ON ARCHITECTURE- Condoland part 2: Downtown living still in high demand
Last week we highlighted the woes of downtown developers trying to get their condo tower projects off the ground. But what about the projects that are moving forward?
Take, for instance, The Gleason, a 120,000-square-foot, five-story mixed-use building beside the downtown ACAC. Not counting the new National Ground Intelligence Center and a few behemoths at UVA, it appears to be the biggest building ever constructed in Charlottesville.
It also appears to be defying both the economic crisis and the real estate downturn.
Ground was broken in September, and although it's not scheduled for completion until next winter, nearly half of its 38 condo units have been sold at prices ranging from $339,000 to $1.2 million.
"We've had great sales traffic," says developer J.P. Williamson, "because there is not a lot of product like this out there."
According to a recent Charlottesville Area Association of Realtors market report, 2008 condo sales fell nearly 40 percent in Charlottesville compared to 2006, and plummeted 55 percent in the County. But those numbers are misleading. Robust sales in 2006 were a reflection of the condo conversion craze, when all the apartment complex owners in town tried to sell their– as one developer put it– "crappy old apartments" as condos.
As Williamson is quick to point out, projects like the Gleason are a more "quality product," and he says that projects like the Barringer on Monroe Lane near the UVA Hospital, Cream Street 10 just off West Main, and the Randolph on East Market Street are examples of high-end condo projects selling well.
The same goes for rental properties. Norcross Station, a 64-unit apartment complex on 4th Street SE, is at 100 percent occupancy, according to property manager Webbie Kemp. In addition, Kemp says that construction has begun on a 24-unit, 4-story Norcross building facing Garrett Street scheduled to open in June, which Kemp says already has a waiting list.
"There's a high demand for places downtown," she says.
Besides the obvious– that folks with the means to buy a $400,000 to $800,000 condo [or rent a 1-bedroom apartment for $1,200] aren't as affected by the economy as the rest of us– Williamson says that developments like the Gleason are different in the way they're financed.
Williamson says that Octogon invested several million dollars in the project before seeking loans and buyers.
"If you're going to make pre-sales or get financing, you need to convince people that it's really going to get built, and pre-sales are a requirement for any construction financing," he says.
As a result, he says there was never any rush to take advantage of the hot condo market in 2006, as the company's focus was always on taking their time and getting it done right. Indeed, while projects like Waterhouse, First & Main, and 201 Avon grabbed headlines and ate up hours of city planning meetings, projects like the Gleason and Norcross Station have moved steadily forward.
While Williamson admits the credit situation is grim, he says that demand for downtown residential space remains high. The simple trick is abandoning the old development model that got us into this mess.
"That speculative development model for mixed use condominium buildings – which never really existed in Charlottesville– dominated markets like Las Vegas, Atlanta, and Miami" he says. "The classic speculative model– option a property, market it, hope to close acquisition and construction financing at the same time with limited equity model– is over."
Lucky for us, Williamson suggests, the now-troubled banks and mortgage companies eager to throw money at speculative projects never descended on Charlottesville. Such easy money might have given us alot of giant condominium towers standing empty.
For Williamson, it was also a question of scale. While the Gleason will be one of the biggest non-UVA structures in Charlottesville, it's still only five stories. Those nine-story projects that made headlines over the last few years, he believes, never made economic sense.
"In our experience, adding height adds expense to all of the floors," he says, pointing out that once you get past five stories there's a whole different kind of construction involved, which can push cost as high as $275 a square foot, "without necessarily increasing the quality of the building."
So what does the future hold for downtown development?
If the Gleason is any indication, we're probably going to see more high-end condo projects. Indeed, the city itself may be encouraging this trend, as planners have been pushing for density changes downtown that would lower the number of units allowed for new projects by right, from 87 to 43 dwelling units per acre.
While planners believe the density changes would give the city more control over what gets built, some developers say it may be time to re-think that strategy, especially if they want to see more affordable housing downtown.
Architect/developer Bill Atwood, whose Waterhouse project has slowed to a crawl because of the credit situation, thinks it's time for the City to stop thwarting developers with planning sessions and zoning restrictions.
"Say you're building something that has a 20-unit limit," says Atwood. "Instead of making me cough up proffer money for affordable housing, give me 25 units, give me five extra units I can build. Doesn't that make sense?"
He claims that will make the price more affordable, and he thinks there's a demographic change afoot.
"A younger generation has had enough of the baby boomers and how we've done things," says Atwood. "There's a huge cultural shift toward downtown, toward smaller, cheaper, better, greener... and that will create a big change."