Tuesday, February 17, 2009

What does a downtown have to do to get some market-rate apartments around here?

We currently have a huge shortage of market-rate apartments downtown. Market-rate units are those that rent for whatever the market will support, as opposed to units limited to certain income levels. The Crescent Lofts, Mississippi Lofts, and now Riverwalk Lofts are turning away dozens of potential downtown citizens because they don't fit the tax credit requirements. What about market rate units downtown? They're nearly all full, especially in newer developments. Even the all market-rate CityView Apartments (former Courtland) have at times had a waiting list. I've seen this shortage firsthand, and I had it confirmed yet again when I toured the Riverwalk Lofts a couple weeks ago. People who make good money are calling to inquire about getting a place downtown, and being told there aren't enough market-rate units for them. How many of these people might be finding a place in downtown Rock Island instead? Downtown Davenport needs more residents, and we're turning them away.

The tax credits that come with Section 42 housing are important to developers, but there are also ways to make market-rate apartments work. As I'll give examples for later, its working other places in Davenport. Other than that, I believe this is a case of the local developers still clinging to their 1980's view of downtown Davenport as an empty wasteland. If you notice, all of the big residential projects happening downtown are out of state folks. Alexander Company (Crescent Lofts) is out of Madison, J&T Development (Mississippi Lofts) are out of Chicago, and MetroPlains (Riverwalk Lofts) are out of the Twin Cities area. The one bright spot currently on the horizon is the Blackhawk Hotel redevelopment, which will include 30 high end lofts. The company doing that, Restoration St. Louis, is of course out of St. Louis. This is a fantastic project, but I believe there is demand for far more than 30 high-end apartments downtown. Unfortunately it seems to take an outside perspective to see it.

Another problem may be the banks, especially when it comes to condos. I've heard from multiple sources that none of the local banks (again, old money with old views of downtown and housing choices) will loan money to developers for owner-occupied developments downtown. I think there's a market for it, but they apparently don't. Jeff Speck even mentioned it while he was here. Unlike apartments, there's no real proof of the demand for condos. With apartments, there is absolute, concrete proof that there are lots of people who WANT to live downtown but aren't being provided the option to.

This isn't how capitalism is supposed to work! If there is a demand for a product, someone is supposed to see that demand and cash in on it. Middle-to-upper income people are willing to pay literally $1000 a month to live downtown, and we're turning them away. Where is the new condo or apartment building construction? I don't believe that it is financially impossible. Look around town, and you will see multiple examples of condo buildings and apartments succeeding. The examples I always use are the condos behind HyVee on Eastern, and the apartments on Washington just north of Locust. Neither of these are out in the 53rd Street "hot" area, and neither of them are low income, or cheap, yet they seem to succeed. Or even look just up the hill to the CityView. Its barely downtown, but has great views of both downtown and the river. It happened when local landlord Matt McDonnell rehabbed the Courtland, charged $600, $700 and up per month, and has had TONS of interest. If someone built or rehabbed a building similar to any of these downtown, I truly believe it would be full within a month of completion, if not before. Between the 1st Army coming to the Arsenal, and a lot of former home-owners becoming renters again, now is the time to build apartments.

So why isn't it happening?


Anonymous said...

I am aware of several investors looking at market rate apartments for Davenport. The challenge is the significant financial investment upfront, due to the time needed to construct and lease the units. This is the main reason so many have embraced the tax credits.
Interesting enough, downtown Davenport has several strong candidates for market rate apartments; specifically the former Parkers Building, Forest Block Building and several other smaller structures that would be great mixed use (commercial/single family). But the cost of redevelopment is at or near that of new stick built, so investors tend to seek out the path of least resistance. We have all heard this before.
I believe, if the City of Davenport would grant a limited “Pay As You Go” Tax Increment Financing for a 10 or 15 year period, it would enhance some downtown opportunities. What about rebating some percentage of the local property taxes generated over an extended period, to offset the upfront challenges?
I wouldn’t support the City bonding up front cash, but I don’t see any downside to the pay as you go concept. The rebated cash flow can be merged into the overall financing, which banks would include in their lending considerations.
The barriers for downtown market rate rental units isn’t physical (lack of buildings), external (lack of demand) but almost completely financial. All it takes is a little political will and community buy in, that rental properties are not necessarily a bad thing.
Keep up the good work!

Tory said...

I think if the Blackhawk and the McNamara's riverfront apartments near Oneida landing (not quite downtown, but close) are successful - you will soon see more developers taking the plunge.

It's hard to be the "canary in the coal mine" - but these two projects will likely help set the table for telling what the demand truly is.

Anonymous said...

The Blackhawk was/is unique, in terms of the cost of building to developer. And McNamara is a unique guy, but it's also a very small project. Hope your right, but I think the larger downtown buildings will need a little help.

Anonymous said...

I think Tory's point holds water. Once there is verifiable proof of success with market rate units, more folks will be willing to take the risk. Further, I have to think the first developer to succeed in getting condos built downtown will make out like gangbusters.

Pho3niX said...

FWIW - I believe Restoration St. Louis has agreed to rehab the Blackhawk AND Forest Block.

QuadCityImages said...

I haven't heard anything concrete, but there were several articles that mentioned they had a definite interest in doing more projects here, including possibly that. They could be a very good asset for downtown Davenport.

Anonymous said...

As McGivern points out, it's completely financial, and slightly psychological at this point.

Both of these things are solvable with a little creativity on the developers part. We are finally past the "chicken or egg" argument: downtown has arrived as a location people are WANTING to live. There's factual evidence via vacancy to prove beyond a shadow of a doubt this is the case.

McGivern's point is well taken: if we need to give developers a nudge towards getting away from income restricted units, there are creative ways to do it that the City can held lead in.

QuadCityImages said...

We have a council that seems like they would be receptive to that, so what's the next step?

Anonymous said...

According to the paper, Restoration St. Louis maybe rehabbing the Forrest Block Building. I hope this outfit doesn't end up like Chris Ales who was supposed to be Davenport's Savior, as he's about ready to lose everything back to his lender. Same thing could happen with the Blackhawk and Forrest block, with the city left holding the bag.