Downtown Rising

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From Minneapolis to Memphis, Tenn.; Philadelphia to Phoenix; and Evanston, Ill. to Evansville, Ind., cities are developing expansive plans to bring more housing to downtowns and urban centers, bolstered by a growing crop of candidates for whom condo, loft or apartment living makes good sense. David A.

June 01, 2005

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From Minneapolis to Memphis, Tenn.; Philadelphia to Phoenix; and Evanston, Ill. to Evansville, Ind., cities are developing expansive plans to bring more housing to downtowns and urban centers, bolstered by a growing crop of candidates for whom condo, loft or apartment living makes good sense.

David A. Lereah, senior vice president and chief economist of the National Association of Realtors, cites a "trend of going back into the city." The trend includes the following consumer groups:

  • Downsizing, empty-nester baby boomers who no longer want the responsibility of maintaining a single-family home and its landscaping;
  • Young professionals who yearn to get their footing in a new city and/or aim to be close to city nightlife;
  • Parents who'd prefer to put up their college-age children in condominiums and earn equity rather than get no return on student housing;
  • People who don't want to drive hours to and from work every day;
  • People who want to lend firsthand support to a city's smart growth, revitalization and/or development goals; and
  • People who simply prefer to rent rather than own.

No matter the permutation, the market for downtown living is growing, and new construction isn't always the best or most viable choice for creating housing stock. Whether there's a dearth of available land, a challenge to revive blighted and forgotten neighborhood structures, the necessity of maintaining historical elements of a building or the desire to keep project costs at the lowest per-square-foot figure, there is plenty of room for remodelers to enter downtown markets and renovate existing structures. These case studies present opportunity areas in big and small cities alike.

Get into the game with a spec job

Built in the early 1800s, Brooks House was one of Dayton's first private residences and a cornerstone of the downtown area. The home had seen various occupants, styles and uses over the years. Walt Hibner, vice president of development at Greater Dayton Building & Remodeling, had his school portraits taken there when a photography studio rented the space.

After the photography studio moved out, the owner auctioned Brooks House, and Hibner's remodeling firm purchased it, converting it into condominiums and selling the units on a speculative basis.

Roughly 10 percent of the $750,000 project cost (which includes the $138,000 paid to acquire the property) was covered by a grant from a city economic development program designed to encourage more people to live downtown. The initiative is part of CitiPlan 20/20, in which the Dayton City Commission set forth a plan to add 500-plus units of new market-rate housing to the city's urban core between 1996 and 2003.

Greg Thompson, president of Greater Dayton Building & Remodeling, acted as the developer, funding some of the project with his own money. In addition to wanting to preserve the city's history, he believes in keeping the city's core strong: "It's important to the overall economy of the city," he explains.

Thompson keeps his status as developer separate from the company's role as contractor. "It's about learning the ins and outs of financing and working with banks," he says. "They want to see those two things separated."

This was not Greater Dayton's first spec job, nor its first foray into rehabbing historic properties. The firm's 10 years of experience doing similar jobs through the city's Rehabarama program also meant that Greater Dayton knew many of the right people who could ensure the Brooks House project's success.

"The most important part, and primary challenge, of doing downtown development projects is building a relationship with the city," Hibner says. He recommends that general contractors have a contact in every relevant city department, from economic development to building and zoning. Greater Dayton encourages all company officials and project managers to sit on boards and committees that pertain to development issues.

"Cities are large bureaucracies, and the better you can negotiate that, the easier the process," he says. "After a while, the more projects you do, the bigger your reputation and the more work you get."

After a two-month-long review process with the city's landmark commission — which mandated that every window in the structure be replaced, among other things — the company started work in early 2002. The three condo units were completed in August 2003. Greater Dayton finished the office space in January 2005.

Hibner believes that a design/build approach is imperative not only when dealing with historic requirements but also with handling the inevitable "surprises" of working with older structures.

"A design/build approach in downtown projects makes things smoother," he says. "You need to be able to adjust to conditions: A landmark commission is only going to be concerned with the exterior and individual elements, but design/build helps you more in the interior, like if you have to move walls."

Greater Dayton has sold two of the three condominium units for $450,000 collectively, but is looking for a buyer for the third and a lessee for the office space. While the company hasn't yet fully recouped its investment, Hibner believes that in this case, the risk of doing a spec job was far outweighed by the benefits.

"The exposure from 41 E. 1st St. has earned us more business, which in the long run means more to the company," he says. Hibner attributes at least four of the company's new and current projects to its work on Brooks House. Additionally, the project received a great deal of media exposure and is included in ongoing downtown home tours sponsored by the Downtown Dayton Partnership.

"Right now there's a lot of focus, and refocus, on urban areas, and we're right in the middle of that," Hibner says. "We wanted to be a part of the trend to bring people downtown. We are constantly looking for new opportunities."

Do the work for a developer

After more than 20 years specializing in multi-unit projects, Glenn Giles, president of architectural firm Arc Avenue Inc. and general contractor Giles Construction Group, has developed a keen eye for finding opportunity in urban areas. He also has become a champion of adaptive reuse projects such as Pine Crest Village, a 5-acre Fort Lauderdale, Fla., apartment complex built in 1970.

"In terms of cost trade-offs, the purchase price and renovation of a building can be less expensive than demolition and new construction," Giles says. Pine Crest, he points out, was renovated for $54 per square foot, versus the $170 per square foot new construction average.

In addition, working with an existing structure provided numerous zoning benefits in this instance. "The existing structures had already maxed out on heights, lot coverage and parking," explains Giles. "In other projects, once you do this, you reduce sight area or floor level. In a lot of rehabs, you can't replace the zoning benefits already carried with the property, and here we could."

Tarragon Realty Corp. hired Giles' companies to do both the design and the renovation on Pine Crest. Arc Avenue served as the architect for the first phase of the project, which turned 200 apartments into 139 condos averaging around 1,000 square feet. In the second phase, Giles Construction Group acted as general contractor, with Pine Crest as the company's first project. Construction began in late 2003 and was completed in December 2004.

The project's visibility and popularity — the building was already completely sold when construction closed — have led Giles Construction Group to more jobs. Still, no project is complete without lessons learned.

After experiencing some lengthy back and forth with the fire marshal and building inspector over the firewall membrane and a month of wrangling over the piping, Giles plans to tear apart a unit before even giving an estimate to the developer on his next urban multifamily project.

"I want to know exactly how the building is put together. It may cost some money, but our goal is to eliminate change orders," he explains. "When doing something downtown, you can limit a lot of your liability if you go in the wall ahead of time. Some people don't take the time, and they don't make the time because they're not getting paid for it. But you have to spend the money to do the investigation and minimize your risk."

He also suggests that anytime a general contractor works through a big developer, the contractor should insist that a representative from the developer attend all meetings with city officials to ensure both parties are on the same page, and that any delays or work halts are not subsequently blamed on general contractor ineptitude. All changes should be in writing, he adds.

"As the general contractor, you have to understand every dollar and cent, because if anything goes wrong, you're the one who's not going to get your bills paid," Giles says.

Be part of the city's master plan

Centerpoint — an ambitious amalgam of new and old residential and retail space that takes up an entire city block — is but one facet of the master plan developed by Design Collective Inc. and the West Side Task Force.

Struever Bros. Eccles & Rouse has a portfolio of more than 25 years worth of adaptive reuse and historic renovation projects in and around Baltimore, so the company was a natural choice to do the rehabilitation portion. Turner Construction Co., one of the largest general contractors in the country, built the new towers.

"Working in the city generally requires a great deal of sequencing because the site space is so limited," says Struever Bros. division manager Stephen Davies. "When you compound that by having a project with two general contractors working in tandem, you need a good, proactive relationship between the two project managers, open dialogue and flexibility, because no matter how much you plan, it will change."

To encourage smooth working relationships, much attention was paid to materials delivery logistics. Subcommittees including key individuals from each company monitored progress and flagged problems. The diligence paid off by giving Struever Bros. a lifetime association with a prominent, billion-dollar developer/general contractor.

Davies says that continued development in and around the West Side neighborhood is what ultimately will determine the project's success.

"With a project like this, you have to be committed to the development of the entire neighborhood, not just to minimize your risk, but also to know that your project has enduring relevance," he says.

"You're breathing life back into something. To be successful doing these types of projects, that has to be an element of the culture."


Author Information
Meghan Haynes is a freelance writer living in Chicago.


 

Contractor: Greater Dayton Building & Remodeling, Beavercreek, Ohio

Project: Brooks House/41 E. 1st St., Dayton, Ohio

Scope: An almost 200-year-old home (with attached townhouse and carriage house in the rear) becomes three condominiums with office space on the lower level

Show (or Save) Me the Money!

Chicago-based accounting and management consulting firm Plante & Moran works with developers of all sizes, having provided services for $5 million to $300 million projects. Here, executives suggest ways to get the most bang for your project buck:

  • Tax Credits: Two types of tax credits — historic and new markets — can be especially helpful when doing downtown projects. To take advantage of the New Markets Tax Credit, no more than 80 percent of a project can be residential, according to partner Tim Frens. He says that while most general contractors and developers can't fully utilize federal tax credit programs, when big organizations need to pass on the equity, you can make yourself available as a recipient.
    "Tax credits can account for 20 to 25 percent of project costs," he says, "and in instances where a project can qualify for both programs, possibly well over 25 percent of costs can be covered."
  • Tax Increment Financing: While limited in number, TIFs and Special Service Areas (SSAs) can give you grant money for a project.
  • Tax Abatements: Anytime a project you worked on is able to give the eventual homeowner any type of tax relief, their cost savings looks good for your company and may give you more sales and marketing value. Partner Bob Koza suggests doing a cost segregation study to find additional ways to pass savings on to the eventual homeowner or defer your own liability.

Guy Ackerman, partner, says nothing can replace the relationships general contractors build with city officials, real-estate agents and other people whose knowledge can help inform your work. He also recommends doing Internet research, starting with the Web sites of local municipalities and community development corporations as well as the U.S. Treasury's Community Development Financial Institutions Fund Web site, www.cdfifund.gov. In addition, suggests Ackerman, interested contractors can simply drive around neighborhoods to monitor building activity and gauge potential for smaller starter projects. "Getting a good handle on areas, especially older neighborhoods, lets you know firsthand what can be done," he says.

Contractor: Giles Construction Group, Hollywood, Fla.

Project: Pine Crest Village at Victoria Park, Fort Lauderdale, Fla.

Scope: Converting a 362-unit apartment building into 255 1- and 2-bedroom condominiums

Contractor: Struever Bros. Eccles & Rouse, Baltimore

Project: Centerpoint, Baltimore

Scope: Converting eight historic structures, including a theater, hotel and several vacant cast-iron industrial buildings, as part of a mixed- use project including 388 apartments, retail space and a parking facility

Comments on: "Downtown Rising"

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