Recently I’ve been approached to list and sell several condos in small associations here in the city. They have all been beautiful units in the historic buildings that were rehabbed during the boom between 2000 and 2006. When I say small associations I mean less than 6 units. In most cases the the building will have a commercial storefront or 2. Sometimes these storefronts have been rehabbed into commercial space and in others they have been converted to a residential condo. The problem is that the secondary mortgage market has deemed most of them “non-warrantable” meaning once a loan is made by a local lender they cannot sell them on the secondary market to a large bank or servicer. This is how most mortgage departments work in your local bank. They’re aim is to make money by turning the loans over quickly and cashing out. The type of loan that is now required on these units is portfolio loan at a local bank or credit union that is not sold on the secondary market. The problem that many buyers run into with portfolio loan is that the down payments required is much higher. An FHA or FNMA loan sold on the secondary market requires only 3.5-10% down whereas a portfolio loan requires 20% in most cases.
The lending requirements of FHA and FNMA have tightened up considerably since 2008 on things like credit score, stated income loans etc. Nothing, however has been hit harder by tightened guidelines than small condo associations. No less than 3 years ago these could be bought with 3% down just like any singe family home. Now the requirements in place have made that impossible, but things will certainly swing back the other way in the future. In the meantime, it has created some great deals for qualified buyers. Because it is more difficult to get a loan on these properties at the moment the demand has gone down. When demand goes down so does price. As a result many of these units will be short sales sold at great discounts.
These types of developments were popularized in Florida and California during the boom and only just began in St. Louis during the end of the boom. The down payment is a non issue in many of these markets because of the amount of wealthy people capable of putting 20% down is greater there. Also, many of them would require jumbo mortgages which need 20% down to fund the loan in all cases, meaning value won’t be affected
Most of these developments in St. Louis are near Downtown in buildings that are 100+ years old. These developments are a great adaptation for large mixed use buildings. The demand for mixed use in a mostly residential neighborhood is relatively small in modern times because mom and pop shops and corner confectionaries have been replaced by big box stores and fast food. A neighborhood can only sustain so many of these corner stores because most residents demands are met elsewhere cheaper. Large multifamily buildings will always have a limited pool of buyers and owners. Converting them into condos increases both density and owner occupancy in turn strengthening the block and neighborhood. The owners in the association work together rather than contracting management out and so condo fees stay much lower than larger buildings in most cases.
Some of the Factors That Will Take FHA or FNMA Out of The Equation
– Condo Association Has Less Thank 5 Units
– Condo Association Is More Than 25% Commercial
– Ratio Of Investor or Developer Owned Units to Owner Occupants Is Too High
For a buyer that has money to put down these units can be a fantastic value with a really high quality of living. There are many developments like this in the heart of Soulard, Benton Park and The Central West End as well the other most highly desirable neighborhoods in the city. Right now I have 1 available in Soulard with another coming in shortly. There is also one available in Fox Park.
For Sale:
2259 S Jefferson Unit: B (Fox Park)
Coming Soon:
819 Russell (Soulard)