The Second Tier

Will downtown residential prices ever come down?

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City Beat

In the face of a nationwide over-speculation in the housing market, the demand for downtown Knoxville residences is proving that it has some limits. Though demand is still there, and the number of people committed to living downtown is still rising, for the first time in recent years there are residences that arenâ’t sold before completion. Today, there are a few empty condominiums downtown, waiting for their first residents. At the same time, some prospective residents, even middle-class professionals, say they want to live downtown but can find nothing affordable.

A TVA engineer in his 50s who says he and his wife want to live downtown, says they canâ’t afford anything suitable for their needs. A middle-aged architect who has an office downtown is looking, and hasnâ’t found anything in her price range. Some of the most committed downtown advocates of the last decade find some irony in the fact that now that there are finally nice residences downtown, they canâ’t afford them.

The moderately affluent professional seems to be part of a perhaps large second tier of demand for urban living. Will the nationwide housing glut force prices in a direction more comfortable to the middle-middle class?

The developers we spoke with say probably not any time soon.

One of the original developers of Gay Streetâ’s Phoenix Building, a successful high-end rental development, Wayne Blasius is now a partner in the Gallery Lofts, a newer condo development in the Mast General Store building on Gay Street. One of its condos, a $765,000 unit, hasnâ’t sold yet. â“We knew that would have to be a special buyer,â” admits Blasius. However, heâ’s quick to add, the buildingâ’s second-priciest unit, a $661,000 condo, sold just last month.

â“Compared to the national numbers, Knoxville is doing reasonably well,â” says Blasius. â“And compared to the Knoxville numbers, downtown is doing reasonably well. Downtown living is certainly a niche in the overall market, and therefore itâ’s less affected by the market.â”

Mark Heinz, an architect/developer working with Dewhirst Properties, says, â“I think itâ’s fair to say that downtown Knoxville has been affected by the housing-market slump, but fortunately weâ’re somewhat insulated. Thereâ’s a relatively small amount on the market, and downtown only has a finite amount of space to develop.â”

For those who like the idea of urban living, downtown offers advantages available nowhere else in a rather large metropolitan region. Those who prefer downtown living may be a small minority of any total population. But when a patch of less than one square mile offers the closest approximation of downtown living for a multi-county populace of more than one million, some vigorous demand seems guaranteed.

â“Itâ’s complicated,â” says Knoxville Area Chamber Partnership boss Mike Edwards, who was pushing for downtown residential development long before it was an observable phenomenon. â“Iâ’m not sure the downtown product is fully impacted the same way housing in general is.â” He thinks that national housing-market bubble is more pronounced in suburban areas, but says that in itself is affecting downtown, especially the largest potential market, the baby boomers, a huge demographic now entering the empty-nest stage. â“They donâ’t want the big box anymore, but they may be having a hard time selling it.â”

Though some condos remain unsold, there remains a large stratum of professionals, some of whom may think of themselves as affluent, who still canâ’t afford to live downtown. Some three-bedroom houses in Sequoyah Hillsâ"with front and back yardsâ"are the price equivalent of a low-end one-bedroom condo downtown.

Is downtown living necessarily a rich-folksâ’ option?

â“Right now downtown is a very exclusive neighborhood,â” acknowledges Edwards. â“As the inventory grows, theyâ’ll have more competition and wonâ’t be able to charge quite as much.â”

However, Blasius counters, â“I donâ’t know that theyâ’re going to come down.â” He says downtown Knoxville is still a bargain, in price per square foot, compared to downtown Nashville or Greenville, S. C., or even in some smaller cities like Chattanooga and Asheville, by a margin of $50 to $100 per square foot.

But itâ’s still more expensive than most suburban development comparable in terms of bedrooms and bathrooms, which Blasius says is cheaper to build than downtown properties.

â“Itâ’s just expensive to do these projects,â” Blasius says, both in terms of the value of the real estate, and also in the necessary expense of rehabbing a building for residential purposes. â“Anyone who has rehabbed buildings has found that thereâ’s a surprise around every corner.â” Parking-garage accommodations often turn out to be especially troublesome. He implies current prices are near a bottom, beneath which theyâ’re unlikely ever to sink.

Heinz agrees on that score. â“I doubt the prices will come down too much, because it just costs so much to renovate a building,â” he says. Heinz is working on the Holston Building, which is offering some of the most expensive residential properties downtown. It wonâ’t be available until sometime in 2008, but is 76 percent sold. The same company has redone the Cherokee, around the corner, a pretty building of one-bedroom condos on a tree-shaded block in a stable, convenient neighborhood, with a prominent, young law firm freshly moved in downstairs. With some units going for $179,000, itâ’s one of the least-expensive options on a newly rehabbed historic building downtown. Itâ’s a modest but comfortable-looking place. It appears to be almost ready to move intoâ"some residents are already thereâ"but is only 20 percent sold, and is advertising a special one-percent-off financing arrangement.

Will it turn out that people want to buy downtown only if they can do so in a jaw-droppingly impressive way?

Some developers are breaking out of the CBID to offer affordable almost-downtown options, like the southside condos, which promoters hope are at the forefront of major condo development along the riverâ’s south bank over the next decade or two. The under-construction Cityview at Riverwalk is offering newly built condos below $200,000.

A few are reaching in the opposite direction, like the Courtland Group, whose upscale downtown-proper residential developments like the Keystone on Church and the Sandstone on Clinch have sold handily and are now occupied. Courtland has only recently commenced work on its redo of the Crimson Building, a previously successful Gay Street condo building partially destroyed by fire a couple of years ago, but it seems to be going well, with seven of 11 condos sold.

Courtland is trying to reach that allegedly unmet second-tier market with a 17-unit 1930s stone-front apartment-building rehab called North Central Village. Located at 912 N. Central, eight blocks north of the Old City, it will feature some small (444 square foot) units going for as little as $84,500, and larger ones at about twice that. None have sold yet, a few months after they went on the market, but actual construction has only begun.

The North Central neighborhood had a shady reputation a few years ago, and it still looks run-down and mostly parking-lot-commercial, but itâ’s also adjacent to the upscale Victorian Old North neighborhood, and has welcomed a few interesting new businesses in recent months. Courtlandâ’s experiment may turn out to be a barometer of whether consumers consider downtown an everything-or-nothing proposition.

Heinz is optimistic that, given time, a diversity of residents will find their way to a diversity of residences.

â“One of my favorite quotes is â‘There is a butt for every seat,â’â” he says. â“And itâ’s true: Some folks like the old basement with no view and the old boiler equipment, and some folks want to be on top with floor-to-ceiling glass. I think time and ultimately absorption will determine what happens in our up-and-coming little town.â” â" Jack Neely

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