Condo cooldown

With the last of their children leaving home, Tim and Rebecca Gump two years ago began looking to downsize from their five-bedroom North Spokane home to a downtown condominium. The couple found themselves attracted to the vibrancy of downtown, Tim Gump said, and wanted the convenience of being able to “lock and go.”

When they discovered the Upper Falls Condominiums on the north bank of the Spokane River, many of its 32 units already were taken, he said. But they landed a 3,300-square-foot, fifth-floor condo overlooking the river, moving in last June. The price: $1.2 million.

“I figure that someday if we do go to sell it, it’s going to be worth several million in that location,” said Gump, 50, former president of a Spokane-based aircraft electronics distributor. “I look at it as a good investment.”

When the Gumps began their hunt, the Spokane condo market was heating up. Developers, citing deep demand for urban living, were planning and building hundreds of units. They transformed historic downtown buildings into costly lofts with stainless steel appliances and granite counters, and remodeled apartment buildings around town into less expensive dwellings.

Some projects have fared well; just two units remain unsold at Upper Falls, and The Ridge in Browne’s Addition has sold all but a few of 136 former apartments.

But last year, downtown condo sales cooled, even as new units continued to become available. Developers and real estate agents say it’s a mixture of the economy, the national credit crunch and too much supply, but they still express long-term confidence in the market.

Realtors say there is a surplus especially among converted apartments priced for less than $200,000.

“The myth was you could take your apartment (building) and make it into condominiums, and you’d make a fortune,” said Joel Crosby, a Realtor with Tomlinson South specializing in condos. “And those days are gone. I’m not sure they ever were there, but people have spent the money to do that, and then they have a lot of empty units.”

To stay competitive, some developers are focusing on amenities such as private decks and secure parking. Others have tabled or are reconsidering planned projects, pondering alternatives such as apartments.

“The market’s not as hot as it was when it was the hottest a year and a half ago, but the market’s still OK,” said Ron Wells, developer of renovation projects such as the Morgan Lofts on Riverside and The Lofts at Joels, now under construction. “All of us would like them to be selling faster, but it’s worked out.”

Wells had planned the Carnegie Square Townhouses, 10 three-story “San Francisco-style” townhouses at First Avenue and Adams Street. They would include two-car garages and rooftop decks and would range from 2,800 square feet, for $525,000, to 3,800 square feet, for $795,000.

But estimates showed that at those prices, building costs would nearly match retail value. Now Wells is considering a nine-story, 90-unit apartment building.

“We decided after we had re-bid it the last time that we would work on designing a larger apartment building for that site and just see how feasible apartments would be compared to condos,” he said. “We don’t know the answer to that yet.”

Developer Jeff Smith earlier this year announced plans to turn a historic First Avenue structure into retail condominiums and office suites in lieu of residential condos because of the market downturn and other projects coming online in the area. But he said demand remains for condos, noting they are more affordable than in Portland and Seattle.

“Demand is still there, the prices have not come down; in fact they continue to go up,” he said. “The values in downtown condos are still the best around.”

Deceptive demand

Across Spokane County, condo sales and average prices have increased over the past three years, totaling more than 1,000 units sold, according to Multiple Listing Service data. Last year, the MLS recorded 376 condo sales in Spokane County, with an average price of $164,702. In and around downtown, 74 sold, with a median price of $207,000. Ninety-six sold downtown in 2006, with a median price of $194,000.

As of last week, the Spokane MLS listed 257 condos for sale, with less than a third of them priced at $300,000 or more. Seventy-three were listed around downtown.

Perceived demand during the condo boom was deceptive, said Anne Anderson, owner of Lakeshore Realty in Coeur d’Alene. The deposit required for some contracts was fully refundable, allowing buyers to back out of one deal and reserve another unit elsewhere.

“It’s been more challenging for the developers, because as soon as they’ve got their product going, someone else is right behind them … so consumers were jumping from one project to the next,” she said. “Some (buyers) weren’t following through.”

Spokane Realtor Marianne Guenther said the top floor of the new Cathedral Point Condos off Grand Boulevard “sold” several times. Developed by Jordalen Tangen Development LLC, the four-unit project offers condos at $519,000 to $693,000. Elevators were being installed last week.

“It’s kind of like fishing,” Guenther said. “It’s catch and release.”

Activity has picked up in the last few months and as weather improved, developers said.

“The demand is just as strong,” Wells said. “I think a lot of buyers have just been waiting.”

Chris Batten, principal owner of condo developer RenCorp LLC, echoed that view, saying there’s still a “reasonable amount” of buying going on.

Slim margins

Rising construction costs for materials such as cement and steel also have stung developers.

Developers of Upper Falls, which offered 2,000- to 4,500-square-foot condos from $500,000 to nearly $2 million, are waiting to see if it will make a profit, said Upper Falls LLC managing member Sharon Smith, partner of Spokane businessman Don Barbieri.

“It’s definitely tight for us,” she said.

Builder George Doran expects to lose a couple hundred thousand dollars on his Peaceful Valley project, Lina Marta Condos. The four-unit building, 1405 W. Water Ave., cost about $2.4 million and is outfitted with a variety of “green” features. Units range from 1,900 to 2,550 square feet and cost $610,000 to $780,000.

“Maybe we went a little overboard for that area as it is right at the moment,” Doran said. “I’m in a situation now that if I can break even on it or lose a little money on it, I would be fine.”

Condo owners looking to resell their units also face more competition.

Full-time substitute teacher Leif Sanders is optimistic he can sell his 1,020-square-foot loft in the remodeled Morgan Building along Riverside Avenue for $323,000. Relocating from Central Oregon, he and his wife bought the condo, which features 13-foot ceilings and large windows overlooking the street, because of its price and location, Sanders said. Downtown living has “this mystique about it, and it is pretty fun,” he said, although he’s ready to move on.

Originally sold by Wells & Co. for $295,000, the loft has been on the market since January without an offers. The company has sold 24 of the 28 lofts, which it finished building late last year.

A resale at RenCorp’s The Jefferson Street Auto Lofts, completed in 2006, netted about $300 per square foot, “substantially” more than what the condo cost when it was built a year earlier, Batten said.

Proposed projects

Despite the slowdown, developers still plan hundreds of condos in Spokane.

Jeff Smith did not buy a downtown parcel where he had considered a 17-story condo tower in late 2006. But Overlook Spokane LLC purchased the Rodeway Inn, 901 W. 1st Ave., where he plans a tower consisting of a roughly 50-room hotel and 40 to 50 condo units, once the market improves.

“We’re guessing five years, but we’ll see,” he said.

Upper Falls East, a nine-story, 31-unit condo tower proposed next to the historic Flour Mill in 2006, went through a lengthy city permitting process to receive special permission to build within the shoreline. Developer Presidio Development Partners LLC, of San Francisco, recently offered the property, complete with permits, for $750,000.

Initially proposed to start last year, construction could start this summer on Parc two20 Tower, a 10-story mixed-use building slated for 220 E. Rowan Ave. The project by Rob Daugherty and City Councilman Al French would offer 32 1,200- to 1,440-square-foot units, from about $300,000 to more than $500,000. Thirteen condos are reserved, with three reservations made last week, Crosby said.

“There’s still a lot of people out there looking for condominiums, but they’re being more discerning about what they want,” Crosby said.

After resolving lawsuits with the city and residents of Peaceful Valley over Riverview on Riverside, a proposed mixed-use condo tower, Spokane developer Mick McDowell said he wants to break ground this fall. The redesigned tower, built speculatively and funded by a group of investors, will include more affordable units than some on the market, he said.

He predicts the building would be “an immediate sell-out.”

Most of the projects downtown are renovations of older buildings, and “the amount of actual new construction has been relatively minimal,” McDowell said. “Upper Falls has certainly been a success, despite some of their challenges. So I personally believe there is a huge pent-up demand for value-oriented condos.”

SRM Development LLC, developer of the large Riverstone Village mixed-use project in Coeur d’Alene, recently resumed plans for at least one condo tower on the former YWCA site near Upper Falls.

Also, Black Rock Development CEO Marshall Chesrown has said the first phase of Kendall Yards, the 78-acre mixed-use development along the north bank of the Spokane River, could include 300 to 400 residential units. It’s unclear how many of those, if any, would be condos and townhomes.

Wells sees a good long-range outlook for downtown condos as the price of gas continues to increase.

“There’s still a lot of people that want to live downtown,” he said. “The long-term market is just excellent.”