Condo fever comes to town

Downtown gets most units, but can the demand last?

April 02, 2006|By LORRAINE MIRABELLA | LORRAINE MIRABELLA,SUN REPORTER

Construction cranes point skyward. Billboards beckon residents to embrace urban living. A flurry of developers envision ways to transform parking lots and old industrial buildings.

From 414 Water Street, the first condominiums under way in the central business district, to the Ritz Carlton Residences, where buyers are spending $1 million and up for Inner Harbor housing with a spa, concierge and valet parking, downtown Baltimore is in the midst of its biggest wave of condo development.

The latest announced project - a 59-story skyscraper in the Inner Harbor that would be by far the city's tallest building - would add 192 top-dollar condos to Baltimore's downtown residential market.

In a city where condo sales faltered badly in the early 1990s and development ground to a halt for much of the decade, 666 units were under construction at the end of February with up to 1,365 in the pre-construction or planning phase, according to the Downtown Partnership. That doesn't include projects outside downtown, in Fells Point, Canton, South Baltimore, Greektown and East Baltimore, where more than 3,000 condos are under construction or in the works.

Last year, 43 units were completed downtown.

The rush of development has sparked worries about overbuilding, especially with mortgage rates rising and uncertainty over whether job growth can continue to fuel the pace of demand. The Appraisal Institute, an organization of real estate appraisers, and the Johns Hopkins University are releasing a study tomorrow saying that while the overall Baltimore-Washington housing market is heading for a soft landing, interest in condominiums may have peaked.

Experts caution that there is no assurance that all the proposed projects will be built.

But others say the town that shunned the condo lifestyle in the past is embracing it now - and should continue to do so for years.

The oldest baby boomers are beginning to retire and shed large houses and yards. A growing number of college-age and young adults are expected to want urban housing as they put off having families. A growing job base in the city, with an anticipated increase in health and bioscience jobs, is drawing young professionals to town.

And Baltimore has been discovered by Washington-area professionals who have been priced out of the Washington home market. As many as 30 percent of the city's condo buyers are Washington transplants, the Downtown Partnership estimates.

"This cycle is different than past cycles of building because what you have is a wave nationally, not just in Baltimore, to move back into the cities," said Rod Petrik, a Baltimore-based managing director and real estate analyst at Stifel Nicolaus & Co., which acquired Legg Mason's investment banking, research and trading operations. "The increased condo activity is driven by pre-kid and post-kid adults, and you see that downtown."

Also, analysts said, Baltimore's market has more room to grow because its condo supply is much smaller than in other major cities.

"We are way behind the curve in condo development," said Robert Aydukovich, vice president of economic development for the Downtown Partnership. "If you look at D.C., Philly, New York or Boston, [that many] units is an everyday occurrence, and we're popping champagne corks thinking this is fabulous in one year. Baltimore is just starting to catch up."

Developers in the mid- to late 1990s were wary of building condos in Baltimore, where projects had struggled or fallen into bankruptcy after the savings and loan crisis, which led to the real estate crash of the previous decade, said Anirban Basu, chairman and chief executive of Sage Policy Group Inc.

But experts see differences in the current building boom.

"Lenders are being very tough on their underwriting," said Ben Frederick III, a commercial real estate broker in the city who runs Ben Frederick Realty Inc. "They're scrutinizing deals closely and making sure deals are sound. In prior times, lenders were so eager to do business, they were easing underwriting."

"At some point, there will be more projects than demand," he added. "But I don't think we're anywhere near saturation."

Experts see the appetite for city condos stretching well into the next decade, thanks to the demographic and economic forces heating up Baltimore's housing market.

"Five years ago, when the Ritz Carlton first thought about sticking a shovel in the ground, we thought, `Who in the world is going to spend $750,000 to live in downtown Baltimore?'" Petrik said. "The answer became pretty apparent. Anybody who spent $250,000 on a house in the suburbs 10 years ago now has a house worth $750,000."

Tracy Gossen, executive director of Live Baltimore, a group that promotes city living, agreed that the perception of the city has changed in the past five years.

"It's seen as a place to go out and be located in, with more restaurants and entertainment and arts and culture in the last five years," Gossen said.

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