business

For condo developments, the survival game is in full swing.

While some projects continue to fare well, market forces ranging from tighter mortgage standards to the huge overhang of unsold units are putting developers' plans to an acid test many never expected just a year ago.

In just the last month several proposed projects in Minneapolis have been abandoned, even though some had taken reservations on 30 to 40 percent of their units. More such setbacks are likely to follow.

"It's just much harder in a period of sluggish sales" to keep projects alive, said Tom Melchior, multifamily real estate analyst for LarsonAllen.

Throughout the 13-county metro area, there were 4,608 new units on the market as of the third quarter, and of those 2,699 were not yet under construction, according to a report by MetroStudy. At the current sales pace, that leaves the equivalent of a 30.8-month supply on the market.

In Minneapolis the picture looked worse: 2,193 new units were on the market, 1,284 of them not yet under construction, leaving a nearly four-year supply to work through.

Those numbers also include a high percentage of projects that exist only on paper. If the units in the metro area not yet under construction were canceled, the absorption rate would fall to a much healthier 13 months. Subtract the units in Minneapolis that are being marketed, but not under construction, and the current supply falls to 20 months.

"Clearly, some proportion of those will be put on hold and some will never get built," Melchior said.

Those unbuilt projects are among the most vulnerable right now because they're competing with hundreds of units that are ready for occupancy. But for those that will remain, price, amenities and location are more important than at any time in recent years.

"It's a mixed bag out there," said Ryan Jones of MetroStudy. "You read about the foreclosures and those projects that have stopped, but you don't really hear about some of the others that are doing fairly well."

In the downtown Minneapolis Warehouse District, for example, the 710, 720 and 730 Lofts that are being developed by Schafer Richardson are nearly sold out, primarily to first-time buyers and young professionals who didn't have to sell before buying.

Jim Stanton of Shamrock Development is being hailed as a success story for his ability to attract buyers to the Bridgewater, a 282-unit development overlooking Gold Medal Park. That project has sold 140 units and is selling about 12 units a month despite the fact that just down the street three projects have gone away.

He, too, attributes his success to having price points and a location that appeals to value-conscious, first-time buyers.

He blames the glut of unsold condos on "DITs -- developers in training" who came to the market too late and with too little experience, carrying ill-conceived projects that were only viable at the top.

"If you compare this market to 2001, we're wheeling right along," he said. "But it isn't a 2005 market."

It's not just projects conceived of junior developers that are going to fall to the wayside, however. Even some experienced developers have struggled.

Brighton Development, which almost singlehandedly led the revitalization of the downtown Minneapolis riverfront and Mill District, has pulled the plug on two projects that were not yet under construction. And down the street, David Bernard Builders, part of national home builder Rottlund, gave up on plans to build the Revue.

The shakeout benefits developers like Stanton.