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20 Leading Green Execs |
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Mosler Lofts was an early green condo project; will followers succeed?
Leaning towers by Sarah Crespi - 5.5.08
The nation’s condo boom led many developers in the Pacific Northwest and the Bay Area to gain an edge by following the U.S. Green Building Council’s Leadership in Energy and Environmental Design (LEED) standards. But now that the housing market is dissolving, does being green still set them apart?
In fall 2007, Forbes magazine predicted that Seattle would have one of America’s most stable, if still somewhat lackluster, housing markets in 2008. As of March, housing sales had slowed, with double the number of condo listings in King County compared with March 2007, according to the Northwest Multiple Listing Service. But despite the slowdown, sale prices are still up slightly: The median price in King County for February condo sales was $289,000, up 1.3 percent from the median price in February 2007.
Seattle has several areas of intense development. Downtown neighborhoods like Denny Triangle and Belltown have more than 2,000 residential units under construction. Another hot area is the South Lake Union district with 1,162 units under construction.
In South Lake Union, Vulcan Real Estate has contributed massively to the Seattle green building market. The neighborhood may have 1,850 residential units by 2008, according to the Seattle Post Intelligencer. Vulcan is aiming for LEED certification for 442 condos in three buildings: Rollins Street Flats, Enso and the Veer Lofts. Vulcan completed 2200 Westlake, a mixed-use project that houses 260 condominiums, in 2006.
Mosler Lofts in Belltown was downtown Seattle’s first LEED-certified condo development, completed in fall 2007. Mark Schuster, founder and president of the Schuster Group, which built Mosler, says the lofts did well on the market—not just because it was green.
“I think that green building is a component of success and a component of development and sales, but it’s not as big of a factor as it should or could be,” he says. ”A lot of buyers, because it’s so new, want to embrace it, and want to do the right thing. But they view it as a bonus.”
Schuster says he saw Mosler Lofts as an opportunity to educate, rather than a selling point.
“We’ve helped educate the public,” he says. “We’ve talked to other developers about it, builders. We’re doing it for the greater good. We think everyone should be doing it.”
While specific green features such as building materials and energy conservation may not be driving sales, Scott Eaton, project manager for Gerding Edlen’s Bellevue (Wash.) Towers development, says some of the things that make it almost certain a project will earn a LEED rating, such as being located in a downtown core, are key factors in buyers’ decisions. “That’s one of the most compelling reasons for people to live downtown, because they’re avoiding their car, and they’re living a walkable lifestyle.”
Elliot Sun pre-purchased a $995,000, 1,320-square-foot condo in Seattle’s Enso last March. The 19-story LEED Silver-seeking Enso is marketed as a luxury condominium building and is part of Vulcan’s burgeoning South Lake Union Development. Sun says LEED-certification was a given for him and his girlfriend. But, Sun says, other factors helped the couple choose Enso in the end.
“We had looked into possibly buying a house or townhome that was also LEED-certified, outside of the city,” Sun says. “But my girlfriend and I, we both work in downtown Seattle. I work about four blocks from Enso now and she works about five blocks from there. Location was obviously the biggest thing.” Still, Sun admits they paid quite a bit more than they would have in order to live downtown.
Land costs and demand play a key role in driving up real estate prices, and in San Francisco, housing affordability has been a mounting concern. Just 10 percent of families can afford homes at the median price range in the Bay Area, according to Tim Colon, executive director of the San Francisco Housing Action Committee. But high prices can be a benefit for developers trying to sell green features. “The median home price is about $750,000,” he says. “The cost of green features is incremental at that level.”
San Francisco's Arterra is facing an saturated condo market, but 65 percent of units have been sold.
San Francisco’s housing market is partially insulated from national trends by a steady, slow supply and lots of pent-up demand, says Meg Collins, project manager for Intracorp’s Arterra building. According to the San Francisco Business Times, 2,500 condos will be ready for occupancy in 2008. There are over 50 large residential projects in the works in the SOMA district alone, according to the San Francisco Chronicle.
The 16-story Arterra is likely to become the first of San Francisco’s new high-rise condominiums to receive LEED certification [see “Gold Rush,” SI, July 2007]. Construction is expected to finish in July and about 65 percent of the 256 units have been sold, according to the developer.
Arterra’s units range in size from 689 to 1,800 square feet with prices from the mid-$500,000s to $1.3 million. Collins says units in Arterra are selling better than units in The Hayes, which is also under construction and in the same price range—but isn’t targeted for LEED certification. However, she says she can’t be sure the difference is due to differences in the buildings’ green credentials.
“Your typical buyer is not necessarily drawn by the fact that it’s green, but they do appreciate it as a perk,” Collins says. “It’s sort of like an extra goodie to throw in to the bag. We have had a handful of buyers who are super green and really weren’t considering buying anywhere else because they were specifically looking for a LEED-certified place to live.”
The Arterra is Intracorp’s first green development and the company is “on a quest to quantify” the impact on sales. But, Collins says, at this point it’s hard to tell.
Portland was at the forefront of the green condo boom, and is ahead of Seattle and San Francisco in the market’s downturn. Developers in the Oregon hub are now seeking creative ways to reposition their green condos in the cooling market.
Over 4,000 condos appeared on the market in Portland between 2000 and 2006, in the city’s much-applauded Pearl District redevelopment, South Waterfront district and smaller neighborhoods. In 2005, buyers snapped up 800 condos in the Pearl, a substantial portion of the total 1,000 sales in the city, according to a market analysis in Portland State University’s Real Estate Quarterly. Two years later, fewer than 700 condos sales were predicted. Yet several new towers both in the Pearl and in the newly emerging South Waterfront district are slated for completion in 2008; as many as 1,000 additional units are expected to make an appearance on the scene. That’s adding to an already sizeable inventory: A search of the Regional Multiple Listing Service for condos in Portland revealed over 1,900 for sale in late March.
Developer Gerding Edlen is responsible for over 2,400 of the LEED-rated condominiums in Portland, including the mixed-use building Brewery Blocks development in the Pearl district and several projects in the South Waterfront. The company has also recently stepped into the Puget Sound market with its Bellevue Towers project.
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Portland's condo boom includes The Civic.
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Despite the downturn in the market, Gerding Edlen representatives say the company is well-positioned to ride out the rough spots: The company has varied its target market for condo developments, without deviating from its dedication to sustainable building. Todd Prendergast, of Realty Trust Inc., says the two contributing factors to the buildings’ ability to outperform the market are high quality for the price and the LEED-certification process. The strategy, designed to maximize Gerding Edlen’s market, could now act as an insurance policy, distributing gains and losses across the company’s balance sheet: The Civic, a LEED-Gold project, targeted first-time buyers looking for a city atmosphere by offering a portion of the units at $174,000, says Prendergast. Buyers at The Civic have an average age of 31, while The Casey, which features much larger units, higher price points and is expected to achieve a LEED-Platinum rating, appeals to a different market segment. The average condo at The Casey is 2,200 square feet and costs $1.2 million, while the average age of Casey buyers is closer to 55. A wealthier demographic, potential residents of The Casey are less likely to back out of a sale than first-time homebuyers eyeing many of Portland’s other condo projects.
Gerding Edlen recently opened a showroom for Cyan PDX, a downtown high-rise aiming for LEED-Silver certification. Sixty percent of the Cyan’s 340 units are priced under $300,000, but they are no bigger than 600 square feet.
The developer is also constructing the 12th and Washington building, which offers 274 high-end apartments, as well as office and retail space. The building is slated for completion in May 2009.
Prendergast says that the developer is “always looking for the next best opportunity.” In the South Waterfront, Gerding Edlen is working with Williams & Dame Development to achieve the new LEED for Neighborhood Development (LEED-ND) certification. In an agreement with the City of Portland, the developer is including 400 apartments and 30 condos designated as affordable.
A large part of that will be in Block 46, where the 230-unit Tamarack building is set to start construction soon, says project manager Sarah Bernhard. The city has opted to follow the Earth Advantage standard for the apartment building. Earth Advantage is a LEED for Homes provider for Oregon and Northern California. Bernhard says the requirement for affordable condos has proven more challenging. Her team is investigating using a land trust, which subsidizes home costs by separating ownership of the land and of the home. A home’s appreciation is capped to allow future buyers to benefit from the arrangement, as well. “The cost of the condo is kept down indefinitely,” Bernhard says.
The 30-acre Hoyt Yards project in the Pearl is also taking part in the new LEED-ND pilot project, which awards points for including affordable housing. To gain those points and satisfy an agreement with the City of Portland, 30 percent of the apartments in the development are affordable to 65 percent of those making median income.
But much like Gerding Edlen, Sue Miller, project manager with Hoyt Street Properties, says diverse target markets are important to the company’s success. At Hoyt Street Properties’ LEED-Silver Metropolitan a three-bedroom condo can cost just under $3 million. Miller says all but 21 of the 136 units in the Metropolitan have been sold.
On Portland’s east side, 2121 Belmont, which is not pursuing LEED certification, is nearly completed. But developer Homer Williams, who borrowed $29 million from LaSalle National Bank for the project, has no buyers. Rather than pumping money into marketing and sales efforts, he has decided to turn the condos into apartments, according to The Oregonian.
For new towers that haven’t found a target market still enthusiastic about condos, green or otherwise, some developers are hoping to stem falling condo prices by converting their properties into apartments—a reversal of recent apartment-to-condo conversion trends in many West Coast markets.
In March 2007, downtown Portland’s Ladd Tower was the first condo project to convert to apartments mid-stream, returning deposits to 58 buyers. The Ladd Tower is part of a LEED-ND development. In the Pearl, the Wyatt Tower was converted to 245 apartments 60 days before completion.
Miller points out that building or converting to apartments won’t be a quick fix because of the dynamics of local neighborhoods. Across the city, apartment vacancies are at 4.4 percent, according to the Portland Business Journal, but in certain districts like the Pearl, newly built apartments are easy to come by. In the South Waterfront, the LEED-Gold seeking Alexan apartments broke ground in spring 2007 and will provide 294 new units, the first for the district.
“There was a huge impetus to build condos over the past five years,” says Miller of Hoyt Street Properties. “Now we are back to the old basics of economics.”
In downtown Seattle, 963 condos and 901 apartments came online in 2007, and there are 2,807 condos and 1,658 apartments under construction in downtown, including South Lake Union. But some builders are making the switch. In January, Intracorp Seattle announced its Expo62 condo development in the Queen Anne neighborhood would become 114 apartments. The building’s completion is forecast for summer 2008.
Gerding Edlen’s Eaton, with experience in both the Portland and Seattle markets, sums it up this way: “We’re just riding the ebb and flow of the markets right now. But the desire for people to live downtown is not going to go away. I’m convinced of that.”
Miller says she sees green building as inevitable, just like the cycles in the real estate market. “The consciousness of the typical buyer is changing. People are looking to be more responsible. It makes the project more saleable, but it’s going to be more important, period,” she says.
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