Photo credit: Clint Lewis
What's driving the condo market in Tuscaloosa?
Topics: Development, Finance, Home Building, Residential Real Estate
Markets: Tuscaloosa Area
It has been said that Millennials prefer to rent rather than buy homes, and while that may be true, many of the parents of this generation’s college crowd still see the merits in ownership.
This is especially true for parents who are sending their children to the University of Alabama, where rental rates can exceed $1,000 a bedroom in some areas.
While single-family homes are not readily available immediately near the campus, a large number of parents have turned to condominiums as a four-to-five-year investment that gives their student a place near campus to live and the opportunity to rent to other students as well.
“We have a constant turnover,” said Jason Gray with The Gray Group at Keller Williams Tuscaloosa. “You constantly have the cycle of the kids graduating every three to four years. There is a constant turnover of investors and a constant turnover of kids graduating.”
Gray, along with The Gray Group’s John Randall, has seen an uptick in the demand for condominiums, both on campus and in the surrounding areas over the past five years.
Much of this demand is from outside investors, which include parents of out-of-state students who have committed to attending the university for three to five years.
“The university, over the last year or two, has done a really good job in recruiting in San Diego, Dallas and some of these bigger cities,” Gray said. “We’ve seen some pretty serious money.”
Randall said ratio of in-state and out-of-state condo buyers is close to 50-50.
“I would say the majority of my clients are out-of-state right now, buying for their son or daughter,” Randall said. “They’re looking at it as a four-to-six-year investment.”
From January to November 2015, there were 132 total condos sold, according to data from the Alabama Center for Real Estate. During the same period in 2016, 167 condos were sold, and increase of 5 percent.
Of the 22 condos sold this past July, the average unit stayed on the market for 86 days, compared to 130 days a year earlier.
The more out-of-town parents who commit to buying condos, versus renting apartments or houses for their students, the lower that number is expected to go.
“Out of state parents are the ones who buy sooner,” Randall said. “They have to make a decision, and they’re not in town very often. They are only visiting certain times of the year.”
Each fall, students at the University of Alabama must commit to where they will live the following school year.
Single-family bedrooms, dorms and apartments fill fast, and they are expensive.
For out-of-towners, mostly unfamiliar with the area, condos have become a viable alternative for housing as well as an investment opportunity.
“You’ve got this urgency of finding a place for the fall every October,” Gray said. “On-campus apartments help drive the condo sales. They have to find a place to live for the fall, and rental prices on campus can run $775 to $800 a bedroom.”
Randall said that he has sold condos to investors and parents of students from New Jersey to Chicago and as far south as Houston, Texas.
“I’ve sold four condos this year from Chicago,” Randall said in September.
Randall said buying a condo is often on par with market rents, and it gives an extra layer of peace of mind to parents thousands of miles away.
“When you can buy a condo that has the amenity package of what parents look for when their son or daughter is three states away, they have the gated community and clubhouse where they have that security, it fits into what they’re looking for,” Randall said.
Football as a Driver
The University of Alabama has been recruiting out-of-state students along academic lines for a long time, often with phenomenal results, but its championship caliber football program has not hurt its cause either.
In fact, the football program, which has won four national titles under current coach Nick Saban has given life to condo developments near Bryant-Denney Stadium, and the program has factored into many people’s decisions to come to Alabama for an education.
“Sometimes when we’re talking to kids from Chicago, Oklahoma and California, they say they picked Alabama because of the football, both girls and guys,” Gray said.
Talk about Alice Maxwell development near stadium
Gray said that other condo developments could pop up around Bryant-Denney over the next 12-18 months.
Where Are They Buying?
There’s no question that the closer you get to the University of Alabama campus, the hotter the housing market.
Condos are no exception.
Condos on campus can go for as high as $400,000 each, Gray said, which has driven many investors and buyers further out to areas like 15th Street, where condos range from $120,000 to $190,000 in many cases.
“To me, that area has been hot since 2008,” Gray said.
Gray said properties like The Houndstooth and Capstone Quarters have performed well, even through the recession.
“Those are just a little more easy to bite off than a $400,000 condo on campus,” Gray said.
Gray said the market could handle further developments on or right near campus, but the farther out from campus, the tougher it is to get investors and buyers to commit.
“I think it would be a challenge right now to build a new development off campus,” Gray said. “On campus, I think it’d be fine.”
Lending for Condos
Not all of Gray’s and Randall’s buyers have been cash purchasers when it comes to condos.
Many have sought financing, which became more difficult after the housing market crash.
But the duo said some local banks have found creative ways to offer more flexibility to condo buyers in Tuscaloosa.
“The lenders, over the past year, have become a lot more creative in helping buyers who are not cash buyers find ways to purchase a condo,” Randall said.
Brock Tate, a mortgage lender with Trustmark Bank, has been at the forefront of making condo purchases in Tuscaloosa easier on the purchaser.
“Back during the crash, condominiums began to get on an island by themselves, and it became more difficult to finance the condominiums,” Tate said. “A lot of the agencies wanted to push out of that business a little bit. They didn’t leave the business, but they came up with perimeters that made it more difficult for people to get into the programs.”
Tate said the key has been creating a mechanism that allows the debt to be sold on a secondary market.
”As we have evolved over the past several years, the financing piece of that has gotten easier, with Fannie Mae more specifically,” Tate said. “We sell to Fannie Mae. They have relaxed their guidelines some. I’m not going to say it’s easy, but they have made it more attractive to where under the right condominium that would meet a Fannie Mae eligibility test, it’s a 10 percent down and maybe cheaper. Because there has been a loosening or relaxation of the guidelines, it has made people more interested in buying a condo.”
Tate said Tuscaloosa did not experience the peaks and valleys other markets around the country did during the recession, even though the market did suffer during the worst part of the downturn.
That being said, the condo market has remained stable and continues to pick up and be as attractive to banks as they are to investors.
“Tuscaloosa has really outperformed other cities of its size because of its commitment to development,” Tate said.
As for the market moving forward, Gray said to expect to see more of the same when it comes to condos. That includes sales and development.
“There’s room to grow,” Gray said. “If it was in the right location, and at the right price point, I think we could absorb it just fine.”