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Map: Uptown condo development

Posted: Saturday, Mar. 06, 2010

Charlotte's uptown vision is
delayed as condo sales sag

With condo demand flagging, plans for a center city fueled by a population boom will have to wait a little longer.

By Kerry Hall Singe
Posted: Monday, Mar. 08, 2010
Kerry Hall Singe writes on business and development for The Charlotte Observer.
March 08, 2010
Aerial photograph of Charlotte's skyline, taken from the southeast. Experts predict many new uptown condominium units will be converted to rentals, and that others will come down in price. "Uptown is going to become more affordable," says Bill Miley, Metrostudy's Charlotte market manager. GARY O'BRIEN -, FROM WCNC AIRSTAR 6

More Information

  • Map: Uptown condo development
  • Building by building: Update on condo construction
  • Two views: A buyer, a renter
  • Two residents' experiences
Two residents' experiences
The buyer
Rob Cummings moved to Fourth Ward with his wife, Lana, and two young children from south Charlotte in 2003, attracted by the idea of being able to walk to restaurants, parks and sporting events. In 2005, he put down a deposit on a unit at The Vue for his mother for when she retires.
An operating partner at a Charlotte-based private equity firm, Cummings said the quality of life has improved over the years. His son, Cole, recently celebrated his birthday at Strike City bowling alley and the family enjoys walking to the EpiCentre to eat pizza and ice cream.
Cummings, past president of the Friends of Fourth Ward neighborhood association, said he knows his house has lost value recently. But he also see signs of economic revival - such as a wine bar that opened recently on North Tryon Street where a drugstore once was.
"I feel that uptown was positioned to really explode. I still think it will," he said. "It will just take longer than expected."
The renter
Tim Jones, 26, a client service consultant at Wells Fargo & Co., said he thought briefly about buying when he was looking at moving from South End to uptown last year. He decided to rent, partly because he wasn't sure he could get the value he wanted if he purchased a condo.
He chose a one-bedroom at the Catalyst at South Church Street and Martin Luther King Boulevard.
Jones enjoys his two-block walk to work, and the building's workout room and luxury clubhouse.
He plans to renew his lease and sees a "huge amount of growth potential" for his new neighborhood.
Plans were increasingly grand.
Luxury condos on top of boutique hotels. Penthouses with elevators for owners' cars. Predictions that more than 17,000 residents would live uptown today, about double the number at the start of the decade.
Developers announced at least 20 condo high-rises for the center city during the mid-2000s, earning Charlotte a national reputation as a darling among downtown economic developers.
Then the recession hit and, as with much of America, uptown's future swiftly changed.
Instead of 20 towers, eight have been built.
Of two roughly 50-story high rises, one made it out of the ground, but the Vue faces obstacles in a market dominated by first-time homebuyers and speculators looking to buy cheap.
Condos that once sold for around $400,000 are now on the market in the mid-$200s. Average closing prices have fallen to levels last seen in 2003, according to one analysis.
Uptown's population has stayed flat - estimated at about 11,000 residents, the same number cited by uptown boosters four years ago.
On the brighter side, falling prices will make uptown more affordable. And developers finished marquee projects - notably the EpiCentre entertainment complex and Wells Fargo Cultural Campus with three museums and a theater - that economic developers say will boost uptown's appeal. The NASCAR Hall of Fame opens in May.
The center city's housing market is also expected to rebound faster than the Charlotte area as a whole, some say. That's because Charlotte is among the fastest-growing metro areas, and many newcomers are young professionals, ideal candidates for uptown living.
A healthy downtown is important because it can help attract new companies to the region, said Michael Smith, president of Charlotte Center City Partners, an uptown booster. Companies often prefer cities that offer a variety of lifestyles for employees, he said.
"It's the living room for a community," he said of uptown. "When someone wants to know how healthy Charlotte is, they're going to come and look at the center city."
The vision for what uptown could become isn't dead, experts say. But the dreams have been pushed back five to 10 years, they estimate.
"It's not so much the financial crash has dashed the hopes of Charlotte's uptown for being a great neighborhood," said Peter Compton, a real estate economist with PPR, part of Bethesda, Md.-based CoStar Group. "It's delayed it."
Condo glut
David Furman, one of uptown's most bullish believers and active developers, remembers the early warning signs in 2008.
His 202-unit, $73 million condo high-rise, TradeMark, was about 95 percent sold when people started having trouble closing.
At the same time, buyers at another condo project, 184-unit Quarterside in First Ward, tried to get out of their contracts, he said. As sales dropped, his company aggressively marketed the building but didn't get any nibbles.
"I thought, 'We're screwed,'" he recalled.
He later converted Quarterside to rental units to cut his losses, one of three condo projects to do so last year. He says the 28-story TradeMark is "stable" and he is renting out some units that didn't sell until the market improves.
"It was booming beyond what was sustainable," he said of uptown's condo market, which grew rapidly in the mid-2000s before tapering off last year. "I still think there is a thirst for urbanism. Downtown is feeling the same pain as everywhere."
Optimism for the center city blossomed during the mid-2000s as Charlotte's economy flourished, thanks largely to Bank of America and Wachovia, which employed thousands of workers at their uptown headquarters.
Between 2004 and 2007, developers announced plans that would have created more than 3,000 condos in the 20 planned towers. Proposed investment topped $3.6 billion.
Developers were betting on bank employees and other finance-related workers to snap up the units. Upscale eateries also moved in to cater to the new residents, adding to uptown's allure. The banks were also racking up record profits at the time and announcing new building projects of their own.
By fall 2007, work had started on four towers - two of which have since been canceled.
One project that made it up, Catalyst, converted to rentals because condos weren't selling. Rents start at $1,100 a month. The other tower, The Vue, is expected to be completed in fall, and some residents might move in this summer.
By January 2008, however, developers were canceling plans, citing an uncertain economy.
Uptown's future took another hit as thousands of banking and finance workers lost their jobs amid the banking industry's meltdown. Wachovia was sold to San Francisco-based Wells Fargo & Co.
Currently, about 1,100 units are under construction and less than 50 are built but vacant in uptown, according to national industry tracker Metrostudy.
Compton, the economist, estimates uptown has a five-year supply of condos available.
Bill Miley, Metrostudy's Charlotte market manager, said a significant number of the units coming online will probably convert to rentals.
"Developers really jumped on the bandwagon because the towers that were the first ones finished sold out and did very well," Miley said. "Unfortunately, all the ones now under construction are going to have a hard time.
"Uptown is going to become more affordable," he said. "(Owners) will have to lower prices to get rid of inventory, make them rentals or give them back to the bank."
Sales prices have fallen
Real estate analyst Emma Littlejohn said uptown condos on average may have lost 20 percent to 25 percent of their value during the past two years.
Some have lost more. A two-bedroom, two-bathroom unit at Fifth and Poplar Condominiums that sold for $427,500 in 2007, for example, is listed for sale at $285,000 - a one-third drop.
The good news, Littlejohn said, is she believes there is demand for both condos for sale and rentals.
"The housing will be occupied," she said. "People want to live downtown."
She also said Charlotte was lucky in that, unlike in cities such as Miami, the skyline isn't marred by unfinished projects.
Uptown has one eyesore - the rusting skeleton of the failed high-rise The Park at Third and Caldwell streets. But construction may resume as a new owner took over the project last fall and recently filed for rezoning for a hotel/condo combination.
"It's not like we got caught with 10 towers all the way up," Littlejohn said.
Uptown boosters, however, got a scare last fall when The Vue's general contractor stopped work because it hadn't been paid. The Chicago-based developer, MCL Cos., had fallen behind on its payments but renegotiated with its lenders. Work resumed more than a month later.
Dan McLean of MCL Cos. has said he believes sales will pick up once buyers can tour finished units, and he is counting on empty nesters and others looking for second homes to purchase units.
He has said about half of the 409-unit building at Fifth and Pine streets is pre-sold. He has said he won't convert to rentals.
Prices start at around $280,000, the same as when MCL took over about three years ago.
Closings for new and existing uptown homes hit a high of 533 in 2006 before they fell to 153 last year, according to an analysis of transactions through the Carolina Multiple Listing Service from 2003 through 2009 by the Charlotte Regional Realtor Association. The listing doesn't include private sales and some new construction.
Average sales prices rose steadily from about $260,000 in 2003 to a high of nearly $350,000 five years later before falling back to around $260,000 last year, according to the association. The drop is largely due to sales at Fourth Ward Square, an apartment complex that converted to condos starting at around $100,000.
Newcomer Leeanne McManus bought one of those condos a year and a half ago after she moved to Charlotte from Portland, Ore., to be closer to family.
A wireless telecommunications project manager who works from home, McManus wanted to be within walking distance of restaurants, entertainment and the library.
"When this deal came along," she said, "I jumped on the opportunity to live uptown, without breaking the bank."
Growth could help
Charlotte Center City Partners estimated 17,750 residents would be living uptown and in nearby areas by now. That hasn't happened. Smith says 25,000 residents by 2020 is "incredibly achievable."
Charlotte's population is expected to grow faster than the nation's on average - about 2.4 percent a year during the next five years, according to CoStar Group, which studies real estate markets in the United States and abroad.
While that's less than past growth rates, it's higher than the 1 percent growth expected for the country as a whole, Compton said.
Compton said uptown is also likely to see new jobs first, compared to the rest of the Charlotte region. He sees employers moving into downtown because rents have fallen and new space is coming onto the market this year.
Recovery, Compton said, will be "long and drawn out." But uptown should fare better than the city as a whole because "it's a desirable location, the amenities are there, and it will become more affordable."
Veteran real estate appraiser Fitzhugh Stout agrees with Compton's assessment, saying uptown's commercial properties have probably lost 10 percent to 40 percent of their value from two years ago.
He expects to see some high-end restaurants close in the center city and be replaced by more moderately priced ones. He doesn't anticipate much retail moving in anytime soon.
Uptown's housing recovery could take five to 10 years, he said. While he's "very" upbeat about uptown, Stout said, "it may be a while before we see any significant appreciation."