Soaring condo plans come down to earth

Brought to you by

Jack Snyder

The unprecedented boom in condominium towers is remaking downtown Orlando's skyline. But with fewer than half of the 30 announced projects completed or under construction, the timing -- even the survival -- of the rest is now in question because of rising costs and prices.

Developers who a couple of years ago could have sat back and taken deposits from eager buyers before starting work on a building are now battling fiercely for attention, hoping to snare enough sales to justify a construction loan.

Those 18 unbuilt projects are competing not only with one another but with the eight towers that are being built and with sales in the four that are already open. They also have to contend with the thousands of city-center units in apartment-to-condo conversions.

Two of the towers now under construction contain apartments, not condos, reflecting a renewed demand for rental housing now that several years of conversion activity has consumed most of the apartment complexes in the downtown core.

The two big questions for most of the remaining towers are: How high will their asking prices be pushed by still-rising construction costs? And can they find enough buyers in an increasingly expensive market to obtain the financing needed for actual work to start?

"At best, there could be delays," said Charlie Lentz, managing director in Orlando for Integra Realty Resources, Inc., a national real-estate-consulting firm. "At worst, some projects may not be financially feasible at this time."

Construction costs are "the number one thing killing some projects or putting them on hold," said Tim Baker, a principal at Baker Barrios Architects, an Orlando architectural firm that has done the design and planning work for more than a dozen of the downtown projects.

"Dealing with costs was huge," said Scott Stahley, senior vice president of Lincoln Property Co., which just started building the 32-story Dynetech Centre at Magnolia Avenue and Washington Street after months of delay. The tower will have 164 rental apartments.

Rising costs so concerned developers of The Paramount, a condo tower now under construction on east Central Boulevard, that "we were borderline on whether to go forward," said Steve Patterson, chief executive officer of Zom Inc., the venture's majority partner.

Asked how profitable the 312-unit tower would turn out to be, Patterson replied: "I'll let you know when construction is done."

Both Lincoln Property and Zom are nationally known developers, with solid track records and strong relationships with lenders. But lesser lights could face an uphill fight to secure financing for their projects, said Jamie Buckland, senior vice president and commercial-banking director for EverBank Financial Corp., a Jacksonville-based bank that just opened an Orlando office.

"It's an entirely different market today," Buckland said. "Lenders are only going to consider the most solid deals."

The push for sales

What makes a solid deal? Solid sales, for one thing.

JLJ Properties LLC of Lake Mary, which wants to build a 510-unit condo complex called Eola Place, recently spent thousands of dollars to wine and dine local real-estate agents in the hope they will steer prospective buyers its way. More than 300 Realtors turned out for the free martinis and food.

Even so, the developer is pushing ahead with sales for just one tower with 196 units.

"It would be crazy to try and bite off the whole thing right now," said John Bahng, a partner in the venture. Bahng would not disclose what percentage of the tower's units the company has to sell before a bank will open its vault, saying only that he is talking with several interested lenders.

Condominiums and downtown Orlando didn't mix well for years. Only two high-rise condos were built downtown before the turn of the century -- Park Lake Towers in the 1970s and 530 East Central in the 1980s -- and both sold poorly. But as the region's and the nation's housing markets set off on a five-year boom early in this decade, so did people's interest in living in Orlando's city center.

More than a score of projects were announced. The Waverly, downtown's first luxury apartment high-rise when it opened in 2001, went condo two years later. Downtown's first condo high-rise project in two decades, The Sanctuary, opened last year. Two mid-rise condos, Thornton Park Central and The Jackson, opened during that same time frame.

The 26 other condo or apartment projects under construction or in planning stages would, if all completed, add more than 7,000 residential units to the downtown core.

But the housing market has softened this year, and some of the downtown projects are clearly stalled. North Orange Condominiums, for example, was first proposed in late 2002 as apartments for a site just north of Colonial Drive. Yet the site remains vacant, a sales office has come and gone, and the developer couldn't be reached for comment last week.

A few other developers are forging ahead with sales campaigns in hopes of landing enough buyers to attract lenders' interest.

Sales are to kick off in a few weeks at The Monarch, a tower off South Street near State Road 408. Prices for The Monarch's condominiums are expected to start in the high $300,000s.

The goal for Tradition Towers, to rise on the site of the University Club on Central Boulevard, is to pre-sell half the building's 276 units to trigger construction financing. Although building costs have soared 50 percent since the project was first planned more than two years ago, buyers for the project's luxury apartments are still out there, according to Steve Walsh, president of Broad Street Partners, the developer.

"We just sold a 4,200-square-foot penthouse for $2.3 million," said Walsh, who expects to have enough buyers in hand to break ground in four to six months.

In the Orlando area, condo sales generally have remained stronger than single-family home sales, which peaked last summer. That's because the typical condo unit still sells for less than $200,000, while the median price for a single-family dwelling is somewhere north of $250,000.

As a result, the number of condos sold in the Orlando area during the first half of the year, while slowing in recent months, was still 51 percent ahead of last year's first-half total, even as single-family sales fell nearly 10 percent behind last year's record-setting pace.

Downtown demand

But in downtown Orlando, prices for condos have been soaring because towers, already an expensive form of residential construction, have been particularly affected by the rising cost of materials and labor the past couple of years. And rising interest rates are making it harder for prospective buyers to qualify for a mortgage.

City-center condos are still in demand, said Craig Ustler Jr., a downtown developer and president of CondoHQ Orlando LLC, the brokerage handling sales at 55 West on Church Street.

"Thousands of people want to live downtown," he said. "It has become a question for many whether they can afford to."

The 55 West project, announced more than three years ago, was delayed for months as the developers rewrote their price list and added more units to the tower before starting construction late last year. The 405-unit building is now 75 percent sold, Ustler said.

A partner in what would be downtown's biggest project -- Orlando City Place, at Colonial Drive and Hughey Street -- sees the current market squeeze as a normal correction that won't affect his plans.

"We're going forward," said George Kalivretenos. The developers have completed their transformation of the former Holiday Inn into The Lexington condo-hotel and will start work next year on more than 1,200 condos and apartments, he said, with office and retail space.

GDC Properties Inc., a New York-based developer with extensive Florida operations, says it expects to have no problems financing its mixed-use apartment project in downtown Orlando.

The project, once called The Ivanhoe, has since been renamed Verde. In planning stages since 2004, it would feature twin 35-story towers with a total of 476 apartments at North Orange Avenue and Marks Street.

GDC President William Ingraham said construction is now expected to start late this year or early next. "Market conditions are ideal right now for a rental community of this scope," he said.

Heathrow-based Wescar Cos. recently bought property at North Magnolia Avenue and Marks Street, including the old Lunch Basket building, with the intention of putting 80 to 100 condos on the site.

But at this point, the company is starting design work only.

"We'll be in no rush," said Wesley Geys, the company's vice president. "We'll let the market tell us when the time's right."