Multifamily Development Is Booming Across America

In the heart of Downtown Los Angeles, the 91-year-old Higgins Building at Main and Second streets—a 10-story run-down office structure near L.A.'s Skid Row that has sat empty for decades—is being transformed into about 150 loft-style apartments. The Downtown Center Business Improvement District expects a 55 percent increase in Downtown multifamily housing units, to a total of 18,400, by 2004.

Meanwhile, in downtown Milwaukee, the Cawker Building has been converted from long-vacant office space into 20 riverfront condominiums overlooking the city's famed RiverWalk. In a nearby neighborhood, a former leather assembly plant has been transformed into the Western Leather Lofts, an apartment project featuring 57 studio, one- and two-bedroom units. And in 2000 the Milwaukee Redevelopment Corporation completed the 139-unit, Library Hill downtown apartment project.

An abandoned, unsightly flour mill in Denver's Central Platte Valley has been renovated into high-end lofts, and it is only one of many multifamily renovation projects in the Mile High City. Of an estimated 65 to 70 vacant buildings in its downtown area, more than 50—including a shuttered department store as well as empty office buildings and warehouse structures—have been redeveloped since the early 1990s, the vast majority into residential units.

On the east bank of the Scioto River in Columbus, Ohio, the gleaming 26-story Miranova Tower has become the talk of the town and is cited daily as proof that the downtown housing market in Ohio's capital city is hot. Ron Pizzuti, chairman and CEO of the Pizzuti Companies, which developed the project, notes that Miranova roughly translates into "new view," and that's what he wanted for Columbus.

Across America, downtown multifamily development is taking on a new look. As growing traffic and clogged expressways make daily commutes to and from the suburbs more difficult and time consuming, individuals and families are gravitating downtown. They are looking to gritty icons from the industrial age, such as old warehouses, unused mills and turn-of-the-century structures as well as gleaming new residential towers to meet their housing needs.

Years of urban decline have played themselves out, and urban land prices can now support new housing and residents. Consequently, the downtown multifamily market has become hot in numerous major cities, small towns and communities in between.

"People are beginning to reconnect with the urban form," explains Milwaukee Mayor John Norquist. "Downtown offers a more vibrant and eclectic lifestyle. It's an environment that empty nesters and young professionals are looking for, but can't find, in the suburbs."

Slower in the Suburbs

Multifamily developers are ramping up new construction activities in downtown and close-in markets at the same time that they are pulling back new starts in the suburbs, says Ron Witten, president of Dallas-based Witten Advisors, a firm that advises multifamily developers. He explains, "Downtown or close-in multifamily development clearly is gaining market share because of the appeal from a lifestyle perspective, as well as [its appeal to] those who work close to the central business district."

Witten says that almost every major metropolitan area is seeing increasing downtown development.

In Cincinnati, Ohio, Mayor Charlie Luken wants to see 1,000 new housing units built within the next year. More than 570 units currently are planned or under construction. Studies say the city can absorb 350 to 400 units, but only 151 were added in 1999 and an estimated 200 in 2001.

Watt Commercial Properties recently broke ground on one of the first new multifamily high-rise projects in downtown San Diego in decades, a 389-unit, 18-story twin tower in the Little Italy area near the central business district. The $75 million luxury development covers an entire city block and is slated for completion in the first quarter of 2003.

Dayton, Ohio, has four housing projects currently under construction downtown, says Maureen Pero, president of the downtown Dayton Partnership. "In total, they will add about 350 new market-rate units to our downtown by 2002," she notes. "This is a large increase in product for us, since we currently only have about 2,000 market-rate units."

The Milwaukee-based Mandel Group is now building Trostel Square, a community that will include 99 luxury apartments in two three-story buildings and 27 high-end condominiums in three additional structures, on a remediated brownfield site that formerly housed the Trostel Tannery. Located along the city's RiverWalk, the project, which is scheduled for completion in spring 2002, also will include public water-taxi stands, private boat slips and a public park, plus business and fitness centers. The project is being supported and financed in part by the brownfields grant program of the Wisconsin Department of Commerce.

In downtown Dallas, the old Sears catalog building is being transformed into more than 450 loft apartments that will range from 1,000 to 3,000 square feet and will lease for $800 to $4,000 a month. The long-vacant structure, which housed Sears, Roebuck's regional catalog operations from 1910 to 1947, is undergoing a $75 million renovation. The rehabbed building, which will include ground-floor retail space and a retail arcade, is expected to be completed by fall 2001.

Fringe Benefits

Fueling in-town multifamily development is construction on the fringes of downtown areas. Witten cites Washington, D.C., as an example of a metropolitan area in which "downtown" multifamily development is spreading to areas outside the city core.

The reason? Most downtowns are not yet the "24-hour cities" that San Francisco, New York and Boston are. "They don't have services such as grocery stores, dry cleaners, and other amenities," Witten states. "A good number of cities have had loft conversions, but there isn't that much retail development yet.

"So we're seeing 'near in-town' development projects that are adjacent to downtown, in locations that already have a sizable multifamily and single-family residential component and thus already have retail services such as grocery stores, dry cleaners and the like."

Charlotte is a fast-growing metropolis with a "hot" downtown. Bank of America is developing a $250 million, 1.2 million-square-foot complex on West Trade, called Gateway Village, which will include 480 multifamily units. And First Union has announced plans for luxury units in its $75 million mixed-used park next to the bank's 32-story headquarters. The Ratcliffe on the Green, a 10-story, 57-unit condominium/retail complex, is expected to be completed in the first quarter of next year; units will be priced from $200,000 to $1.3 million. Such developments are one reason that Charlotte City Central Partners predicts the uptown area will house 10,000 residents by 2004, up from 7,000.

Milwaukee has a bounty of turn-of-the-century office and industrial buildings that are being pressed back into service as housing. In the process, some of the city's most architecturally significant but otherwise obsolete structures are being saved from the wrecking ball. "There is definitely a downtown housing boom in Milwaukee," says Beth Nicols, executive director of Milwaukee downtown. "Demand is above supply—so much so that residential realtors are locating their offices in downtown Milwaukee to enhance their presence in this market. It used to be the exception to the rule when they would get calls for downtown showings, but now this occurs on a regular basis."

Nicols adds that the city is seeing substantial multifamily development: "We currently have more than 1,300 units under construction. The most recent U.S. census showed one downtown tract—the historic third ward, which is growing by leaps and bounds—more than doubling in residential occupancy. At the time of the last census there were slightly more than 200 units in that particular tract. There are now nearly 500, and the area is still growing strong. Much of our housing development is occurring on the Milwaukee River and along the shores of and overlooking Lake Michigan."

Denver is showing a dramatic swing in in-town submarket multifamily housing: it's 98 percent occupied. Deliveries over 12 months have moved from 600 units a year ago to 1,600 now. Almost a quarter of all new apartments finished in metro Denver today is in the in-town submarket. Statistics show that downtown Denver—which includes the city's central business district, the Lower downtown (LoDo) historic district and the adjacent Central Platte Valley—now has 1,772 units under construction and roughly 5,400 on the drawing boards. (Last year, 860 units were constructed; 672 were finished in 1998.) The Central Platte Valley, a former rail yard and industrial area, is zoned for some 2,000 new residential units over the next 20 years. Construction of those is just beginning, says Ben Kelly, communications and public affairs manager for the downtown Denver Partnership.

"A decent portion of the rehabbed buildings (particularly in the CBD) contain affordable (below market-rate) units, mostly rentals," says Kelly. New residential development in Lower downtown and the Central Platte Valley consists primarily of high-end, for-sale product."

Transforming Eyesores

Municipalities throughout the country want to transform downtown eyesores into something more aesthetically pleasing, says Neal Opper, senior vice president of Boston Capital. "City fathers also want to help downtown merchants, and the best way to do that is to have more people living downtown, rather than just coming to work there," he adds.

Opper expects downtown multifamily development to continue because "the mind-set of a lot of city councils and mayors is to invigorate their downtowns. I see it in my state, and I see it everywhere. People want to revitalize the cities, bringing in both housing and business at the same time. You can't have one without the other."

The explosive growth in downtown multifamily development is not expected to end anytime soon, as increasing numbers of suburbanites opt to move closer to educational, cultural, and entertainment activities and developers struggle to meet demand.

Betsy Jackson, president of the International Downtown Association, a Washington, D.C.-based group of downtown development officials, believes that downtown multifamily development is not a passing fad, since it is occuring throughout the country. "It isn't price or floor plan sensitive," she notes.

"There seems to be a market for downtown development, whether luxury units, lofts, or more affordable projects, and it doesn't seem to be limited to just the left and right coasts, nor just the major cities. There's quite a range of projects, from new high-rise construction to adaptive use of warehouses for lofts and new projects designed to look like warehouses."

Still, the current data should not be misinterpreted, cautions Jackson. Today's downtown multifamily boom appears to be fueled primarily by people who have lived in the suburbs and want to get away from them. This includes tech workers and young professionals who have spent their entire lives in suburbia and are now in search of a more gritty environment, plus empty nesters who want a lifestyle change.

Most people are still choosing to live in the suburbs rather than the city." But," adds Jackson, "I think we'll see multifamily development in downtowns for some time to come.

This article appeared in the Urban Land Institute's Multifamily Trends Magazine, Summer 2001 issue. Christopher J. McIntosh is a business writer based in Richmond, Virginia.

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