There’s been much news lately that residential construction is roaring back! But is there too much going on too quickly—and will all these projects really materialize? And what is this telling us about the condominium market? Here are some of the latest projects in the pipeline:
311 Cedar St: The former Musician’s Building is now gone, with work underway on The Alto, a 17-story, 184-unit high-rise with 2,700 sq ft of retail space. The project is scheduled for completion in early 2012.
504 Terry Ave & 1106 East Jefferson St: The once-proposed Harbor Vista project from now-bankrupt Mastro Properties just got a new owner– an LLC out of San Francisco. Rumors are that the property will be developed into a residential/retail complex.
888 Western Ave: Goodman Real Estate’s original plans for an office building have changed to a 16-story residential building with 208 units with 9,907 sq ft of retail, plus 8,300 sq ft of recreation/public plaza space.
1430 Second Ave (Second & Pike): Urban Visions’ hotel and condominium plan have changed to a 440 foot, 35-story LEED-certified building of 290 apartments and 14,850 sq ft of retail and restaurant space, which includes a “Sky Bar” and restaurant overlooking Pike Place Market.
1623 Bellevue Ave: Proposed is a six-story building with 23 residential units and 1,000 sq ft of retail.
2116 Fourth Ave – located next to the Cinerama, the proposed tower will have 357 units, 2,700 sq ft of ground-level retail.
2625 Third Ave – The current site of the American Lung Association is slated to make way for a 19-story building with 204 units above 4,000 sq ft of retail space.
Second and Bell – Bell 206, a 122-unit apartment complex, is expected to break ground in January.
Eighth and Seneca – A recent financial deal has been reached to hang onto this site, where a twin tower project containing 280 units is in development.
Market Street and 14th Ave (Ballard): Replacing Sunset Bowl will be Avalon Ballard, a 271-unit apartment complex. Construction scheduled to begin in Summer 2011.
Market Street Landing (15th Ave NW and NW Market, Ballard): Equity Residential, an S&P 500 company specializing in apartments, condominiums and corporate housing, purchased the 1.4 acre site in October 2010.
5711 24th Ave NW, Ballard: Replacing the old Ballard Library will be Ballard West. Currently scheduled to start construction in the summer, it’s planned to have 107 apartments, three live-work units and 6,500 sq ft of retail.
200 – 106th Ave NE (Bellevue): Soma Towers is a proposed two-tower project — Tower One at 23 stories high with 142 units, and Tower Two at 17 stories high with 124 units.
With few construction events over the past several years, current vacancies are lower and rents are higher, making residential construction promising again. Recently reported was Dupre + Scott Apartment Advisors’ latest forecast that 2,500 units will open in the tri-county area in 2011, with an additional 14,600 units possibly opening between 2012 and 2015. This concurs with opinions recently reported from Apartment Insights. They predict a tight market from mid-2011 into 2012, bringing on significant rent increases.
However, just because start or completion dates are announced doesn’t mean they’ll actually happen. One of the items on our residential list first hit the presses in 2007. After inactivity since 2008, another project is now up and running, but still needs to apply for building permits. We listed a property which sources tell us is a go, but is currently stalled and looking shaky for a start anytime soon.
The glitch? Money. Lending institutions now require a project’s net operating income to be profitable based on current, not projected, rents. Plus, developers have to put up more of their own money. Before the recession, developers only needed to contribute 15 percent equity. Debt coverage ratios (net operating income divided by debt services) of 1.25 or better are now required. This pushes equity contributions to rates between 25 to 35, even up to 40 percent. A number of developers now need to seek equity partners – if they can find them. Equity partners were recession victims, too.
The Outlook for Condominium Development?
With current debt coverage ratios applying here as well, there’s nothing in the pipeline regarding new construction. But as apartment development explodes, we predict that if the condo market picks up as well, they’ll look at apartment buildings to fill demand. We’ve seen this pattern in the Seattle housing market before. Both Belltown Court and The Klee Lofts started out as apartment complexes. And, as condo demand increases, former condo projects which converted to apartments over the past couple of years may return to being condos again. We think one of the first to turn back may be Bellevue’s The Bravern, which announced that intent when they converted both towers from condos into apartments in 2010. Equinox and Rollin Street Flats were once condominiums, too.
However, the recession has made for reluctant homebuyers. What will the potential glut of rentals really do for the conversion market this time around? Will more potential buyers simply remain permanent renters? We think it’ll depend on what a buyer wants in the long run. Predictions are that a renter’s market won’t resurface until well after 2015, and maybe beyond if the conversion market takes off. In the meantime, rents should continue to rise and keep pace with the same costs it would take to own a home.
All indicators seem to point to the real estate market heating up again. With record-low home prices, plus interest rates the lowest they’ve been in 60 years, buying a home is not only more affordable but is also an investment that could pay off big over time. You don’t get that option with a rental. There is a lot to think about but if you’d like to discuss your options further, just contact us at our Stroupe Group link.
There’s a lot of mixed feelings as you pass by the McGuire Apartments. This 25-story, 272-apartment high rise is only nine years old but steps are being taken to finally begin demolition and arguably, it’s the first time in Pacific Northwest history that a high rise is being de-constructed due to structural defects.
The last of McGuire’s renters moved out in August and most of the street level venues are gone. FedEx/Kinko’s looks to be the last retailer to turn out the lights. They’re working nearly round the clock to relocate to Fourth and Cedar, in space formerly occupied by Katie’s Formal Wear and The Christian Science Reading Room. They expect to be relocated by the second week of November or sooner.
But let’s move to the tale of a project gone horribly wrong. McGuire was built in 2001 at a cost of $32 million. Its owners, Carpenter’s Tower LLC, is a property-owning collective of Carpenters Union Local 131 and the Multi-Employer Property Trust (pension funds). The contractor, Mc Carthy Building Companies Inc., was founded in 1864 and is now employee owned. Headquartered in St. Louis, they are one of the top ten commercial builders in the U.S., with $3.5 billion in annual revenue and nine offices nationwide. The McGuire location was prime Belltown property at Second Avenue and Wall Street. This looked like a partnership made in heaven.
Until 2007, that is, when Carpenter’s Tower filed a lawsuit against McCarthy over construction problems. Reports surfaced that the post-tensioned steel cables reinforcing the concrete slab floors were corroding because the ends were not properly protected with corrosion-preventive paint. Claims arose that the grout used to seal the cable ends and anchors was not the specified non-shrink grout and was defectively installed. This resulted in water leaking into these areas, causing cable ends to rust and corrode. Deficiencies in the concrete material and reinforcement placement were also getting notice.
After a number of inspections by a number of firms, it was concluded that the cables were likely to start breaking in 2011, and nearly one-third of them would fail by 2019. The Department of Planning and Development declared that the city intended to issue an order calling the building unsafe and if the problems couldn’t be fixed, that McGuire be demolished. After trying to work out ways to save the building, it was decided to let it go. Recently, legal questions were finally resolved between Carpenters Tower and McCarthy about the decision to raze the building and they have reached agreements with all the project’s subcontractors. Settlement terms were not disclosed. Applications have now been made to the city for a demolition permit. A contractor has not been selected and a timeline has not been set.
So, a project filled with promise takes a final bow before fading away in plain sight. The dreams of Carpenter’s Tower LLC will be taken down piece by piece, a slower death than usual because of the building’s location. One can’t help but feel the pain and anger of the union and the pension funds, and astonishment as to how McGuire’s construction could have so bad to have warranted an actual demolition. We’re sure we haven’t heard the last of this tale, and will keep you apprised of further developments.
It’s been one of the hottest rumors around and now sources have confirmed that developer Schnitzer West is converting The Bravern’s second tower in downtown Bellevue from condominiums to luxury apartments. Its North Tower is 33 stories high and will have 211 apartments available. Units range from 600 to over 2,000 square feet, and rents will start at $1,550.
Schnitzer acknowledged that while the North Tower received conditional mortgage financing approval through Fannie Mae and FHA, sales demand simply wasn’t there. All purchase agreements have been terminated, and earnest money deposits are being returned. The Bravern’s first residential complex, its South Tower, also started out as luxury condominium building. Lack of demand caused Schnitzer to convert it to apartments in April 2010. Also 33 stories high, 65 percent of its 236 apartments are currently leased.
The Bravern isn’t the only complex experiencing slow sales. Units in two other downtown Bellevue high-rise condo projects aren’t doing big business either. However, the Bellevue apartment scene is a different picture. Demand for in-town living is increasing across the Seattle area, causing rents to rise and vacancies to shrink. In addition to The Bravern, Schnitzer converted its 204-unit Equinox condo complex in Seattle’s Eastlake neighborhood to apartments in 2009. At least four recently built Seattle projects have converted from condominiums to apartments.
Why is this a silver lining for the Bellevue condo community? Conversions to apartments means more inventory is off the table, further solidifying its condo market. And, Schnitzer sees its actions as a temporary situation. Its press release states that “…a structural shift has occurred in residential demand from owned to rental housing. Over time, we expect the pendulum to shift back to more normalized market conditions and The Bravern Residences will be positioned to capture ownership demand when market conditions warrant.”
We can’t emphasize enough how good a time it is to buy. With apartments approaching historical highs, plus home pricing and interest rates at historical lows, maybe it’s time to take a second look at sticking your rent money into an investment, and a place, to call your own. Contact us at this link and let’s get you started!
Matt Goyer at Urbnlivn.com posted it first. Please review the information on his site if you’re interested:
The Puget Sound Business Journal reported that rental rates in Tacoma and Seattle rose 7.3% and 7.1% (respectively), which is the highest in the nation according to a report from Reis Inc..