Condo overload
Builders will have to find people to live in all of those units
Condo action dots the routes through Worcester’s Main South area and on the industrial back roads off Washington Square. Developer Selim Lahoud is working on The Blackstone Lofts in the Heywood Building. Eight units are under construction above the new tapas restaurant Bocado at 86 Winter St. Head up Beacon Street, part of the Clark University revitalization project, and new properties line the street. Construction is under way under the umbrella of The Kilby, Gardner, Hammond Revitalization Project (which is breaking ground for government-subsidized duplexes).
At 21 Illinois St., ERA Key Realty holds an open house to market the sleek, concrete 34-unit University Park Lofts where the old Crompton and Knowles Loom Works once stood. Across the street, the empty lot will become 96 condominium units, according to ERA Key. And Parkside Worcester is right down the street, on the corner of Grand and Illinois.
Real estate agents are quick to blame the sagging market on the media. But numbers are numbers. The University Lofts have been on the market since June, and four have been sold out of 37. Three have sold and three more are on deposit of the eight built (46 total will be built) on the city’s East Side as part of The Residences at Vernon Hill. Out of the 24 units at The Granite Mansion near Holy Name High School, eight have reportedly sold in a year and a half on the market.
According to numbers in the city of Worcester’s Assessors’ Office, there were 4,454 condos listed in the city last year, and that’s up from 3,399 in 2002. Leif Rosseland, senior vice president and manager for Coldwell Banker Residential Brokerage in Worcester and Shrewsbury, says there’s a 10-month supply of condos on the market now. In 2004, he says, it was less than half that.
Two big things happened to add to the inflated market, according to Jane Fine, president of Fine Properties Inc. in Worcester. One is the explosive growth in 55-and-older communities, and, in Worcester, three-deckers getting been subdivided into condos along with two-family houses. Rosseland says an increase in foreclosures, the result of high-risk mortgages, also contributed to the slowing market.
Rosseland and others in the business first noticed the plummet in May 2005, and it has "only spiraled in the last 18 months." A great example, he said, of a development that got into the condo game late is The Residences at Vernon Hill, which occupies the old St. Vincent Hospital building.
"It’s always a struggle to be selling anything," admits Lisa Osborn, sales associate at The Residences at Vernon Hill. While the market has slowed, she says, "We’ve done a lot of research of price points. Our units are at $219,900. We tried to price ours competitively. That has helped."
"A flood of conversions"
Galyn Cooley paid $111,500 for a Worcester condo after renting for 15 years in various MetroWest towns and Worcester. She chose a one-bedroom unit at The Bradford House on Lincoln Street, with hardwood floors, fireplace, dishwasher, all appliances, storage room, porch and parking spot. She eschewed three-deckers because their condo associations have only three members to shoulder the maintenance. "My building is old, but it is really well taken care of and is the best purchase I have ever made," she says.
But are there enough people like Cooley out there? Are Boston-area workers coming to live in Worcester and commute east? Developers and real estate agents say they’re seeing it happen. At the least, they see promise. Analysts are cautiously optimistic. "The builders who were planning to make a condo project are planning to do apartments now," says Alyce Hill, publisher and editor-in-chief of New England Condominium Magazine. "The whole real estate market is correcting itself. It’s been crazy in New England for five years. It’s gone down about 20 percent but I don’t think it’ll go down further."
There are three styles of development to consider. One is the larger scale, new development built from scratch. Second is the conversion of an old building into housing property. And the third is the conversion of rental properties to condominiums.
The biggest run-up, according to Scott Hayman, director of housing for the City Manager’s Executive Office of Economic and Neighborhood Development, has been condo conversions. Lots of three-, four- or even five-family dwellings have been and are being converted into condos. "That often happens at the tail end of a market cycle," says Hayman. "So it skews things a lot. There has been a flood of these conversions."
The smaller conversions create an influx of inventory, and that changes prices overall. The rentals-turned-condos can come in with lower prices, which contributes to the softening of the market. "The rates are good and those things have moved," says Hayman.
Paul Saleba of The Lofts at Kettle Brook FallsIn Worcester, there is no downstairs, downstairs
The hottest trend, and one that started as a reaction to movements in cities such as Lowell, Boston and Providence, was the conversion of old, distressed factory buildings into condominiums. It offered the best return on an investment, in that sewer systems, parking lots, electrical are already in place. Plus, turning an old factory into a hip, urban dwelling became the funky thing to do.
Hill says the concept of living close to commuter service and upstairs from, say, restaurants (see cover feature) is being embraced by local developers. "It’s the anti-sprawl situation," she says. "It’s the New York mentality, where you can just go downstairs for everything."
But that idea applies when there is everything downstairs. Take a drive through downtown Worcester on a weekend night, and it’s not that difficult to breeze through. Developers and analysts of the Worcester area say a lot of the building that has taken place in the past five years is based on hope rather than the present situation. The target for these condos is, essentially, people without kids – empty nesters, first-time homebuyers and young professionals.
Part of the problem, is that even though people may want to move into these properties, selling their big houses in the suburbs or over on Salisbury Street hasn’t been easy. "It’s hard to sell the big houses in order to be able to get into these over-55 communities," says Hill. "That’s the other big thing happening out there. The over-55 market is overbuilt."
Developer Bill Bibaud, whose company name is Harding Design, is banking on the Canal District taking off. He’s behind the marketing of Water Street and its surroundings, firmly believing it is the district of the future for Worcester. He’s got units around the city, and this includes eight residential units in the Canal District spread throughout a few different buildings. The units he converted in the old Charlie’s Surplus factory and other buildings are rentals for now. "I’m only doing rentals because the market [for condominiums] is not there," he says. Noting that the conversion market started slowing down about six months ago, he still holds the belief that the Water Street district’s future will develop five or 10 years down the road.
As rental property, the building he renovated three years ago has had "full occupancy since the get-go."
Bibaud says he’s seen an increase in foreclosures of new condo units in many cheap multifamily buildings. Initially they sold for $250,000. "It was a bit of an artificial bubble that hit," he says. "There will be a shakeout for the next six months or so."
Advantages to a cooling market
Most developers and real estate agents will argue that the sliding condo market will cycle back. They insist on the idea that the trend makes sense and is logical, especially given Worcester’s plans for economic growth.
Steve Gubb’s Canal Realty produced the much-lauded Biscuit Lofts off Shrewsbury Street in 2005. Then, it was a period of upward market and stable interest rates. "We had great advantages," says Gubb. "It is more difficult today than then. However, keep in mind a building like that had never been done in Worcester."
CitySquare, of course, is the biggest current "if you build it they will come" example. The 20-acre, multi-million-dollar project, led by Boston-based Berkeley Investments, is scheduled to break ground this spring. It’s the biggest revitalization project the city has seen and the largest private development in Massachusetts history, outside Boston. Shops, businesses, restaurants, movie theaters – and, of course, condos – are all part of the plan. Hayman says, though it’s subject to change, the plan is to construct between 150 and 200 condos as part of the plan.
Bibaud, too, will still convert his properties to condos, with the expectation that the recreation of the Blackstone Canal will revitalize Worcester’s Water Street. "I will convert them as I need them," says Bibaud. "Maybe in a year or so. I think eventually the need will catch up. They will come back and will be sold."
A longer version of this story ran in the January 25-31 issue of Worcester Magazine (www.worcestermag.com), a sister publication of the Worcester Business Journal.
Charlene Arsenault is the Events Editor at Worcester Magazine. She may be reached at charlenea@worcestermag.com
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