SoDo On Main: Multifamily At 1625 Main St.

[fernz]

Money.

Taxpayer money vs. Developer money.

I am concerned that if the incentive (tax abatements over 15 years) continue, downtown will be little more that a bunch of apartments. A mix of apartments and condos are needed. Homeownership puts a bit of a stake in the ground where rental units don't. I think that the incentive is leading folks to develop rental units over condos. And that concerns me for the long term.

[CREguy13]

I think what you may see is a mini-condo boom downtown in the upcoming years.  Right now, it still isn't an easy sell to buyers to move when there is such a lack of retail and street level activity.  Once all the rental units deliver, retail will pour back into the CBD, and it will demonstrate that downtown is a living, dining, and playing destination.  Then I think Condo-developers will head to the drawing boards, because there is less risk and the area is proven.  Maybe I'm alone on this one, but that's how I see the process playing out.

[Grizzly46]

I think what you may see is a mini-condo boom downtown in the upcoming years.  Right now, it still isn't an easy sell to buyers to move when there is such a lack of retail and street level activity.  Once all the rental units deliver, retail will pour back into the CBD, and it will demonstrate that downtown is a living, dining, and playing destination.  Then I think Condo-developers will head to the drawing boards, because there is less risk and the area is proven.  Maybe I'm alone on this one, but that's how I see the process playing out.

Agreed. You have to set the climate for homebuyers.

[Trae]

I'd prefer to see a tax incentive to spur more development in EaDo. Midtown is doing just fine.

East Downtown is doing just fine. It is amazing how some of these blocks have filled in recently. A good amount of people are always out walking and running. Retail needs to happen there though.

[houstontexasjack]

EaDo has plenty of townhomes, but much less in terms on multifamily. A few higher density developments on St. Emanuel would be nice. I agree that additional retail is needed.

[UtterlyUrban]

I think what you may see is a mini-condo boom downtown in the upcoming years. Right now, it still isn't an easy sell to buyers to move when there is such a lack of retail and street level activity. Once all the rental units deliver, retail will pour back into the CBD, and it will demonstrate that downtown is a living, dining, and playing destination. Then I think Condo-developers will head to the drawing boards, because there is less risk and the area is proven. Maybe I'm alone on this one, but that's how I see the process playing out.

I certainly hope that you are correct. But, what troubles me greatly though is areas like EaDo with, essentially no retail activity at all, are having little issue attracting folks who want to be homeowners. Yet, for whatever reason (I think it is partly do to the way the downtown incentive favors rental over ownership), downtown, despite the fact that it has far more entertainment, food, retail, etc than EaDo is NOT attracting ownership (condos).... Riddle me that....

To me, EaDo is still quite sketchy (sorry, in advance to those who live there). But people are buying left and right. Downtown is NOT sketchy (IMO).... Quoute robust comparatively and has some retail. Yet, very little ownership in downtown and ALL of the new residential being built is rental...... Just seems odd to me.... Others will know better.....

[Fortune]

I certainly hope that you are correct. But, what troubles me greatly though is areas like EaDo with, essentially no retail activity at all, are having little issue attracting folks who want to be homeowners. Yet, for whatever reason (I think it is partly do to the way the downtown incentive favors rental over ownership), downtown, despite the fact that it has far more entertainment, food, retail, etc than EaDo is NOT attracting ownership (condos).... Riddle me that....

To me, EaDo is still quite sketchy (sorry, in advance to those who live there). But people are buying left and right. Downtown is NOT sketchy (IMO).... Quoute robust comparatively and has some retail. Yet, very little ownership in downtown and ALL of the new residential being built is rental...... Just seems odd to me.... Others will know better.....

I think it has a lot to do with the fact that town homes are being built in EADO. Town homes sell. Condo buildings take a lot more to get off the ground, pre-sales and such. The land downtown is to expensive for town homes. Unfortunately developers aren't willing to take a risk on condo buildings yet hopefully that will change soon. Maybe once they see the success of the rental buildings downtown the developers will feel more confident about building condos.

[fernz]

I keep reading in some of these posts that the incentives favor rentals vs condos. I don't think that's the case. I thought the incentives give a set amount ($15,000) per residential unit, regardless of ownership type. Can someone explain?

['Stonian]

I've said this before but Novare has traditionally been a condo developer and I believe their business plan is to convert these rental units into condos once that market recovers.  The fact that they are building Skyhouses like crazy and have yet to sell any of those buildings to other REITs further supports my theory.

 

For the past couple of years capital has been flowing towards apartment construction based on fundamentals, however this will change in the coming years. Smart move by companies such as Novare if you ask me - build whatever the capital markets will finance.

 

I clearly expect quite a few other higher end apartment buildings to convert to condos in the not-to-distant future (i.e. 2929 Wesleyan, Hanover Post Oak).  The rents these buildings are going after are simply not sustainable. 2929 Wesleyan rents will supposedly average more than $4000/unit - that's ridiculous.

Edited September 16, 2014 by 'Stonian

[Montrose1100]

I clearly expect quite a few other higher end apartment buildings to convert to condos in the not-to-distant future (i.e. 2929 Wesleyan, Hanover Post Oak). The rents these buildings are going after are simply not sustainable. 2929 Wesleyan rents will supposedly average more than $4000/unit - that's ridiculous.

Apartment Towers like this with extreme luxuries, amenities, views, and matching rates are nothing new in Sunbelt cities. It is new to Houston in such high numbers.

One Park Place shows how well this works right now in this well paying economy. The rates for some of the wrap around 4-7 story apartments are not far behind these apartment skyscrapers. Why not pay a little more for a million dollar view? You'd be paying double for a mortgage in a condo the same size that is more than likely going to have a dated interior.

[fernz]

In some cases you pay that much just in condo fees alone...

[jgriff]

I've said this before but Novare has traditionally been a condo developer and I believe their business plan is to convert these rental units into condos once that market recovers.  The fact that they are building Skyhouses like crazy and have yet to sell any of those buildings to other REITs further supports my theory.

 

For the past couple of years capital has been flowing towards apartment construction based on fundamentals, however this will change in the coming years. Smart move by companies such as Novare if you ask me - build whatever the capital markets will finance.

 

I clearly expect quite a few other higher end apartment buildings to convert to condos in the not-to-distant future (i.e. 2929 Wesleyan, Hanover Post Oak).  The rents these buildings are going after are simply not sustainable. 2929 Wesleyan rents will supposedly average more than $4000/unit - that's ridiculous.

High rises are not cheap. I've always found it surprising that we have as many in Houston as we do. I've looked at moving into a couple and it just never made financial sense for me. I could afford to live in one but I'm not into throwing that much money away for a view and having to live with the inconvenience of an elevator when I can get a townhouse for much less with more space.

 

There are however, plenty of people in Houston who can afford to pay $4000 a month. These days $4k is not that high.

Edited September 16, 2014 by jgriff

['Stonian]

Apartment Towers like this with extreme luxuries, amenities, views, and matching rates are nothing new in Sunbelt cities. It is new to Houston in such high numbers.

One Park Place shows how well this works right now in this well paying economy. The rates for some of the wrap around 4-7 story apartments are not far behind these apartment skyscrapers. Why not pay a little more for a million dollar view? You'd be paying double for a mortgage in a condo the same size that is more than likely going to have a dated interior.

 

I've lived in NYC, DC, and Atlanta so I'm well aware that expensive high rise apartments are nothing new. Sure - One Park Place has little competition and they're able to command these rents "right now" - my point was that these $4,000 - $12,000 monthly rents in Houston are not sustainable, especially once more come online or God forbid, the economy hits a snag.

 

I still own a new'ish 29th floor condo in Atlanta and I'm renting it out for less than some of the newer apartments that have been built there. The mortgage, HOA fees etc. still come in a lot less than some these rents they are charging - so you're not paying double but actually less to own (of course this depends on equity/down payment).

 

Houston's rental prices will balance out based on supply/demand and once that happens $4000 rents will come down - at that point, many of these ultra luxury high rise owners will consider condo conversions to cash out, which I believe is their intention all along (again, just my theory, I could be wrong).

[Montrose1100]

I've lived in NYC, DC, and Atlanta so I'm well aware that expensive high rise apartments are nothing new. Sure - One Park Place has little competition and they're able to command these rents "right now" - my point was that these $4,000 - $12,000 monthly rents in Houston are not sustainable, especially once more come online or God forbid, the economy hits a snag.

 

I still own a new'ish 29th floor condo in Atlanta and I'm renting it out for less than some of the newer apartments that have been built there. The mortgage, HOA fees etc. still come in a lot less than some these rents they are charging - so you're not paying double but actually less to own (of course this depends on equity/down payment).

 

Houston's rental prices will balance out based on supply/demand and once that happens $4000 rents will come down - at that point, many of these ultra luxury high rise owners will consider condo conversions to cash out, which I believe is their intention all along (again, just my theory, I could be wrong).

I didn't mean to sound as if you weren't aware of high rise markets in other cities, mostly thinking out loud.

 

How are the pricing of similar units in Atlanta compared to here? I'm unfamiliar with their current development. I know they had some tremendous projects before the great recession. Do their current rates compare to ours? How about their housing stock?

 

It's a sound theory. If the demand slows down which it will eventually, I could see them doing this as well. I've always wondered when Houston's economy would stabilize enough to warrant continuous growth and not just a constant  circle of build everything right now and stagnate slumps (I guess when we don't have so much to do with Oil, but when will we become too big to fail)? But some condo buildings do offer rental units like 1200 Post Oak.

Edited September 16, 2014 by Montrose1100

['Stonian]

It's weird, when I moved to Atlanta back in 2004 rents and home prices where noticeably more expensive than Houston (median home prices of $180K in ATL compared to Houston's $140K - but the collapse of 2008-2012 really hit Atlanta hard with lots of foreclosures decimating median home prices.  The two cities have essentially traded places over the last 10 years.

 

Developers started to build homes/apartments again in Atlanta in 2013 but nothing on the level of what Houston is doing. Funny, I used to come back and visit Houston between 2004-2007 and think that the city had some projects going up but not on the scale of what Atlanta was doing at the time, now its the exact opposite.

 

Friends in Atlanta see projects (i.e. 3 SkyHouses) starting again and are saying the city is on fire right now because there was such a lull for 5+ years, but really things are relatively slow in comparison to historical standards. For years Atlanta would average 60-70K residential building permits (including multifamily) and this year they will do about 20-25K while Houston will more than double that.

 

Basically - Houston experienced one year of 'all out' recession (2009) while it really lasted four years in Atlanta (2008-2011)

 

 

[Houston?]

It's weird, when I moved to Atlanta back in 2004 rents and home prices where noticeably more expensive than Houston (median home prices of $180K in ATL compared to Houston's $140K - but the collapse of 2008-2012 really hit Atlanta hard with lots of foreclosures decimating median home prices.  The two cities have essentially traded places over the last 10 years.

 

Developers started to build homes/apartments again in Atlanta in 2013 but nothing on the level of what Houston is doing. Funny, I used to come back and visit Houston between 2004-2007 and think that the city had some projects going up but not on the scale of what Atlanta was doing at the time, now its the exact opposite.

 

Friends in Atlanta see projects (i.e. 3 SkyHouses) starting again and are saying the city is on fire right now because there was such a lull for 5+ years, but really things are relatively slow in comparison to historical standards. For years Atlanta would average 60-70K residential building permits (including multifamily) and this year they will do about 20-25K while Houston will more than double that.

 

Basically - Houston experienced one year of 'all out' recession (2009) while it really lasted four years in Atlanta (2008-2011)

 

The two cities are really neck and neck now.

['Stonian]

The two cities are really neck and neck now.

 

Neck and neck in what regard?

[Houston?]

Neck and neck in what regard?

 

COL

['Stonian]

I really can't disagree with that in terms of Cost of Living. Houston's apartment rents and average home prices are probably a little more expensive right now but the difference is negligible. Office rents are a different story.

[Houston?]

I really can't disagree with that in terms of Cost of Living. Houston's apartment rents and average home prices are probably a little more expensive right now but the difference is negligible. Office rents are a different story.

 

Last time I checked, even the apartment rents were neck and neck. ITL rents are the fast growing just like the rents inside the perimeter in Atlanta. Several COL calculators say that housing is cheaper in Houston. I guess where one fails, the other one succeeds.

[Subdude]

Here's a comparison:

 

 

This indicates that Houston is not only more expensive than Atlanta, but for the US as a whole.

 

http://www.ritholtz.com/blog/2014/09/expensive-cities/

 

The link also shows a "what it feels like" chart for selected cities.

 

 

 

 

['Stonian]

Last time I checked, even the apartment rents were neck and neck. ITL rents are the fast growing just like the rents inside the perimeter in Atlanta. Several COL calculators say that housing is cheaper in Houston. I guess where one fails, the other one succeeds.

 

And I wasn't speaking of COL calculators but rather how it feels to me first-hand.  Having moved from Atlanta earlier this year I would call newer apartment complexes in Houston to inquire about pricing and would have extreme sticker shock based on comparable units in Atlanta.  I remember looking at my iphone just to make sure I had dialed 713 area code instead of 714 (L.A./Orange County area) by mistake. 

 

I think 'most' of the brand new apartment rental prices are comparable in both cities but I have seen some  ridiculous prices in high end high rise buildings in Houston that I've yet to start seeing in Atlanta (i.e. One Park Place, 2929 Weslayan). Also, many close-in complexes built between 2004-2008 are much more expensive in Houston based on my experience.  You could still find some good deals in Atlanta on newer (not brand new) apartments but not so much in Houston.

Edited September 17, 2014 by 'Stonian

[UtterlyUrban]

I left houston in the late 1990's to move to ATL. I recall about a 20% up charge for ATL compared to HOU. That was based solely on my personal experience in housing (suburban, reasonably close in, single family)

Coming back to houston this year, I would argue that it is about a 25% -30% up charge for Houston, again based on my non-scientific experience (close in, urban, multi family, "luxury" properties).

Complete shift.

Atlanta is recovering from 2007/2008 but......

What's going on in Houston right now reminds me, and some others, of 1980. BOOOOOOM.... How long will it last? And will the outcome be 20 years of relative stagnation again?

[toxtethogrady]

Et tu Larry?? Why?

Frankly, if we get a dozen Skyhouses all in a row, this town's going to start to look like on of those Chinese cities that just started building blocks of apartments one right after another.

[HoustonIsHome]

The more unsightly aspect of skyhouse is the garage. So big and plain looking. It takes up a bit more of the lot than the actual tower.

[UtterlyUrban]

I keep reading in some of these posts that the incentives favor rentals vs condos. I don't think that's the case. I thought the incentives give a set amount ($15,000) per residential unit, regardless of ownership type. Can someone explain?

The incentive is paid out over 15 years in the form of tax abatements, if you build a rental building and own it and rent out the units, you get the abatements. If you build a condo and sell them all, the HOA for which you are no longer a member (once all the units are sold) or the individual condo owners get the abatement. You don't.

There is a argument that you, as the developer, can charge a higher price for the condo unit because folks are getting the abatement over 15 years. The argument is that people will pay a tad more for their units because of the abatement. Perhaps. But that is really hard to determine.

[UtterlyUrban]

many of these ultra luxury high rise owners will consider condo conversions to cash out, which I believe is their intention all along (again, just my theory, I could be wrong).

I happen to agree with you.

At some point in the future, the rents will moderate (when the bubble pops) and, separately, I do think a number of these rental buildings will be converted to condos --- not because of rents moderating but rather because the developer will have extracted what he wants from the building, made all his money back plus more, and will now sell the units and make more still. Not a bad model.

[fernz]

The incentive is paid out over 15 years in the form of tax abatements, if you build a rental building and own it and rent out the units, you get the abatements. If you build a condo and sell them all, the HOA for which you are no longer a member (once all the units are sold) or the individual condo owners get the abatement. You don't.

There is a argument that you, as the developer, can charge a higher price for the condo unit because folks are getting the abatement over 15 years. The argument is that people will pay a tad more for their units because of the abatement. Perhaps. But that is really hard to determine.

Thanks!

[Urbannizer]

Officially announced:

 

http://www.bizjournals.com/houston/news/2014/09/22/new-skyhouse-residential-tower-to-rise-in-downtown.html

 

[HoustonIsHome]

Is it just perspective or I'd SH3 more broad than SH1