MarkDaMan
Jul 11, 2007, 2:53 PM
Developers flip-flop as condos convert to rentals
Daily Journal of Commerce
by Kennedy Smith
07/11/2007
To build condos or apartments, that is the question Portland developers have pondered as market forces have shifted in the last two years from a flurry of condominium conversions to a lack of rental units in the central city.
And Portland’s showed some indicators that the condo craze is fading.
In the last couple of years, condominiums sold out before they were even built. In April 2006, almost half of the units at the new Irving Street Towers at 2109 N.W. Irving St. sold on the first day of sales. Developers have seen that sales pace slow considerably, especially for condo towers slated to come online in the next few months. The Westerly, a 104-unit, 14-story condominium tower in Northwest Portland that will open later this year, is just 40 percent sold.
“The market has slowed a little bit for us,” the Westerly’s developer, Jack Onder, said.
But apartments are leasing “like gangbusters” at The Harrison, a three-building condominium conversion and apartment redevelopment, said Reed Kirk, sales manager for the development.
Unico Properties and architectural firm GGLO, both of Seattle, late last month received permits to build a $70 million, 16-story apartment tower, The Lovejoy, along with a Safeway store next door, between 12th and 14th avenues and Marshall and Lovejoy streets in the Pearl District.
Unico decided more than two years ago to build rental units rather than condos, according to Greg Van Patten, Unico’s manager of multifamily investment.
Other Portland developers have waffled on condos versus apartments. Notably, Opus Northwest and John Carroll, developers of the West End’s Ladd Tower, switched their plan to apartments from condominiums as the market changed.
“We wanted to be ahead of the curve in terms of rental projects at the time when just about all the development activity were condos,” Van Patten said. “We saw it coming that (apartments) would be needed.”
By being one of Portland’s first developers of new apartment buildings in the last half-decade, Unico could set a standard for rental rates. The average monthly rent will be around $1,700 per month for the 231 apartments that range from 400 to 1,100 square feet, Van Patten said.
Over at the redeveloped Harrison, one-bedroom apartments are renting for between $1,100 and $1,300 per month, Kirk said.
“The common perception is that $1,700 a month is, ‘Oh my gosh, why would you do that?’” Van Patten said. “But I went through the calculation and if you take a similarly sized condo unit and take what you’d pay for it, along with principal interest, (homeowner association) dues, monthly housing costs, it’s quite a bit more than that for the same size unit.”
High rents are also a product of high land and construction costs coupled with no public incentives, Van Patten said.
In October 2005, City Council changed the guidelines for Portland’s New Multiple Unit Housing Property Tax Exemption, which had offered tax breaks to developers of new projects. The tweak meant only 100 percent affordable housing developments would be eligible for the tax break.
Trammell Crow, developer of the Alexan project in South Waterfront, was the first to lose out on the expected tax exemption, and Unico, with the Lovejoy project, followed, Van Patten said.
“We started on the assumption that it would qualify for the exemption,” he said. “When that went away, it forced us to rethink the whole project ... so rents are higher.”
The apartment market is leveling out, Gary Winkler, a multifamily broker at commercial real estate firm Colliers International, said.
So many condo conversions took place in the last few years, he said, the market started weighing too heavily on one side.
“It was destabilized to the point that (condos) are staying on the market much longer; projects are not selling out,” he said. “The obvious thing to do is move over to apartments.”
The good news for developers re-entering the world of apartments is that financial institutions are following the changing tide too.
It’s more difficult now to get institutional funding for condominium developments, Winkler said, because of the condo market slowdown. Investors and banks are more willing to give money to developers building apartments, which they predict have a better chance of returning on investment, he said.
http://www.djc-or.com/viewStory.cfm?recid=29731&userID=1
Daily Journal of Commerce
by Kennedy Smith
07/11/2007
To build condos or apartments, that is the question Portland developers have pondered as market forces have shifted in the last two years from a flurry of condominium conversions to a lack of rental units in the central city.
And Portland’s showed some indicators that the condo craze is fading.
In the last couple of years, condominiums sold out before they were even built. In April 2006, almost half of the units at the new Irving Street Towers at 2109 N.W. Irving St. sold on the first day of sales. Developers have seen that sales pace slow considerably, especially for condo towers slated to come online in the next few months. The Westerly, a 104-unit, 14-story condominium tower in Northwest Portland that will open later this year, is just 40 percent sold.
“The market has slowed a little bit for us,” the Westerly’s developer, Jack Onder, said.
But apartments are leasing “like gangbusters” at The Harrison, a three-building condominium conversion and apartment redevelopment, said Reed Kirk, sales manager for the development.
Unico Properties and architectural firm GGLO, both of Seattle, late last month received permits to build a $70 million, 16-story apartment tower, The Lovejoy, along with a Safeway store next door, between 12th and 14th avenues and Marshall and Lovejoy streets in the Pearl District.
Unico decided more than two years ago to build rental units rather than condos, according to Greg Van Patten, Unico’s manager of multifamily investment.
Other Portland developers have waffled on condos versus apartments. Notably, Opus Northwest and John Carroll, developers of the West End’s Ladd Tower, switched their plan to apartments from condominiums as the market changed.
“We wanted to be ahead of the curve in terms of rental projects at the time when just about all the development activity were condos,” Van Patten said. “We saw it coming that (apartments) would be needed.”
By being one of Portland’s first developers of new apartment buildings in the last half-decade, Unico could set a standard for rental rates. The average monthly rent will be around $1,700 per month for the 231 apartments that range from 400 to 1,100 square feet, Van Patten said.
Over at the redeveloped Harrison, one-bedroom apartments are renting for between $1,100 and $1,300 per month, Kirk said.
“The common perception is that $1,700 a month is, ‘Oh my gosh, why would you do that?’” Van Patten said. “But I went through the calculation and if you take a similarly sized condo unit and take what you’d pay for it, along with principal interest, (homeowner association) dues, monthly housing costs, it’s quite a bit more than that for the same size unit.”
High rents are also a product of high land and construction costs coupled with no public incentives, Van Patten said.
In October 2005, City Council changed the guidelines for Portland’s New Multiple Unit Housing Property Tax Exemption, which had offered tax breaks to developers of new projects. The tweak meant only 100 percent affordable housing developments would be eligible for the tax break.
Trammell Crow, developer of the Alexan project in South Waterfront, was the first to lose out on the expected tax exemption, and Unico, with the Lovejoy project, followed, Van Patten said.
“We started on the assumption that it would qualify for the exemption,” he said. “When that went away, it forced us to rethink the whole project ... so rents are higher.”
The apartment market is leveling out, Gary Winkler, a multifamily broker at commercial real estate firm Colliers International, said.
So many condo conversions took place in the last few years, he said, the market started weighing too heavily on one side.
“It was destabilized to the point that (condos) are staying on the market much longer; projects are not selling out,” he said. “The obvious thing to do is move over to apartments.”
The good news for developers re-entering the world of apartments is that financial institutions are following the changing tide too.
It’s more difficult now to get institutional funding for condominium developments, Winkler said, because of the condo market slowdown. Investors and banks are more willing to give money to developers building apartments, which they predict have a better chance of returning on investment, he said.
http://www.djc-or.com/viewStory.cfm?recid=29731&userID=1