It’s a little too easy for some to say the luxury real estate market is taking a pandemic plunge: Bidding wars are now more of a thing in the suburbs than in the city. Developer Millennium Partners Boston significantly downsized the residential component of its Winthrop Center tower, slated to be the Financial District’s tallest, to include apartments instead of condos as a result of financing that nearly collapsed last year.
But Boston real estate circles still see plenty of runway in the upper stratosphere of home prices.
Just a few blocks from the Winthrop Center construction site, Houston-based developer Hines is underway with a mixed-use tower over South Station slated to arrive in late 2024 with a high-end housing component. Developers are also constructing luxury condo developments tied to the St. Regis and Raffles hotel brands in the Seaport and Back Bay, respectively. Both projects are expected to finish construction next year.
“There’s no doubt last March and April, everything from a sales perspective ground to a halt,’’ said developer Jon Cronin, whose firm is building the St. Regis Residences, Boston. “But, to be honest, in the last three weeks it’s been incredible,’’ with buyers placing multiple $10 million-plus offers. While more than a third of the units at the 114-condo development are spoken for, its most impressive sales feat may be that no buyers have tried to back out during the pandemic.
Along with its five-star branding, Cronin attributes some of the project’s ongoing appeal with potential buyers to elements like its waterfront location and design features: Ninety percent of the units have outdoor space, and the vast majority have room for a really nice home office.
“We can definitely feel the momentum coming, and people still see the Seaport as one of the city’s premier, if not the premier, destinations,’’ Cronin said.
The Seaport project’s ties to a global brand like St. Regis have even stirred the attention of international buyers. Foreign buyers typically want to be in new residential developments in the urban core. Buyers from China, Greece, and the Middle East flocked to Millennium Tower in Downtown Crossing when units hit the market in 2014.
Foreign buyers may have cooled off nationally in recent years due to travel and immigration restrictions, and the developers behind many local condo developments — the St. Regis Residences included — maintain they are largely attracting local buyers. But there has been some recent interest from abroad in the Seaport, Cronin said.
“We have seen an uptick of inquiries from Hong Kong, probably because of the unrest and things there, not so much from [Mainland] China but from Hong Kong itself — people with kids in school here — and some from the Middle East,’’ he added.
Cronin is not the only developer moving ahead with luxury housing in this market. The 51-story tower planned for above South Station includes 166 condos, and Hines doesn’t show signs of turning away from its original plan. The project has been in the works for years, and now that construction is finally underway, the commitment to condos all comes down to timing.
“The South Station project has involved years of careful planning to ensure its success over the long term and allow it to endure the inevitable adverse effects of economic recessions,’’ David Perry, senior managing director at Hines, said in a statement to the Globe. “Our project has steadily moved ahead despite the global pandemic, and we’re incredibly proud of the progress we have made since breaking ground in early 2020. We expect that our residential condominiums will be delivered in late 2024, and by then we anticipate that the market will have recovered from the short-term impacts of the pandemic on the demand for urban high rise living.’’
There is certainly optimism surrounding the city’s ability to handle a greater luxury supply, but this isn’t to say others’ concerns aren’t unfounded.
While condo sales volume statewide last year was down 1.4 percent, it fell 6.6 percent in Suffolk County, according to The Warren Group, a real estate analytics firm and publisher of Banker & Tradesman. Condo sales prices in Suffolk County were up 3.6 percent compared with 9.2 percent on average for Massachusetts as a whole.
“It does seem like the markets in Suffolk County are moving ahead more slowly than other parts of the state,’’ said Timothy Warren, Warren Group CEO. “That seems kind of natural. People are nervous about buying a condo in the middle of a pandemic if it means they have to ride elevators or be in closer quarters with other people.’’
But the pandemic is temporary, and Warren and others interviewed for this story remain bullish on Boston’s economic fundamentals. Even the development team at Winthrop Center, despite their switch from condos to apartments, doesn’t appear to see that as a sign of a glut in supply.
“We adjusted the design of Winthrop Center in response to recent economic constraints resulting from the pandemic’s impact on the banking environment — changes that were necessary for the project to proceed,’’ said Richard Baumert, a partner at Millennium Partners Boston. “These changes were not precipitated by the luxury condo market, in which we remain very confident, given our profound knowledge and experience in the region.’’
It’s a tale almost as old as Boston’s history as a city: Area home prices and demand here remain more durable than other parts of the country due to a combination of strong economic drivers like higher education and health care, as well as a tight lid on supply. Yes, that means the arduous planning and approvals process and hourslong community meetings, in a way, help developers score higher sales prices and stability around things like luxury housing.
“The stability of Boston comes from the fact we don’t have super high levels of inventory in the pipeline on a regular basis, even when we are particularly active with new construction,’’ said Ricardo Rodriguez, a real estate agent with Coldwell Banker. “That helps to maintain some of the pricing through the city, but especially in the luxury sector. There’s only so much inventory there.’’
The pressure on inventory is likely why Millennium Partners’ condo pullback has more to do with an isolated financing issue from the pandemic rather than a sign of a luxury collapse in downtown Boston. Other developers like Cronin are already searching for a site to build their next luxury condo project.
“Yeah, we’re looking. We’ve been in discussions,’’ Cronin said. “Location and product: I think that’s really what it comes down to for the lenders.’’