Few segments of the local real estate market took a greater beating during the downturn than condominiums.
When the credit markets froze and housing prices fell, it left many condo developers with an abundance of units to sell and few interested buyers. Tighter lending standards also made it harder for buyers to obtain mortgages in condo buildings, further narrowing the buyer pool.
Several condo projects in downtown Raleigh were forced to auction off units in an attempt to reduce inventory, while another project the Hue failed to sell a single unit before being converted into rentals.
But real estate is cyclical, and at least one local developer believes theres now market demand for some new units.
White Oak Properties is proposing to convert a 47,000-square-foot office building in Raleighs Hayes Barton neighborhood into 1300 St. Marys, a 39-unit condo development at the corner of Wade Avenue and St. Marys Street.
I think the markets coming back, and Im believing it will be back by the time we move forward, said Roland Gammon, White Oaks owner.
White Oak has an option to buy the building, and plans to spend the next six months pre-selling units. The condos, which will range from studios to three-bedroom units, will be priced from $169,000 to $400,000. Gammon said the company would need between 50 percent and 60 percent of the units under contract before moving ahead.
Renovation of tired building
Plans call for a $5 million to $6 million renovation, replacing all the internal systems, windows and internal walls. Some of the parking also will be removed to make room for a pool.
A sturdy skeleton is whats there, Gammon said. Its a C building on an A site. Its a tired building but a great location.
White Oaks project will need site plan approval from the city, but it wont require the property to be rezoned a move that might have drawn resistance in an established neighborhood where traffic issues have become a prominent concern.
Since 1981, the building has been owned by a group that includes Smedes York, the developer and former Raleigh mayor. York said White Oaks project makes sense when you consider the investment required to modernize the building.
Condos vs. offices
We felt like to really put it in the right shape for continued office use would take quite an upgrade, and it wasnt really the highest and best use, York said. We feel like this residential condominium conversion is really what would work there. ... We think this is going to be a big improvement for the neighborhood.
As for whether the condo market is sufficiently recovered, its true that basically all of the new units built in and around downtown Raleigh during the bubble have sold. There are no new condos listed for sale in the downtown area, and just 12 were sold this year, according to Triangle Multiple Listing Services.
Including re-sales, there are 46 active condo listings in MLS and 168 closed sales this year. That works out to a three-month supply at the current pace of sales.
While inventory levels for condos are way down, the lending environment remains somewhat challenging.
Fannie Mae, the government-owned mortgage giant, now requires condo projects to meet higher pre-sale levels before it will accept such mortgages. White Oak will need to get a lender to underwrite its project, meaning it will approve and hold mortgages that meet Fannie Maes guidelines until the mortgage giant approves the project.
This is the second new residential project in the downtown Raleigh area that White Oak has launched in recent months. The company recently started construction on Peace Street Townes, a 17-unit townhouse project at the corner of Peace and Person streets.
Gammon said given 1300 St. Marys central location, and the price range of the units, he isnt expecting to have trouble finding interested buyers.
It should have broad market appeal, he said.