Fells Point apartment project up for sale

July 12, 2006|By LORRAINE MIRABELLA | LORRAINE MIRABELLA,SUN REPORTER

The developers of a luxury apartment complex in Fells Point plan to sell the project, possibly as soon as this week, to take advantage of growing strength in Baltimore's multifamily housing market.

The Crescent at Fells Point, a 252-unit waterfront development on Fell Street with gourmet kitchens, 10-foot ceilings and access to boat slips, won't even start leasing until later this month, with monthly rents averaging $2,500.

But owner The Hanover Co., a developer of upscale apartment projects, has put the complex up for sale at a time when investor interest is high. The Houston-based developer, which built the Crescent for more than $70 million, said it typically builds projects to sell off, usually after leasing them and holding them for as long as five years.

"We did choose to go to market reasonably early, given the market conditions in Baltimore," Brandt Bowden, a development partner with Hanover, said yesterday. "Given the strength of the market in Baltimore today, we wanted to capitalize on that."

Brandt said buyers interested in owning an apartment building as well as companies that specialize in converting rentals to condominiums have shown interest in the project. Several have made offers, he said, but would not say how many.

A pending sale of the Crescent comes at a time when rental apartments are gaining momentum in Baltimore but the condo market has begun to cool.

Apartment leasing began to heat up this year as rising interest rates made buying more expensive, said Robert Aydukovich, vice president of economic development for the Downtown Partnership.

"The apartment market [last year] was really slugging it out with the condo and for-sale market, and in terms of renting versus buying, there was not a vast difference in mortgage payments versus rents," Aydukovich said.

As 775 new apartment units came on line in downtown Baltimore last year, in projects such as Spinnaker Bay in Harbor East, Symphony Center in State Center, and Centerpoint and Camden Courts on the west side, owners were forced to offer concessions, such as one or two months of free rent, free parking or cable, to entice tenants, he said.

But now, escalating housing prices and mortgage costs are driving people to rent rather than buy, he said.

That has boosted apartment leasing in downtown Baltimore, where vacancies are declining, according to statistics released this week by Delta Associates, the research affiliate of Transwestern Commercial Services. Delta tracks "Class A" apartments, mid-rise and high-rise complexes that typically are newer and offer amenities such as pools or fitness centers.

A swath of downtown Baltimore that includes the Inner Harbor and Fells Point had a vacancy rate of only 1.2 percent at the end of the second quarter, compared with a rate of 1.7 percent for the metropolitan region, which includes the city and Baltimore, Harford, Howard and Anne Arundel counties. That was a switch from the previous two quarters, when the city's vacancy rate was higher than the rest of the region's, Delta said in its report on the Mid Atlantic Class A apartment market.

Overall, Baltimore has one of the lower vacancy rates in the nation, said Grant Montgomery, a vice president with Delta Associates.

The largest 68 apartment markets in the United States had a midyear vacancy rate of 5.7 percent for both Class A and Class B apartments, compared with a rate of 2.7 percent for Class A and Class B apartments in Baltimore, he said.

"Baltimore has had strong job growth, and the economy is doing well," Montgomery said.

But while rents in the city are higher than in the region as a whole, owners of city properties have not been able to raise rents as quickly, Delta found. Rents rose by 4.9 percent regionwide compared with midyear 2005, to an average of $1,250. In Baltimore, rents rose 1.2 percent to an average of $1,374.

Aydukovich attributed the slower pace of rent appreciation in the city to the opening of so many new complexes in the space of a year.

"You won't start seeing big swings in rent if there is competition in the market," he said.

But with many of the newer complexes filling up, owners should be able to raise rents more quickly by the end of the year, he said.

A variety of investors - pension funds, real estate investment trusts, condo converters and private capital investors - have shown interest in the Crescent in the month the property has been on the market, said William S. Roohan, vice chairman of CB Richard Ellis in Baltimore, the broker representing the Crescent's owner in the sale.

Roohan said the company is considering potential buyers who have submitted bids and could make a decision by Friday.

Multifamily assets have been attractive products for investors over the past five years, brokers said.

"The market has been teeming with activity. The interest rate climate has been low, and lenders like multifamily because of a relatively steady income flow," said Robert F. Freeze Jr., president of Commercial Real Estate Investments LLC in Timonium.

He and other experts said the the new development might command an even higher price if it were to be converted to condominiums, and that Hanover may be testing the waters for interest from condo converters.

"Whether they'll be successful in attracting someone to do that, time will tell," Freeze said, though he noted that other condo projects have succeeded in Fells Point.

lorraine.mirabella@baltsun.com

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