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Movin’ on Up—Or Not
It was 2006. Brian and Grace Hill were ready to sell their North Avondale home and downsize into a condo. “Our kids were all in or out of college,” Grace says. “We wanted something smaller, and we also wanted to move to a neighborhood where we could walk to things.” They put down a deposit on a loft in The Edge, a renovated warehouse downtown. Unfortunately, the $35 million project, which was slated to house 77 condo units, never generated enough sales to be built. So the couple “decided to wait,” says Grace. “We didn’t need to move.”
The Hills were exactly the sort of clients local developers had begun courting in the early 2000s. After a decades-long love affair with sprawling McMansions, developers turned their attentions toward baby boomers who were ready to downsize; by 2006, townhome and condominium construction was a growing market. Pristine row houses started popping up along Cooper Road in Blue Ash; small clusters of townhomes appeared in Montgomery behind Pomodori’s and in Madeira around the corner from the library. Developer Rick Greiwe broke ground on his Mariemont condo building, Jordan Park, in 2007.
Of course, the downsize boom was not restricted to the suburbs. Developers on both banks of the river got into the high-end condo game, too. The Overlook at Eden Park, WatersEdge in Bellevue, Southshore in Newport, and The Ascent in Covington all broke ground in 2006; Christine Schoonover started presales for One River Plaza at Sawyer Point that same year; and John Senhauser had been drafting plans for the 10-flat Palisades building in Mt. Adams since 2005. Even the Cincinnati City Center Development Corporation (3CDC), a private nonprofit real estate group funded primarily by the local corporate community, got in on the game. Although 3CDC’s mixed-use Gateway Quarter project in Over-the-Rhine primarily targeted first-time homebuyers from a wide range of economic groups, it included some pricier condos as well. All told, more than 330 units ranging in price from $399,000 to $5.4 million came online or were in the pipeline.
Then came 2008. With all of these projects up for sale, the economy tanked and real estate sales jumped off a cliff. Some projects managed to squeak by; the first two phases of WatersEdge and all of Jordan Park sold 80 percent of their units in 2008 for between $519,000 and $1.3 million, and the 70-unit Ascent, where prices started at $400,000, was able to survive thanks to the fact that 60 percent of the building had been presold before the market collapsed. But they were the lucky few. Developers David and Alexander Bastos’s 62-unit Southshore had only a handful of presales, and the Overlook at Eden Park sold just seven of its 24 units before going bankrupt in 2008.
“It was financial Armageddon,” says Paul Zeltwanger, managing member of the development corporation Joshua One. While prospective buyers on the lower end of the spectrum weren’t buying because they’d lost their jobs or were upside down on their mortgages, those at the top of the market had the means to buy, but felt that the timing was bad. “It was hard convincing people that, You’re not going to make a profit, but look how you’ll make up for it on the buying end,” says Tom Hasselbeck, president of the Cincinnati Area Board of Realtors.
Here’s the weird thing: In spite of the dire economic situation, some developers caught with a surplus of unoccupied condos were able to weather the storm. Indeed, as early as 2009, some sectors of the high-end condo market started picking back up. So the million dollar question is this: Why did some succeed while others failed?
Ask local real estate experts what separates the winners from the losers, and you will get a hundred different answers. Even so, the most successful local condo projects all have two things in common: solid financial backing and a highly desirable location.
“You have to have a banker who believes in you and gives you a loan, or you have to do presales forever,” says Greiwe, who did extensive market studies in order to win the approval of both Fifth Third Bank and the community of Mariemont. Greiwe sold out Jordan Park in just 36 months, making him one of the few recession-era high-end condo developers who came nowhere near default.
Joshua One’s Paul Zeltwanger, who, together with former partner John Hans, created both WatersEdge in Bellevue and The Overlook in Eden Park, credits his lender, Citizen’s Bank, for much of WatersEdge’s success—but for different reasons. “We used a local community bank that believed in what we were doing, understood the Bellevue market, and committed to see this through,” he says.
He also credits his subcontractors for sticking with him. “There wasn’t actually financing for the finishing of units,” Zeltwanger says. “I told the subs: ‘You will all get directly paid from closing proceeds, but you won’t get paid until they close. Are you on board?’ It was creative. I think it motivated them because everybody was in this.” Zeltwanger’s methods, however unconventional, got the job done; by December 2011, he and listing agent Pam Schuerman sold the final WatersEdge unit for $1,370,315.
The Gateway Quarter’s solid financial standing comes from its unique subsidized backing. Corporate benefactors pay redevelopment costs up front, so only a percentage of those costs are passed on to buyers. The initial result is high-end housing at below-market prices, but the ultimate goal is to decrease subsidies as property values rise. “It’s difficult for any one developer to tackle something so huge as downtown urban dwelling,” says Anastasia Mileham, vice president of communications for 3CDC. “It needed to be a real partnership, which I think is the real reason behind the success we’ve seen.”
All three success stories—Gateway Quarter, Jordan Park, and WatersEdge—have something else in common: They’re located in highly desirable communities, or communities that have become highly desirable. Real estate agents like to talk about “walkability,” but some developers don’t consider what their residents will be walking through or to: Being able to walk to a bunch of bars and chain restaurants or having to walk through unpopulated or unsafe neighborhoods to get to the theater might not be as appealing as, say, having a Graeter’s, a movie theater, a post office, and three independent restaurants just steps from their door, as is the case in Mariemont.
Perhaps the most fascinating success story is the newly revitalized community that has appeared seemingly overnight in the Gateway Quarter. The fact is 3CDC has carefully planned every step along the way. “When we first came into the community,” says Mileham, “it was over-saturated with low income housing [and] vacant, dilapidated buildings falling into disrepair.” Now, many of those have been replaced with unique shops and eateries, as well as apartments and condos, some of which are affordable housing.
“Some national real estate experts believe it might be the most successful development in the country right now,” notes Lee Robinson, broker for Robinson Sotheby’s International Realty. “It’s in essence rebranding Over-the-Rhine.” Robinson is quick to acknowledge, though, that the Gateway Quarter is “not perfect. A few blocks away is a very different kind of neighborhood. [But] today is different than 30 or even 50 years ago. The younger generation is much more comfortable with diversity and socioeconomic differences.” Which is why, Robinson points out, “somebody who lives in Jordan Park would not typically be a customer for the Gateway Quarter.”
That’s a critical point for developers; knowing the wants and needs of your target demographic is crucial. “Regardless of if you have 10-foot ceilings and crown moldings,” says Tom Hasselbeck, “you still have to know your market and what sells.”
While buyers responded to the idea of “community” during the recession, they seemed to balk at luxury perks and amenities that some developers touted as selling points. Of those three most successful recession-era condo developments, none has a pool, a concierge, a putting green, a car and driver, or a party room.
Signature architecture doesn’t necessarily float our boats here, either; in those same three projects, the architecture is either mostly historic (Gateway Quarter), a historic replica (Jordan Park), or a non-event (WatersEdge). “While I think the buildings from the exterior look nice,” Zeltwanger says about WatersEdge, “there’s nothing unique about the design. The architects checked their egos at the door and designed from the inside out.”
The Ascent’s Daniel Libeskind–designed structure is commonly cited by its residents as one of the reasons they chose to live there, says Leann Starks, who sells the building for Corporex. Even so, in the Queen City, an unusual design could easily narrow the pool of interested buyers. Locals “want functionality and luxury and not just glitz,” Zeltwanger says.
But more than any of those factors, the number one reason any project fails, recession or not, is that the bank pulls the funding. For instance, Zeltwanger feels confident that things would have turned out differently at the Overlook at Eden Park if only the banks had stuck with him through the recession, the way Citizens Bank did on WatersEdge. “I literally get calls on the Overlook still,” he says. “In my mind, it would be sold out by now.”
Schoonover, who was the listing agent for downtown’s One River Plaza project, “had $38 million in units sold when the banks pulled all the money.” Lenders had become skittish, she says, because of financial crises in other parts of the country. Schoonover feels confident that she could easily sell those units today, but she also admits that the bank’s conservatism was probably the right call at the time. “I’m not sure we weren’t the lucky ones,” she says.
Experts also commonly blame two other factors for slow condo sales during the recession: People couldn’t sell their houses in order to buy up, and some prices were too high for this region. There is some truth to both theories. “The highest percentage of short sales and foreclosures was in the lower price range,” says Hasselbeck. Those are the people who, under other circumstances, might be in the market for homes that empty nesters are downsizing out of. And with the exception of the Gateway Quarter, where subsidies lowered prices, connecting price directly to a condo project’s success or failure is practically impossible.
True, extremes are difficult to sell: the Ascent’s three-story, 7,800-square-foot, $5.4 million penthouse still sits empty. On the other hand, Rick Greiwe found himself knocking down walls between units at Jordan Park to build double-sized, million-dollar-plus units at the request of his buyers—more than once.
And if people needed to sell their houses before buying condos, how did units at Jordan Park and WatersEdge sell so quickly, at the height of the recession? High prices and a tight real estate market do narrow the playing field, but they seem to mask another, more significant problem: saturation.
In hindsight, says Schoonover, “I think it didn’t help to have The Ascent, WatersEdge, and Southshore all for sale in that two-year period.” Something similar happened in Walnut Hills in the 1990s, when four major condominium projects were all built there at the same time. “Cincinnati wasn’t quite used to condos at that time and there was no way they were all going to win,” she says. “They should have had a meeting and done it in phases. [But] it didn’t work that way.”
Luckily, “builders today are doing more homework before building than they had in the past,” Hasselbeck says. “There has to be a profit or they’re not going to do it.”
Which could explain why at least one big developer will try pairing mixed-use and rental units with its new condominium complexes, in much the same way 3CDC did in the Gateway Quarter. Corporex’s Ovation project, in Newport, will be a modern “planned community” made up of condos, apartments, senior living, offices, retail space, and entertainment venues. The concept hints at the recession-era lessons the company may have learned from smaller fish like Greiwe and Zeltwanger. Unfortunately, the Newport-based project has seen a series of stops and starts dating back to 2006 and could actually be delayed until as late as 2017 thanks to a 2010 expansion of Kentucky’s tax-increment financing law, which gave Corporex and other developers an additional five years before those tax incentives expire.
Whenever the project finally gets off the ground, the challenge will be twofold: waiting out a stagnant economy, and building a modern, multi-million-dollar community from the ground up.
While Ovation sits on the back burner, condo development elsewhere in Cincinnati marches on. Greiwe completed phase two of his Mariemont condo development plan in 2011 and is in presales with phrase three. Down in the Gateway Quarter, 3CDC is developing its fifth phase of mixed use renovations and working hard to eliminate the “gap” between what they pay to rehab and develop properties and what people pay to buy them.
And then there are several developers who are marketing the same properties they had five or six years ago. The Overlook remains tied up in bankruptcy court, but Zeltwanger is “hopeful” that he will be given one more chance to make it work. Meanwhile, he has sold 40 of 51 units at The Views, his Covington “townhome and flats” project situated between Devou Park and I-71/75, and is looking forward to breaking ground on 60 more.
Starks has 18 units left to sell at the Ascent, but reports that “activity is insane right now. I am happily there three to four nights a week after hours, showing the building.” Schoonover, whose team sold five Southshore units in April (there were only 16 left as of early August), sees demand growing for more new development downtown. “We need a new condo building bad downtown,” she says. “We haven’t had anything new to sell for how many years now? Nothing new! It’s all resale except up in the Gateway Quarter.”
As for Brian and Grace Hill, the empty nesters from Avondale, their story has a happy ending. A year or two after The Edge sent their deposit back, the couple started their search anew—“the second time knowing what we wanted way more clearly,” Brian says. By 2010, they had found the perfect condo in the Gibson Lofts on Walnut Street. Their home went on the market in February 2011 and sold within a week; the couple moved into their loft two months later. “When we moved down here, people would say, ‘You guys are nuts; why are you doing that?’ ” Brian says. “Most everybody we talk to today thinks it’s a great idea. That’s really cool.”
Local condo developers, in the meantime, will continue to dream of thousands more Grace and Brian Hills selling their homes and downsizing into the perfect condominium. After all, says Greiwe, “we’re in a good position for the recovery.”
Originally published in the September 2012 issue.