Our agent Racheallee Lacek was recently interviewed for an article by the Pittsburgh Business Times, weighing in on condominium development in Pittsburgh.
Read the full article here or below:
It was an offer Kathy Wallace just couldn’t refuse.
A residential real estate agent for Keller Williams Realty, Wallace was selling the 38-unit Smallman Place condominium project in the Strip District two years ago when she and her husband decided to buy one of the units for themselves.
The Wallaces had made a deposit and begun building it out when, out of left field, they were propositioned for the unit.
Wallace recalls how she and her husband initially said no before getting another unsolicited bid she says “was so crazy that I told them that for their sake, they should put an appraisal contingency” into the sales agreement to protect themselves as buyers.
The couple sold the condo and now are looking to buy another new unit, this one on the South Side.
More than just an example of what appears to be pent-up demand for residential condos in Pittsburgh, the sale eclipsed $400 a square foot, a ceiling that previously had not been reached in the trendy Strip District.
For Wallace, her experience, as well as brisk sales of new projects she represents, including the McCleary School Condos in Lawrenceville (four units remain out of 25) and the Bloomfield Lofts (12 sold, six are available), would seem to indicate a desire for more condos in Pittsburgh.
“From Day One, I have never felt we had a enough product, nor a good variety of product,” she says. “I have so many people that I’ve talked to over the years that are still showing interest. People get very, very frustrated that there isn’t product to buy.”
That may be changing as Pittsburgh again finds itself on the brink of a condo moment, modest as it may be.
Unlike other property types in the region, residential condos inspire a distinctly divided mix of true believers and reluctant skeptics.
Put Racheallee Lacek, a sales associate for Piatt Sotheby’s International Realty, among the former.
“I think any new construction project with the right team and the right idea, with a really good location [and] with the right price points … it’s going to sell,” she says.
Lacek and others on the sales team at Millcraft will be marketing a new 87-unit condo project called Lumiere Residences as part of the redevelopment of the former Saks Fifth Avenue property downtown.
“When you see our presales begin,” she pledges, “our phones won’t stop ringing.”
But ask Ralph Falbo, chairman of real estate company Ralph A. Falbo Inc., how he views the market and the answer is markedly different.
“I don’t see a rush for condos,” he says.
Falbo’s view of Pittsburgh’s condo market comes from his experience spearheading the development of 151 First Side, the first major condo development in downtown in more than 40 years when it opened a decade ago.
“I know there’s a perception that residential rents have gotten so high that people are saying maybe I should just buy because mortgage rates are still low,” he says. “But I don’t see a lot of people wanting to change into permanent residency in a condo. I see more people wanting to rent apartments because they don’t want to be tied down to long-term debt.”
New wave, long drought
These differing points of view soon will be tested.
A month ago, Boston-based The Davis Cos. was chosen by the board of the Pittsburgh Parking Authority — working with the Pittsburgh Cultural Trust — to redevelop the garage at Ninth Street and Penn Avenue downtown into a project that would include as many as 180 condos in the Cultural District. The development is expected to cost as much as $175 million.
It followed the May announcement by a joint venture of Millcraft and McKnight Realty Partners to build the Lumiere Residences as the second phase of the Saks Fifth Avenue redevelopment, a plan that recently added two floors, bringing the unit count from 70 to 87.
Other new condo projects include a 17-unit building from tech entrepreneur Francois Bitz called Penn 23 in the Strip District; a 39-unit project by Solara Ventures in Squirrel Hill; HHF LLC’s 12-unit St. Casmir Church redevelopment on the South Side; and a development already built on Butler Street by Alphabet City Co. that originally was to rent 15 units but now is selling them.
These projects are, in part, inspired by a concern that Pittsburgh’s apartment boom is adding too many units than can quickly be absorbed.
But they also come as new condo development has been all but dormant in Pittsburgh.
“This will be the first new concentration of condos in downtown since Three PNC Plaza,” says Jeremy Waldrup, president and CEO of the Pittsburgh Downtown Partnership, of the multipurpose building developed by PNC Financial Services Group Inc. that included 29 condos when it opened in 2009. “The condo market is still a big question mark. We just don’t have the product history.”
In its 2017 midyear report for different property types, the Pittsburgh office of Integra Realty Resources notes 2,000 rental apartments have been built in the region in the past year, with 3,000 or more under construction and nearly 8,000 in the planning stage.
Yet, Paul Griffith, senior managing director of Integra’s Pittsburgh office, observes there isn’t enough condo development in Pittsburgh to even justify its own report.
“Pittsburgh has just always been a really, really tough condo market,” he says. “When the rest of the country is on a condo boom, [local developers] never really enter it until it’s winding down everywhere else.”
The Pittsburgh Downtown Partnership offers a measure of just how few new condos have been added to the supply in and around the Golden Triangle, putting the total at 43 since 2013 in a market adding apartments by the hundreds.
The PDP puts the total number of residential condos in the greater downtown area at only 866, or less than half the total of apartments Integra reports Pittsburgh added in just the past year.
Look at any Pittsburgh neighborhood that’s experienced new development in the past 15 years and there’s likely at least one condo proposal that died for one reason or another.
For example, two landmark buildings in East Liberty now successfully redeveloped, the Ace Hotel and Walnut on Highland apartments, once were planned to be turned into condos. A site in Squirrel Hill on which developer Herky Pollock now plans to build an apartment building up to 10 stories once included condos and a hotel. And in the Strip, the New Federal Cold Storage building still awaits redevelopment as apartments after being considered for condos nine years ago.
The case for new condos
Lynn DeLorenzo, a partner with South Side-based Tarquincore LLC who has worked with a number of the major apartment developers in the region, says she has been awaiting a new wave of condo development here.
“I think when condos come into a market, they just make the market stronger,” she says. “You have to vertically integrate different product types to make a stronger market.”
Helen Hanna Casey, president of Howard Hanna Real Estate Services, the region’s largest residential real estate firm, sees demand from two groups: empty nesters and young adults without families.
The older set, she says, is used to owning its homes, but wants to right-size. The younger group already is acclimated to the luxuries of new-apartment living.
Hanna Casey estimates a demand for roughly 2,500 condo units throughout the region, and expects more to come.
“I think you’re going to see a lot in the next two years,” she says. “The question is will there be great differentiation in the units to appeal to different markets.”
Buyers acknowledge a limited supply of condos from which to choose. That reality drives home the unique proposition of what condos offer and underscores their investment potential.
Ed Shriver, a principal for downtown-based Strada Architecture LLC, and his wife recently traded in their suburban home along the Parkway West for a condo downtown after their two daughters left the nest.
Giving up his daily commute for a short walk to the office, Shriver estimates the condo cost 15 percent to 20 percent more than what their house sold for — he did not divulge the price — but notes the unique context of where he’s living now.
“… We bought a house effectively on the river at the Point in Pittsburgh,” he says. “How many houses are there in the suburbs? Tens of thousands. How many condos on the river at the Point are there? Right now, there’s about 400.”
Justin Kline, an associate who works in investment sales at commercial real estate company Colliers International, is viewing Pittsburgh’s condo market as a 31-year-old first-time home buyer who grew up in Lawrenceville and lives in Shadyside.
Kline is hopeful for a new supply of condos that might offer a buying opportunity in a market of often fast-escalating prices for single-family homes, which he also continues to consider. Seeing downtown as priced primarily for empty nesters, he views the Strip as both a place to live and invest.
“My thought was even if you’re buying a two-bedroom at $400,000, the Strip will be more of a live-work-play environment and right now the only option is to rent,” he says. “Capital appreciation is almost inevitable.”
Even among Pittsburgh condo developers, there is a lingering doubt about the local market.
Jack Benoff, principal of suburban Philadelphia-based Solara Ventures, stands out as one of Pittsburgh’s most successful condo developers, completing and selling out three projects to date, two in the Strip District and one downtown. He soon will begin marketing his newest project in Squirrel Hill.
Yet, he emphasizes not to overestimate the market here.
“It’s evolved, but it’s so small and nascent that it’s evolving very slowly,” he says. “As long as someone is doing a small project in a good neighborhood, there’s a need.”
It’s an understanding Benoff has gained after fighting to get financing for his initial projects that were completed during the Great Recession. He is quick to remember local bankers being incredulous at the idea of lending him money and people telling him he was crazy when he started what is now the Otto Milk Lofts, which would successfully sell out.
Years later, after succeeding with two condo companion projects on Smallman Street totaling about 80 units, Benoff scoffs at the recent memory of meeting someone in town who called him “the Condo King of Pittsburgh” for a level of success he sees as modest in scale.
“That’s kind of embarrassing, don’t you think?” he asks.
Falbo also expresses ambivalence about condos in Pittsburgh, and does so after helping to create the market for them with 151 First Side, his 19-story, 80-plus-unit building.
A champion of downtown living, Falbo recalls the project’s many challenges, including a fire during construction, the bankruptcy of the firm building it, not to mention the recession during which it was developed.
With all that, 151 First Side still has a few units that have never sold, including its $2 million penthouse. And Falbo says the development team has only made a little money from it.
“The only way I would do another one again is if I had a presale of at least 60 percent of [units] with a nonrefundable deposit,” says Falbo, adding 151 First Side was marketed with a 35 percent presale and refundable deposits.
“It’s too risky,” he adds. “It’s too tough.”
The financial risks and rewards obviously vary greatly for condos. As Benoff and Falbo both point out, a developer needs to sell all the units for a project to be fully profitable.
Walnut Capital Partners, prolific in developing apartments, built the Metropolitan Shadyside on Neville Street in the East End, only for it to take five years to sell out. The firm hasn’t built another condo since, despite continuing to actively pursue new development.
The Carlyle, a downtown condo conversion of around the same vintage as 151 First Side, also has not sold out.
Such mixed results can make the property type challenging to finance, say some.
Condos also come with added layers of complication for buyers, who typically take on monthly fees to maintain their buildings. Tax abatements, often critical for condo buyers and developers, can add to the complexity.
Yet even skeptics agree there is a market for the right product in the right place. Falbo expects the Davis Cos. project will have good prospects if it goes forward, as does Intergra’s Griffith.
“I do think within the housing market overall there is a percentage of people who would buy and pay for a new condo,” he says. “I just don’t think the market is real deep.”
Nor is the market deep for housing inventory in general, say condo proponents such as Lacek and Hanna Casey. In fact, the National Association of Realtorshas characterized the market as in a shortage crisis.
While it remains to be seen how many buyers will turn to condos, Hanna Casey says she expects the demand is strong.
“I don’t go to a dinner party where somebody doesn’t ask ‘where are we going to go?’” she says.