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Charlotte Amalie
Thursday, August 18, 2022
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Undercurrents: Condo Sales Face Financing Squeeze

A regular Source feature, Undercurrents explores issues, ideas and events as they develop beneath the surface in the Virgin Islands community. This is the second in a three-part series looking at condominium living.

The Virgin Islands has a flourishing condominium market, although there is some concern that tighter lending requirements nationwide may threaten to put a strain on future sales. Meanwhile, St. Thomas and St. John sales are holding steady while St. Croix is going slightly wild.

Early this month, there were 195 condominiums listed for sale on St. Croix and 166 on St. Thomas, according to the Multiple Listing System of the Virgin Islands Territorial Association of Realtors. Using figures of total number of condos from the Tax Assessor’s Office, that translates to 11.5 percent of existing condos on St. Croix for sale, while just 5.9 percent of St. Thomas’ condos are on the market.

To view it another way, try comparing 2012 and 2013 sales.

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From Jan. 1-June 6, 2012, just 15 St. Croix condominiums were sold. In the same period this year, there were 34 condo sales. That means sales were up by 127 percent.

On St. Thomas, there was a very slight drop in sales over the period, from 34 in 2012 to 32 in 2013.

Like so much of what is happening on St. Croix these days, the change appears linked to last year’s close of the HOVENSA oil refinery. Workers and contractors with generous living allowances were renting condos at relatively high prices. Then they left.

Now “We have a glut on the market of rentals,” said Chris Hanley, Broker with Farchette & Hanley team, USVI Sotheby’s International Realty. Some condo owners who had been renting their units panicked and decided instead to sell them.

Investors and off-island buyers have snapped them up – but at good prices.

While sales are up 127 percent, the dollar amount of sales is not up in proportion, Hanley said. In fact, the dollar volume of sales Year-to-Date for 2013 compared with 2012 is just 54 percent, meaning that sales are up but average prices are down.

In contrast, on St. Thomas, the number of sales went down by 5.9 percent while the dollar volume actually went up by 7.8 percent. Since the actual numbers involved are small, Hanley said there is really little difference between the two years.

Likewise, Hanley’s Sotheby counterpart on St. John, Corby Parfitt, said the numbers there are too small to show trends. What technically reads as a 75 percent uptick is really just the difference in price between two properties.

Hanley said there is “really not much difference” in selling a condo or selling a house, “except looking into the financial stability of the condo association.”

That distinction is getting more important, according to some people in the trade.

Suzanne Mabe, real estate broker/owner on St. Thomas, and Sharon Hupprich, owner-broker for Calypso Realty, both said that before approving mortgages for condo units, lending institutions are looking for more and more assurance of the viability and financial stability of the condominium association to which it belongs.

And by and large they don’t like so-called “condotels.” That is, complexes where a large number of units are rented out on a short-term basis.

They prefer units in complexes that are primarily residential in nature, “and which have full insurance coverage, a board which is bonded and the complex is in good financial health,” Mabe said.

Lenders are looking at such things as how many units in the complex are in foreclosure for failure to pay condo fees, whether the complex has windstorm insurance, and whether the association has a dedicated fund for repairs.

The rules are particularly strict for loans that banks “sell” to secondary markets.

“Keep in mind that a local bank for the right scenario or the right borrower may choose to hold a loan in house in which case they may opt to make the loan even if it is a condotel, but not without windstorm,” Mabe said. “I have not found any lender that will lend if there is not windstorm coverage.”

Hupprich shared an FHA condo questionnaire she said is being required for some loans. Included in the 23 questions are:

  • Is the complex the subject of current litigation?
  • How many members are 30 days or more past due in paying common charges?
  • What is the amount held in reserve for replacement/repair of major components?

Hupprich said she encourages potential buyers to do their own research on the condo association governing the unit that they are contemplating buying. “I tell them, ‘Ask to see the budget. Ask to see the minutes.’ ” She urges them to review the rules and regulations, bylaws, and treasurer’s report and to check out the accounts of the current units.

“If more than 30 percent of the people are more than 60 percent in arrears, that’s trouble,” Hupprich said.

(Next: Legalities and pros and cons of condo living)

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A regular Source feature, Undercurrents explores issues, ideas and events as they develop beneath the surface in the Virgin Islands community. This is the second in a three-part series looking at condominium living. The Virgin Islands has a flourishing condominium market, although there is some concern that tighter lending requirements nationwide may threaten to put a strain on future sales. Meanwhile, St. Thomas and St. John sales are holding steady while St. Croix is going slightly wild. Early this month, there were 195 condominiums listed for sale on St. Croix and 166 on St. Thomas, according to the Multiple Listing System of the Virgin Islands Territorial Association of Realtors. Using figures of total number of condos from the Tax Assessor’s Office, that translates to 11.5 percent of existing condos on St. Croix for sale, while just 5.9 percent of St. Thomas’ condos are on the market. To view it another way, try comparing 2012 and 2013 sales. From Jan. 1-June 6, 2012, just 15 St. Croix condominiums were sold. In the same period this year, there were 34 condo sales. That means sales were up by 127 percent. On St. Thomas, there was a very slight drop in sales over the period, from 34 in 2012 to 32 in 2013. Like so much of what is happening on St. Croix these days, the change appears linked to last year’s close of the HOVENSA oil refinery. Workers and contractors with generous living allowances were renting condos at relatively high prices. Then they left. Now “We have a glut on the market of rentals,” said Chris Hanley, Broker with Farchette & Hanley team, USVI Sotheby’s International Realty. Some condo owners who had been renting their units panicked and decided instead to sell them. Investors and off-island buyers have snapped them up – but at good prices. While sales are up 127 percent, the dollar amount of sales is not up in proportion, Hanley said. In fact, the dollar volume of sales Year-to-Date for 2013 compared with 2012 is just 54 percent, meaning that sales are up but average prices are down. In contrast, on St. Thomas, the number of sales went down by 5.9 percent while the dollar volume actually went up by 7.8 percent. Since the actual numbers involved are small, Hanley said there is really little difference between the two years. Likewise, Hanley’s Sotheby counterpart on St. John, Corby Parfitt, said the numbers there are too small to show trends. What technically reads as a 75 percent uptick is really just the difference in price between two properties. Hanley said there is “really not much difference” in selling a condo or selling a house, “except looking into the financial stability of the condo association.” That distinction is getting more important, according to some people in the trade. Suzanne Mabe, real estate broker/owner on St. Thomas, and Sharon Hupprich, owner-broker for Calypso Realty, both said that before approving mortgages for condo units, lending institutions are looking for more and more assurance of the viability and financial stability of the condominium association to which it belongs. And by and large they don’t like so-called “condotels.” That is, complexes where a large number of units are rented out on a short-term basis. They prefer units in complexes that are primarily residential in nature, “and which have full insurance coverage, a board which is bonded and the complex is in good financial health,” Mabe said. Lenders are looking at such things as how many units in the complex are in foreclosure for failure to pay condo fees, whether the complex has windstorm insurance, and whether the association has a dedicated fund for repairs. The rules are particularly strict for loans that banks “sell” to secondary markets. “Keep in mind that a local bank for the right scenario or the right borrower may choose to hold a loan in house in which case they may opt to make the loan even if it is a condotel, but not without windstorm,” Mabe said. “I have not found any lender that will lend if there is not windstorm coverage.” Hupprich shared an FHA condo questionnaire she said is being required for some loans. Included in the 23 questions are:
  • Is the complex the subject of current litigation?
  • How many members are 30 days or more past due in paying common charges?
  • What is the amount held in reserve for replacement/repair of major components?
Hupprich said she encourages potential buyers to do their own research on the condo association governing the unit that they are contemplating buying. “I tell them, ‘Ask to see the budget. Ask to see the minutes.’ ” She urges them to review the rules and regulations, bylaws, and treasurer’s report and to check out the accounts of the current units. “If more than 30 percent of the people are more than 60 percent in arrears, that’s trouble,” Hupprich said. (Next: Legalities and pros and cons of condo living)