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Bubble Worthy

Richmond's condo market shifts into low gear.

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Case in point is Riverside on the James. One of the city's highest-profile condo projects, the 122-unit tower on Brown's Island overlooking the James River was draped in darkness on a recent weeknight — about a quarter of the lights were on — and the parking garage was hardly full.

But wait. Didn't all of these 122 condos sell within months of hitting the market in early 2005? Yes, but many were purchased by investors looking to make a quick profit by selling, or flipping, to empty-nesters and young professionals.

Local developer Sam McDonald was one such investor. He bought two units and sold the smaller one earlier this year. "I was able to get my asking price," he says. The larger condo is still on the market. (On the Web site of Joyner Fine Properties 11 of the condo units are listed for sale.)

The Riverside on the James project is by no means a failure. No one has lost money on their investment, says Bill White, president of Joyner in Richmond. But the dark nights on the James offer a tempered look at the region's oft-reported condo boom.

"People who bought looking for a quick flip may have missed that frenzy by about six months," says McDonald, who is developing 25 new condos in Jackson Ward called Emerick Flats. "Now you've got to find buyers. That takes time."

It's too early to declare a bubble in Richmond, but real estate observers say the condo market is quickly reaching a point of saturation. Some of them worry that the market — following the national condo-bubble trend — is already overbuilt.

Sam R. Worley, senior vice president and partner at Commonwealth Commercial Partners in Henrico County, says as a region Richmond is overdone. He counts more than 2,000 new condos and townhouses on the way along a three-mile stretch of West Broad Street, engulfing Short Pump. That's too many, he says.

"Basically, you are seeing a glut coming onto the market, nationally and local," Worley says. He recently considered buying a condo for his retirement, he adds, but decided against it: "Quite candidly, I don't feel like buying into a bubble."

According to Integra Realty Resources, the condo market is the only real estate segment in Richmond that didn't see prices increase from March 2005 to March 2006. Townhouse prices are up 15 percent; existing house prices are up 17 percent; and new housing jumped 16 percent.

"It doesn't mean the condo market is overbuilt," says Robert E. Coles, managing director of Integra's Richmond office. "But it's certainly an area of concern."

Flat prices are an ominous sign. But Integra measures only actual closings and doesn't account for soon-to-be-built condos under contract, such as Vistas on the James near the Turning Basin.

White says Richmond, with its diverse economy, is faring far better than Northern Virginia, Atlanta and other large cities across the country that are experiencing a massive oversupply.

"It's not a runaway market," he says, "but there is not a bubble."

Local developer Robin Miller concurs. He is, however, starting to see an oversupply in the upper end of the condo market, where units are priced $450,000 and up. "In the past couple of years the demand has exceeded the supply of condominiums and that ended probably six months ago," Miller says, adding that the market has leveled out. "There might even be an oversupply for the moment."

Richmond's market is stable — for now, says David H. Downs, a real estate professor at Virginia Commonwealth University. Nationally, higher interest rates and a glut of condos are creating massive headaches for many larger cities overinvested in condos.

"Still, I don't think we are as anywhere as far out on the crazy curve as we see in some other cities," Downs says. S

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