Katy Crossen has her eye out for a two-bed, two-bath condominium in the Central Business District or Over-the-Rhine.
Sure, she’s renting a nice apartment on Walnut Street with a view of the skyline, but Crossen, a marketing professional who works downtown, wants to plant roots.
“I love my apartment, but at some point I want to be paying for a place I own,” Crossen said.
“Downtown is ready. All of the heavy lifting is done with the entertainment, the arts and the outstanding parks.”
At a time when few condos are being built, Greiwe Development, Sibcy Cline and North American Properties have combined to develop some of the region’s toniest, and most successful, condo developments. A 30-unit luxury condo project near Hyde Park Square, 2770 Observatory, is already 50 percent pre-sold. Prices there run from $695,000 for a two-bedroom, two-bath condo to $2 million for a top-floor, three-bed, three-and-a-half-bath unit. The success in Hyde Park follows years of luxury condo development in Mariemont, where they’ve sold more than 80 condos. The fourth phase of Mariemont’s Livingood Park is under construction and already has four units pre-sold.
So she scours online real estate sites, looking for the perfect pad, priced around $250,000. The problem is, it doesn’t exist.
Cincinnati, and particularly downtown, is in a condo drought that’s lasted for a decade. Even though downtown is in the midst of an apartment building boom, with more than 1,400 units under construction or development, new condos are nowhere to be found.
But maintaining the renaissance underway in the Cincinnati’s core will take a wider variety of living options –namely, inventory for those who want ownership. Adding condos would help growth in both downtown and the rest of the city.
“Great neighborhoods and communities have a nice mix of transitional renters and people who have bought into the area with different income levels,” said Chad Munitz, former executive vice president of asset and capital management for the Cincinnati Center City Development Corp. and a development expert with Towne Properties. “That makes for healthy urban cores.”
Cincinnati’s not alone in its dearth of new condos – far from it. Nationally, condo construction has fallen from 70,000 units in 2008 to 7,600 last year, according to the U.S. Census Bureau. Apartments are the hot commodity – here and across the nation – because there is less risk involved in developing them. Banks are more willing to finance apartments, and vacancy rates are at their lowest levels in years.
While there still are no large condo projects announced for downtown, that could change. Soon.
Few people know more about residential real estate in Cincinnati than Rob Sibcy, president of the city’s largest real estate company, Sibcy Cline. He’s convinced downtown condos are on the way.
“These things are coming,” he said.
At a time when hardly anyone is building condos, Sibcy has teamed with developer Rick Greiwe and Tom Williams, president of North American Properties, to build the successful Mariemont Village Square development, which sold all 83 completed condos and pre-sold four in the 18-unit fourth phase. And the group already has pre-sold half of the condos at 2770 Observatory, a luxury condo project near Hyde Park Square. Greiwe said if the trio can secure the land they want, they’ll have a downtown condo project. He’s looking for vacant lots because most existing class B and C office space already is being converted.
What’s driving the urban living trend is a combination of changing demographics, the increasing importance of walkable neighborhoods, proximity to the core and maintenance-free living. And baby boomers, with their massive numbers and money, want to be in the middle of the action.
Sibcy said more than half of the condo deals in the Mariemont and Hyde Park projects were cash sales. Boomers pay off existing homes and are willing to invest in new property. In Hyde Park, 2770 Observatory has a number of million-dollar homes nearby. It’s not a stretch to build and find a buyer for a $1 million condo in the same area.
Still, while Mariemont and Hyde Park are very walkable areas with great public squares, they can’t compare to downtown Cincinnati for many buyers.
“Downtown is ready. All of the heavy lifting is done with the entertainment, the arts and the outstanding parks,” Greiwe said.
With that infrastructure in place, he said, it’s a matter of finding properties.
Condo developers have a tough job, especially in places like downtown and Over-the-Rhine. They have to piece together the right site at favorable construction costs working with equity partners and lenders who are willing to take risk.
Shawn Baker, a Comey & Shepherd real estate agent whose clients include many looking for condos downtown, said demand is so great that if boomers can’t find a condo, they’ll rent despite owning for most of their adult lives.
Baker had a client recently who sold his suburban home yet decided to rent the largest unit at the new Seven at Broadway apartment building downtown.
“There’s no more B.S.,” Baker said of the reason boomers are willing to rent. “These folks have money.”
For those who haven’t been downtown in a while but keep hearing or reading about the city’s rebirth, a new visit is an eye-opener.
“They don’t feel it. They don’t touch it. They don’t see it,” Baker said. “When they do, they want to be here, believe me.”
Another developer that could break the condo dam is Towne Properties, known largely for its local residential developments. Munitz, who joined Towne earlier this year after nine years with 3CDC, said the Mount Adams-based company is exploring development opportunities for both apartments and condos downtown.
“There’s still plenty of demand,” Munitz said.
Pete Horton and Tom Rowe are studying the same downtown condo market. The co-founders of Terrex Development & Construction have studied several potential CBD condo developments.
“There is a robust market,” Rowe said.
One spot downtown that won’t see condos any time soon is the Banks. Libby Korosec, spokeswoman for the Banks, said that while condos continue to be an option for future phases, there are no current plans to build any.
“Phase I condos were considered but at the time were almost impossible to finance because of the market,” she said. “So we turned to apartments.”
The Banks was designed from the start to follow the market, and rentals are still the way to go, she said.
Even when the condos do come, want-to-be buyers like Crossen might be out of luck. Rising construction costs and high prices for downtown land make it tough to build condos that would fit her budget and size requirements.
The average per-square-foot list price for the 22 condos on the market downtown at the end of May was $242. Developers and builders said buyers must be willing to pay a premium for new condos. Because of land and construction costs in the CBD, Rowe said new condos would likely be priced between $250 a square foot and $350 a square foot, with prices being even higher for repurposed existing buildings.
Greiwe said a true, brand-new high-rise condo tower, all concrete and glass with higher end finishes, could cost upward of $500 or $600 per square foot.
“That’s a different animal than three stories of wood construction,” Greiwe said.
Baker questions how many buyers are out there who could pay $500 per square foot. In that scenario, a 2,000-square-foot condo would cost $1 million.
“That’s a little high. Maybe when the GE people start coming into town – maybe,” Baker said, referring to the 1,800 General Electric employees who eventually will work at the multinational giant’s global operations center at the Banks.
Where can they build?
One thing that makes Cincinnati’s downtown different from other cities where condos have been developed is the lack of open land or an adjacent former industrial area that can be remediated.
In Portland, Ore., and Nashville, Tenn., a railyard and gulch, respectively, were converted to developable land. In Columbus, Nationwide Insurance assembled land near its arena and built condos.
The condo communities that sprung up in those sites made it easier to build or develop elsewhere downtown because there were existing condos with which to compare, Greiwe said.
What downtown Cincinnati does have is surface parking lots. And their owners don’t want to sell.
“The parking lot has been the bane of redevelopment downtown. People are sitting on cash cows. Parking lot owners are notorious in that in no way are they developers,” said former Cincinnati mayor Roxanne Qualls, now a Sibcy Cline real estate agent. “It’s going to be a matter of persistence as well as sufficiently enticing deals.”
Greiwe has proposed making parking lot owners equity partners in projects, and replacing the parking lot revenue with money from garage parking.
“We haven’t found an owner yet who wants to do that,” Greiwe said. “We’re in conversations. These are people that have owned these lots for generations. You’ve got to get their arms around it.”
Typically, developers can build a condo project in phases, so they can get a loan for a smaller number of units for each phase of a development. With a tower in the CBD, developers don’t have that luxury, Horton said.
The biggest headwind against construction of new condos is financing. Many banks are just now getting over the hangover from 2008 and 2009, when the housing bubble burst and the recession hammered the real estate industry.
Condo developments require more equity, they are more expensive for developers, they require about 50 percent of the units to be pre-sold and the developer typically won’t see their first dollar until the bank is paid back.
“Banks are averse to speculation,” said Mark Caesar, senior vice president and manager for investment commercial real estate lending at Fifth Third Bank. “The developer is taking on the brunt of the risk.”
Lenders are fighting to loan to apartment developments, so if a developer could do either, it makes sense, considering financing and risks, to build apartments.
The possible solution for developers looking to hit that $250,000 to $350,000 spot for condos is for the city to incentivize those development projects the way it has apartments, Rowe said.
“That could be the straw that breaks the camel’s back,” Rowe said.
The city should do just that by offering greater public subsidies for housing development, Qualls said.
The payback comes when the city captures new income tax revenue from urban-oriented millennials and former suburban dwellers. The appetite for downtown living could support 30,000 residents, Qualls said. In 2013, there were 13,500 people living in downtown, Over-the-Rhine and Pendleton, according to Downtown Cincinnati Inc.
“If they had more product, they would be able to sell it,” said Qualls, while adding that there’s an even bigger appetite for luxury condos. “This city has talked about having a downtown housing strategy for 30 years. If it would stick to a vision of creating and supporting the development of real housing, you could have a huge downtown population.”
Crossen will keep looking for her dream condo to hit the market. And she’s keeping her search focused on a condo near the city’s core.
“I don’t want to be cleaning out gutters,” she said.