Nearly everyday, we speak with clients, sellers, buyers and other folks who are interested in urban real estate about the condominium supply in Arizona and values. The typical conversation usually begins with a question like this, “What happens if that new development (insert the troubled development here) goes bankrupt and the bank/new owner decides to “fire sale” all of the condos?”  Or, often it is more of a statement, “When all of those units come on the market at the same time, at rock-bottom prices, all of our values are going to plummet!”

Now, both of those comments have valid, logical arguments behind them. If that scenario were to take place in one of Arizona’s urban centers, in the short term, it would more than likely have a very negative impact on the surrounding area’s property values. However, this is a worst-case scenario prediction, and there are other, just as likely, scenarios to consider.  We thought we’d share one of those here.

There are a number of new developments currently in bankruptcy, or very close to it, where those bargain hunting developer/investors with cash are looking to scoop up the projects intent on holding and leasing the condos. In this scenario, the new owner assumes that after purchasing the development at a bargain-basement price, the lofts or condominiums may actually make economic sense to rent out for a profit. In addition, the new owner would naturally believe that now is probably not the time to be selling the units. The new owner would lease these new condominium properties for the next 3 to 5 years, after which time, if the condominium real estate market has cycled back to “hot” again, they could re-sell the units for a huge profit. This is just one example of how some of these new and nearly finished developments might be released to the public without having a large negative impact on the surrounding home values.

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