Even with the slight recent upturn in the office condo market, Riggs observes "it's definitely slower than it was a year ago." And the changes go deeper than the impact of interest rate changes, says the leader of what is considered to be the country's largest office condo developer with more than three million sf of the product under its belt.

Riggs, whose company sponsored the office condominium market's first conference last year, says many of the developers who attended the conference likely are not in business this year. "A lot of people got into the business three or four years ago who didn't have much experience," he explains. The inexperienced developers tended to get into the market when it was red hot, aided by plentiful capital, but changing conditions in the office condo realm and in the credit markets have winnowed out those whose projects were ill-advised. "There were a lot of lenders lending to people who didn't know how to do office condos and those projects are all sideways right now," Riggs says.

Those who want to develop office condos "need a long history in this niche to know all of the things that can go right or wrong on a project," Riggs explains. His experience developing office condos stretches back to 1989 when he and his brother developed three projects in New Jersey. Although office condos are more common in the East than in the West, and although they proliferated during the latest real estate boom, they're still a relatively new product in most of the US, even in some older areas of the country, including the East Coast, Riggs explains.

As a product type, Riggs says office condos "really took on velocity nationwide in the past five years" because developers began to understand them, then the banks understood them and, finally buyers understood that the product came with significant advantages over renting. The ready availability of SBA financing played a significant role too, but Riggs adds it wasn't just SBA lending alone that financed the condo purchases.

About half of the buyers of office condos rely on SBA loans, according to Riggs, who points out that there are pros and cons for SBA financing. On the plus side, buyers can finance them at high leverage, but the negative side includes prepayment penalties and high fees so SBA loans aren't right for all buyers.

Much of what occurred in the office condo market in 2007 "was based on interest rates going up too high too quickly," Riggs contends. Office condos remain a viable product where demand and supply are balanced, he says, but conditions have changed so that it's hard to make any general statement about whether the market is good or bad."The Phoenix market, for example, is a little saturated right now, and there is a lot of B and C class product. But in other markets [office condos] are doing very well, especially in New York and parts of Florida," Riggs says.

Riggs calls the office condo market "complicated" to assess. "It doesn't just vary according to state, it varies according to city and down to the niche within the city," he explains. "You can't just say that one city is really hot because you could have a really good product in one city and a really bad product in another. I guess the best way to say it is that amateur hour is over."

SAXA, formerly known as Shea Commercial, completed the nation's largest office condo project last year with its 265,000-sf, fully occupied Ironwood Office Suites adjacent to Scottsdale Memorial Hospital in Scottsdale. The company recently broke ground on another Scottsdale project, the 44,000-sf Offices at Paradise Valley along Shea Boulevard west of Tatum.

Riggs says recent rate cuts by the Federal Reserve have buoyed the office condo market because borrowers lining up permanent financing are tied to the prime rate. Theoretically, the rate cuts could drop payments by several hundred dollars per month, "which could tip the scales one way or another if it's a close-call deal," Riggs says. The rate cuts also help the developers because their construction loans are linked to prime as well, he adds.

With all of the new office condos that have been built in recent years, and with buyers' and lenders' acceptance of them, "this is a product that is here to stay," Riggs says. "It's all relatively new, so it's going to be at least 20-year product for its useful life."