Condo mania’s big gap

Downtown Tacoma’s empty nesters, even with their zest for high-rise living, could use some company.

Hundreds of new, pricey condominiums exclude young singles needed for a thriving city core, according to the author of a study analyzing the downtown housing market.

Builders and developers say land costs and water views push prices beyond the mid-$200,000 range generally considered doable for the first-time buyer. And even though the number of unsold units remains high in some neighborhoods, they say demand is strong for high-end condos. Tacoma’s average new condominium price, according to the study, was $348,893 at the end of last year.

The 149-page report, finished last week, identified three kinds of future condo buyers: female baby boomers, young professionals, and married folks with no children at home. It recommended adding edgy lofts and more small spaces that Generation Y buyers can afford.

Condominiums have helped to transform a once-troubled downtown where few previously wanted to live. Today, a patchwork of exposed steel, scaffolding and cranes showcases a decade of marketing, recruiting developers and trying to convince buyers of the area’s merits.

Widely credited with helping the projects pencil out is a property tax break that city leaders approved in 1995. Since then, dozens of condo buildings have gone up or been renovated in the city’s downtown core from the Tacoma Dome to Stadium High School. That investment spurred other development, including museums and a convention center – though many still want shops and restaurants catering to more than daytime workers.

As of December, all six neighborhoods surveyed averaged 14 months of condominium inventory, which measures how long it would take to sell everything built and approved.

A healthy market for new construction tends to be in the six- to 12-month range, said Deanna Sihon, the study’s author.

Beyond that, buyers enjoy some advantage and prices don’t appreciate as quickly, she said. Tacoma also is subject to a hesitation common in areas remaking themselves and having to overcome long-held perceptions, Sihon said.

“People are being careful and almost waiting to see, gosh, is this renovation and this new place really happening?” she said. “It is in Tacoma.”

New condo sales can go slowly as buyers seek the just-right building and take the time to downsize from large houses, said J.J. McCament, a consultant on the study whose company markets The Vintage Y and the Roberson condos.

“I think everyone would like the strongest sales possible. You’d like to see them fly off the shelf, and they’re not doing that right now,” she said.

McCament, who as a city employee in the late 1990s was charged with bringing developers to an empty downtown, said a stable market like Tacoma’s is better than one experiencing spikes, whether down or up.

“When it gets hot like that and there are tons of sales, that’s when the builders overbuild,” she said.

Since 2004, nearly 400 condos have been sold downtown with another 525 for sale and about 1,500 proposed, according to the study.

Yet real estate agents and homeowners say South Sound residents still don’t know about the growing collection of condos and are unaware of the tax break that makes it possible for many to take the plunge.

NO MORE ‘SENSE OF URGENCY’

A year ago, a hot market meant condo shoppers had to make rapid buying decisions, said RE/MAX real estate agent George Pilant.

Not so now.

“Buyers have so many choices they don’t feel a sense of urgency,” he said.

Perks also point to a market benefiting those on the hunt. The Marcato: Reverie, a six-floor complex on Tacoma Avenue South, is offering paid closing costs or $15,000 in furniture from Posh Home. Stadium Point also has advertised no closing costs.

Inventory levels for downtown condos even at 14 months are realistic, said Don Lloyd, director of business development for Rushforth Taylor Construction, which developed and managed the construction of Thea’s Landing.

“When you first hear it, it kind of scares you a little bit because you know there’s more coming on line. But my personal opinion is … that’s great. If we can sell all of the units in 14 months, what a victory,” he said.

As in any type of residential real estate, demand is driven by population and job growth, said Paul Turek, an economist with the state Employment Security Department.

But condos are a niche product that at higher inventory levels, he said, raise this question: Will good-paying jobs needed to sell such downtown housing continue to be created?

“I suppose that’s where the gamble is,” he said. “In the Tacoma area, we have some high-paying jobs. Whether there’s enough to support the building of the condos remains to be seen.”

For some buyers, the hesitation has little to do with a good job or affording a condo but leaving behind a house.

Realtor Marilyn Tennison said she and husband Ray, CEO of Simpson Investment Co., will put their 4,200-square-foot University Place house on the market next month.

They’ve pondered the possibility of condo living and like the idea of a low-maintenance home. Rather than buy immediately, the couple likely will first lease a condominium, she said.

“It’s difficult to think about going from a house to a condo,” she said. “Because in many ways it’s like an apartment.”

‘IT FEELS VERY SUBURBAN’

Sihon, director of research at Mill Creek’s NewHomeTrends, found no projects planned that would target first-time home buyers.

Tacoma’s downtown condos are made to appeal to the affluent couple.

“When I look at a lot of the product downtown, it feels very suburban,” she said. “You don’t want a city just full of empty nesters. That doesn’t make a vibrant city.”

Builders should think smaller, pare down upgrades and go for edgier materials, like concrete flooring and exposed beams, she said.

Trevin Anderson, part owner of the under-construction 505 Broadway, said a good deal on land is essential to keeping home prices down. The 62 condos at 505 Broadway will sell for nearly $500,000 to $1.5 million, he said.

“Our spot was expensive land, and we have to take advantage of the view,” he said. “The location is so central and good we thought going high-end and for an older buyer maximizes the value of the site.”

Anderson said he will start taking deposits in about a month but already has 18 reservations from potential buyers. The project should be done in spring 2008, he said.

University of Puget Sound economics professor Bruce Mann pointed out in an interview last week that just building housing downtown five years ago was considered edgy.

He attributed the lack of first-time home buyer condominium options to Tacoma’s availability of stand-alone houses. Other markets, such as Seattle’s, force buyers downtown because houses cost far more than condos, he said.

The median price – the midpoint of all selling prices – for Pierce County houses in February was $286,980 compared to $231,750 for condos, a 24 percent difference, according to the Northwest Multiple Listing Service. That difference in King County was 51 percent.

“You can get a near North or Northeast Tacoma house for an equivalent price, and a lot of people think that’s less risky then buying a condo downtown,” Mann said.

Tom O’Connor’s development strategy is to keep new condo prices under his competition’s, though most at his planned Mid-Town Lofts probably won’t come in below $300,000.

In 2002, the first 13 town homes at O’Connor’s McCarver Village started at $199,000, and finished the next year at $240,000. Similar units in the second phase are selling for as high as $375,000.

“I pay the same amount for steel and concrete,” he said. “We’re looking real hard at profit margins and making sure we’re as skinny as we can be without sacrificing quality.”

As an example, O’Connor said he might install granite tiles at Mid-Town Lofts rather than granite slabs, which would elevate cost by at least $10,000.

Apartments also are needed in almost every corner of downtown, the study said.

Rentals will lure younger residents, the kind of people who might not yet have the money for a condo, Sihon said.

“If that product isn’t available, how will they test the neighborhood?” she said.

‘LESS IS MORE’

Soon-to-retire Eric Johnson is doing the condo life times two. He’s buying one in Miami and last year purchased a 1,200-square-foot town home at City Steps.

He plans to sell his Northeast Tacoma house.

“As you get older you realize this: Less is more,” he said.

Johnson, 50, said he was attracted to City Steps for the bathrooms in each of his two bedrooms and the city tax break that forgives property taxes for a decade at many downtown projects.

He’s frustrated, however, that more locals aren’t joining him. Most of his neighbors come from out of state.

“I have asked no less than 35 people and not one has known about the tax abatement,” he said.

A proposal by city staff to limit the tax break to only large projects was shot down by the City Council in January.

Windermere real estate agent Colleen Walker, who has sold town homes at City Steps, said Seattle residents are better acquainted with the idea of downtown condos than people in Tacoma.

“They don’t come, they don’t understand there’s a whole new lifestyle,” she said.

AROUND DOWNTOWN TACOMA’S DISTRICTS

Stadium

Boundaries: North Sixth and Division streets and Yakima Avenue North and North Stadium Way

Snapshot: “Neighborhood feels safe, has wonderful charm and has great potential.”

Recommendations: New apartments, historic-looking town homes, condos

St. Helens

Boundaries: Division and South Ninth streets and Tacoma Avenue and Pacific Avenue and Stadium Way

Snapshot: “Neighborhood continues to increase in desirability. … Product releases and phasing will be important in order to maintain momentum.”

Recommendations: Studio, one- and two-bedroom apartments; town homes; studio, one- and two-bedroom condos up to 1,000 square feet

Mid-Town

Boundaries: South Ninth and South 17th streets from A Street to South I Street

Snapshot: “The neighborhood could benefit from attracting businesses that operate outside of daytime business hours.”

Recommendations: Studio, one- and two-bedroom apartments; corporate housing; edgy loft condos

The Foss Waterway

Boundaries: East side of Interstate 705

Snapshot: “This neighborhood is very desirable because it is a waterfront community. … There does seem to be an imbalance in the type of housing.”

Recommendations: Apartments, town home condos

South Downtown/ Brewery District

Boundaries: South 17th Street to South 27th Street and South A Street to I Street

Snapshot: “Neighborhood continues to evolve and is still seen by many as the least safe. … This neighborhood will continue to increase in desirability.”

Recommendations: Apartments, small condo units

Tacoma Dome

Boundaries: South 24th Street and East 32nd Street and A Street and East L Street

Snapshot: “Price points will need to be lower than in other areas. … This neighborhood has terrific potential.”

Recommendations: Entry-level condos, industrial/edgy lofts and apartments Here’s a look at most of the downtown Tacoma condominium projects with units currently for sale, according to a study by Mill Creek-based NewHomeTrends.