Harborview at the Navy Yard in Charlestown, MA & Boston developments switching from luxury condos to apartments...Where is the luxury market heading?

The Harborview at the Navy Yard in Charlestown is one out of a handful of new developments to switch direction from condo sales to apartment rentals in Boston in 2007-2008. While it's no surprise that developers have decided to avoid selling condos in a slow market for sales, I still find it interesting that a building with such unique features and a prestigious waterfront location had to follow this path.

A comparable property, Battery Wharf, which is located on Commercial and Battery St in the North End, was mostly able to buck this trend and sell the majority of it's luxury condos for above average prices so why wasn't the Harborview at the Navy Yard able to follow suit? My speculation is that while waterfront property typically commands a premium, this particular development had a harder time selling condos probably because there are not as many luxury condo buyers for the Charlestown market as there are for downtown Boston in general and this only becomes more prevelant in a down market. The question is then, what will happen with the newest luxury condo developments in Boston being built as we speak? Will they too have to start renting?

Unfortunately I think that the answer to this is yes. With major financial firms just recently laying off over 30% of it's well paid staff, it's hard to believe that luxury condo sales can continue to outpace the rest of the market (luxury condo sales prices in Boston have yet to fall as much as the rest). I believe that the worst is yet to come for Boston luxury condo sales despite ridiculously low interest rates because of a rise in Boston's unemployment. It will continue to worsen before it gets better, as is widely noted in the financial community, mainly because the cycle of laid off workers has yet to take a full effect in the sale of real estate in Boston. The cycle works like this: a firm such as AG Edwards in the financial district of Boston lays off it's investment banking analysts and/or associates. These former employees may receive severence payments for up to 6 months (thus prolonging the effect to real estate sales) all the while they are looking for new jobs. When other firms are laying off at the same time their job search becomes that much harder and they won't have as much money for the downpayment on the condo that they had previously agreed to purchase pre-construction. When their newly developed condo is completed, they are forced to close on the unit or walk away with a 5% loss. The latter option only becomes more likely as the job market becomes harder and thus is why I believe that we will continue to see Boston developers seek help from the rental market. Of course over time this will create a glut of over supply of rentals and will thus lower market rents, which we have already seen happen in most of the city.