.

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Note: The second photo above originally referenced Pavilions at Pantops as a "condo" community. However, unlike Carriage Hill, Barracks West, or Hessian Hills, Pavilions at Pantops is not a condominium community, as all townhomes are owned fee-simple with the homeowner owning the underlying land. Accordingly, the word has been stricken from the caption. "This is why new home sales at Pavilions at Pantops are brisk," says Charlie Armstrong, one of the developers. "Pavilions does not suffer from 'condo aversion,'" he says, "because it is not a condo."