Charlotte Real Estate: The Condo Recovery
Apartments are being thrown up every day. Why haven’t condos caught up?
STONEWALL STREET IS all construction dust and looming cranes at rush hour on a February morning. A drive into uptown will take you past three apartment projects in three blocks, promising to deliver nearly 1,200 new apartments and thousands of square feet of new retail in the coming year. Residents and shoppers will completely transform this street, where only vacant lots and the Actor’s Theatre of Charlotte stood a few years ago. But the cranes and the cones and the wood frames are a familiar sight in Charlotte. At the trend’s peak in summer 2017, nearly 25,000 apartment units were under construction or planned in the Charlotte market, according to real estate data firm RealData.
So far, a steady stream of newcomers has filled those units, which often come with luxury amenities. Whether by preference or economic necessity, younger people have been living an apartment lifestyle longer than previous generations, renting for an average of six years before a home purchase, compared to a 2.6-year average in the 1970s, according to a Zillow study. But some economic indicators point to a tightening of credit for builders of multifamily projects. In a Federal Reserve survey last year, loan officers said they had noticed a downturn in demand for multifamily projects and had made multifamily lending requirements stricter.
“There is still plenty of money out there for apartment projects,” says T.J. Larsen, owner of My Townhome, a group of condo and townhome agents in Charlotte. “What you’re seeing now is probably just a bit of a correction, which makes sense.”
New condo construction, on the other hand, has not yet recovered from the downturn. Though condo construction flourished in uptown pre-recession, many planned towers converted to apartments or were never completed after being unable to presell enough units. In 2017, Mecklenburg County issued only 13 permits for condo units, mostly in smaller mid-rise buildings. In 2007, the county issued permits for 1,490 condo units.
With buyers less willing to prepurchase units in speculative buildings, developers have found themselves unable to meet high financing standards.
“Before you see a high-rise, you’re going to see more mid-rises,” Larsen says. “You need to get into the 300-unit count to cover the cost of construction on (high-rises). Then, you have to have 50 percent presales. Just selling off of renderings, that’s tough. Just because something is advertised doesn’t mean it’s going to get built.”
Townhomes, Larsen says, are built out as they are sold, a luxury condo developers don’t have. Townhomes are also an easier sell to buyers initially set on single-family homes. The townhome market benefited from lower land prices around uptown after the recession, which allowed developers to build less densely. Mecklenburg County issued 828 townhome permits in 2017. But with rising land prices in uptown and South End, townhome development is likely to shift to around the Lynx Blue Line Extension.
Another type of multifamily development, though popular in higher-cost markets such as New York and Florida, is nearly unheard of in Charlotte: co-ops. Co-ops allow buyers to purchase shares in a nonprofit corporation, which exists solely to own and operate the building. The shares entitle holders to a lease on their unit. Two co-op buildings exist in Charlotte: the Kimberlee, near Park Road Shopping Center, and Morrocroft Place in SouthPark. Both were built between 1965 and 1974. Prices in co-ops tend to be lower than in comparable condos. Despite recently rising rents and condos prices, Charlotte’s housing market is still less expensive than in many large cities, and because of that and stricter HOA requirements, experts think a co-op revival is unlikely here.
“(Co-ops) are an enigma,” Larsen says. “Though (the Charlotte co-ops) are a couple of older buildings with really cool architecture.”