Crossing The Chasm: A Perspective On New Construction

Crossing The Chasm: A Perspective On New Construction

Because I’m a real estate geek, I’m continuously looking at sales metrics, updating my databases, and endeavoring to uncover useful information.  In this post, I’m attempting two things: 1) offer some perspective on sales in downtown Austin’s high profile buildings, and 2) predict when those buildings will approach being completely sold.  If you just want the data then skip to the end.

One of my mentors shared with me an insight: the first buyers are innovators – early adopters that fill up the bandwagon and help throttle the acceptance of something new.  It applies to new real estate development, as much as it does to new technologies.

Now that the cranes are long gone, where are the new construction projects in their sales cycles?

Sales Cycles

The first stages of a building’s sales and marketing efforts begin long before the building receives its certificate of occupancy.  Reservations and earnest money can begin to transact before earth is moved.  Once the building is ready for move in, you will observe a surge in closings from the build up of pre-sale contracts.  Conversely, when a building is approaching completion of its sales and marketing, the remaining units can take the longest to sell.

I’m a believer in the Crossing The Chasm theory of marketing.  Though it was developed to highlight “disruptive” technologies, it makes sense when applied to the recent business of downtown Austin luxury condos.  When conceived, the downtown luxury condos were audacious, unproven, and “disruptive” to the Austin real estate market.

The most difficult step in marketing a new project, consistent with the Crossing The Chasm theory, is making the transition between visionaries (early adopters) and pragmatists (early majority).

Further, the theory posits that marketing dollars and efforts should focus on one group of customers at a time, using each group as a base for marketing to the next group.  Focus on the bandwagon first, and attract skeptics later.


The Research, Counting The Deeds

Scouring recorded deeds for each building, I gave best efforts at “auditing” the actual closings of new construction sales of downtown Austin condos.  The set of buildings we are focused on are: the Austonian, Four Seasons Residences, W Hotel Residences, Spring Condos, and 904 West Ave (no other downtown condominiums are planned).

The spreadsheet I created can be downloaded by anyone interested (.xlsb).

Why is this important?  

Transparency.  We all have bias, naturally.  Sensationalist headlines in mass-media compound the problem.

Here in the trenches, my job is to drill down to the truth and help educate.

Using The Data To Gain Perspective

As it relates to Crossing The Chasm, our set of new/luxury construction condos in downtown Austin have leaped the chasm and are in the early majority stage, late majority stage, or beyond.  The Four Seasons is heading into the late majority phase.  The Spring Condos can be considered well into the laggard stage of its adoption cycle with 11 units (4%) remaining out of an original 247.

Additional Steps, Making Estimates

Knowing the date of the first closing for each building, and knowing how many condos have sold through September 1st, we can calculate the average time it took for each sale.

Using that metric we’ll project into the future, and estimate when the building could close out.  To be consistent with our application of Crossing The Chasm, we’re going to estimate when each building could enter the laggard stage of the cycle.

This prediction is an extrapolation of the historical data.  Better estimates could be made by qualifying the data.  We won’t go into that here, though please use the comments.  So, take it with a grain of salt.

In the table below, the far right column shows an estimated date when each building enters the final stages of its sales efforts.

[table id=19 /]

About Jude Galligan

Jude Galligan, REALTOR, Principal of TOWERS Realty and publisher of Downtown Austin Blog (aka. "DAB"), spends his time matching remarkable people with remarkable properties in Austin’s urban core. A resident owner in downtown Austin, Jude has served on the Board of the Downtown Austin Alliance (DAA) and the City of Austin Downtown Commission. Contact Jude.


  1. Great post, Jude. A couple of thoughts for you:

    The ability to finance a new high rise (for sale) is extremely limited for a number of reasons: First, development and construction financing is hamstrung by regulatory pressures and examinations, which means that equity well above normal standards (20 to 30%) is required. Equity is expensive and higher equity requirements force the project to seek “exceptional” returns. That standard is very hard to achieve. It would have to be a special project. Second, while mortgage financing is available, it has limited the ability to grab a mortgage, in some cases. Some banks are stepping in and filling that void, but a little more time must pass for new projects to jump that hurdle.

    The net result: I don’t think folks will see much new “for sale” product downtown for a while. . . In my mind, that means — (i) as we continue to grow, and (ii) people become more aware of how sustainable living is achieved, and (iii) the growth in folks (according to your bell curve) become more and more aware of the benefits of urban living (convenience, no maintenance, more safety, more privacy yet more community) which may be increasing the pool of buyers — demand may go up while supply is dwindling. (Hint: Prices going up.)

    My experience (mostly empty nesters) tells me that this market is growing. . . . That we are still in the early adopter/early majority phases . . . If that market demand does grow, then prices may well rise with limited delivery of new product. . . .


    • I think the argument that prices have nowhere to go but up becase of some imagined supply constraint ignores opportunity cost. At some point, prices downtown become less attractive vis-a-vis alternatives. Why pay $800 per square foot to live in a high rise when for $500 a square foot you can have a house/townhome in Tarrytown, Westlake, etc. Given the significantly higher property taxes and HOA fees of a place downtown, any argument on energy, maintenance or transportation cost savings of a condo is more than negated. The fact is, unlike Manhattan (island) or San Francisco (peninsula) there are less expensive alternatives in Austin without having to cross a bridge/tunnel and commute long distances to get downtown. The fact also remains that jobs/offices are scattered all over the city and that very few people who live downtown walk/bike to work. Unless these factors change, there will be a limitation on upwards price appreciation.

  2. great post Jude,

    If you like crossing the chasm, pick up tipping point by gladwell (assuming you haven’t already).

    The two books connect and compliment each other very well.

  3. What is the relationship between asking price vs. sold price in each phase. At which stage is the best deal? Understanding that there are tradeoffs for the buyer etc. and market conditions change.

    • @Trieu—- The difference between list price (LP) and sales price (SP) should be greatest during the stages with the fewest interested buyers: the innovator stage and laggard stage.

      The innovators are not going to be as price sensitive as the laggards.

      The units remaining during the laggard stage are, generally, less desirable units (floor plan, size, view, etc). That combined with laggards being very price sensitive, we can infer this could be an opportunity to get the best price per square foot, but not the best unit.

      Timing, perception, seller/buyer motivation, and your personal desire all come into play, which you rightly acknowledge.

  4. Gerald Hubbard says

    Excellent work Jude! As an early pre-construction adopter, it would be interesting to see when the price curve will invert for the owner’s. I know the economy sucks and real estate sales, appraisals, and financing is completely dysfunctional! With the absorption of the inventory and the tremendous opportunities in Austin, when do you think the pricing will recover to the “marketing phase” for these buildings?

    Why is The Shore not considered a “high profile” building in Downtown Austin? None of the others have a better view!

    • Thanks, Gerald! According to Crossing the Chasm you are an innovator! As for when will pricing return to 2006-2007 levels, it’s happening gradually – The Shore Condos is actually a good example of that. Prices for the luxury buildings covered in this post have actually increased since the “innovator” stage.

      The Shore is one of downtown Austin’s most desirable buildings, but it does not have the profile of buildings covered in this post. Aside from their intrinsic “presence,” buildings in the 2nd Street District get some extra visibility from the district having a PR effort and being a shopping destination.

  5. Interesting analysis. My only comment is that the pace of closings is not a constant rate/linear trend and therefore could lead to a big variance in the actual results (notwithstanding externalities like market deterioration/improvement or discounts along the way). Either way, your data rightly points out that the new luxury condos have a tough road ahead to closing out all of the remaining units and it will be quite some time before this occurs.

    • Good point, Ryan. I agree there are myriad nuances, so we can qualify the estimate ad-nauseam. Indeed, the estimate shows where an actual trend could take us, albeit crudely extrapolated.

      Using the data for the Four Seasons as an example: they’ve closed 53 units in the past 365 days – a historical pace of 1 unit closed per 7 days. Most of those were new contracts, especially the more recent ones, not pre-sale contracts. That’s a repeatable effort which could bring them into the “laggard” stage of the adoption cycle, and perhaps closing out entirely by October of next year.

      I’ll disagree that it will be an extraordinarily “tough road” as you commented. A 3-4 year sales and marketing effort for a large scale high-end development is expected. In addition to “general” demand, here are three reasons why the absorption could increase: 1) rental rates continuing to rise, 2) lack of new competition 3) Formula 1.

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