Walking Distance

Not too many years ago, A stroll along a downtown Minneapolis street after quitting time would be a lonely jaunt. Same for downtown Houston, in-town Atlanta, and even office-laden Washington, whose daytime population hopped in cars for a commute to the suburbs when offices closed for the evening.

Today, the heart of the city is far more likely to be where the home is, and that home is most likely a condominium.

Cities from San Francisco to Philadelphia have turned their focus to populating their downtowns with people who can walk to their nearby jobs. Those new urbanites, in turn, have invited shopkeepers and restaurateurs to hang their shingles on city streets and stay open late. And fewer American downtowns are rolling up their sidewalks when the 5 o'clock whistle blows.

In downtown Houston, apartment occupancy is 89 percent, up from 83 percent just a year ago, according to Central Houston, a group that promotes downtown revitalization. The population of downtown Minneapolis, consisting of about 15,000 residents since the late 1980s, has almost doubled over the past few years. Robert Lang, director of Virginia Tech's Metropolitan Institute, estimates that 5 percent of American adults want to live downtown. And Christopher B. Leinberger, a Brookings Institution fellow, says up to 40 percent want to live in a “walkable urbane place”—in large or small cities.

And the downtown-bound want to live in condominiums. “Mom, Dad, and the [adult] kids all want a condo,” says Minneapolis developer Michael Lander, CEO of Lander Group. But not together: The downtown denizen, notes Laura Van Ness, director of development for the nonprofit Central Houston, is “everybody without kids. It's very diverse except when you come to kids.”

That market, predicts Lander, will continue for at least 20 years as the nests of the baby boomers empty. The parents, weary of suburban lawn chores and the mounting madness of rush hour, are seeking poshly appointed condominium homes within walking distance to jobs, nice restaurants, theaters, and shops. Their 20-something children—with a little financial help from the folks—want affordable, bohemian-style lofts that house them close to nightlife, friends, and work.

Leinberger says there are not nearly enough condos in these high-demand demographics to go around. And he says it in the midst of a housing slump that has claimed more than one center-city condominium project as a casualty.

“There's a pent-up demand,” explains Leinberger, because the supply of urban condos in most markets is on target to satisfy less than a quarter of would-be city slickers. “Only 25 percent of households have school-age children at home. The other 75 percent of the market is where urban product is aimed.”

SOLD OUT: The 49 units in the Lander Group's sold-out 9th Street Lofts feature 10-foot ceilings, huge windows, and movable walls, all within walking distance to downtown St. Paul, Minn.

Ironically, perhaps, downtown condos aren't selling so well. The four-year investor-induced building, buying, and selling frenzy, which priced downtown condos beyond the reach of too many workaday would-be owners, came screeching to a halt in 2006. Investors fled the field when asking prices got so high that they could no longer flip a quick profit, and today, residential towers in cities such as Miami and Las Vegas—if they even broke ground—stand dark and unoccupied. In newly residential downtowns such as Atlanta, Seattle, and Houston, sales have slowed and prices have cooled. Builders and developers are playing a waiting game—reverting condo conversions back to apartments, scrapping plans for for-sale product, slashing prices, and piling on incentives such as plasma TVs, prepaid HOA fees, and even golf club memberships to lure reluctant buyers.

“We enjoyed the last couple of years when the frenzy was out there,” says Matthew Blocher, senior vice president of Washington-based JBG Cos. “Who wouldn't? But we're returning to a normal absorption pace in the market. Now sales will take longer, and we're being cautious.”

That slow return to normal could reveal whether the condo-crowded, adults-only, walkable new downtown is here to stay. “My sense of it from the research is that it will bounce back stronger,” says Leinberger, who predicts the downtown might lead the housing market out of its slump. “Downtown living is the preferred alternative. But the market will tell us what actually happens.”

He adds: “It's going to be an intriguing downturn.”

Yet it was before the downturn that the perception of the downtown—and of condominiums—changed, perhaps for good. Just a decade ago, homeowners viewed condos as a product to buy only if they couldn't afford a single-family home, explains Leinberger. By 2004, the average price per square foot of attached housing had surpassed that of single-family homes—a dramatic change in housing dynamics. In major markets today, the most expensive housing per square foot is urban—both in the downtown areas and in fringe cities such as Reston, Va., about 15 miles from Washington.

Take, for example, Houston, whose officials in 1998 devoted themselves to enlivening their sleepy downtown, which had little after-hours draw other than a unique theater district.

Their effort began with the renovation of the boarded-up Rice Hotel, into which they threw enough public funding to create 308 loft-style apartments and bewitch builders and developers into converting other historic downtown buildings into homes. Today, central Houston houses 1,813 market-rate apartments, 900 condominium units, and more than 100 restaurants and coffee shops.

“If you want to bring in retail,” says Van Ness, “you have to have people.”

The plan worked. After nine years, two new sports arenas, and an expanded convention center, the oil capital—former home to Enron, whose buildings are now occupied by Chevron—is attracting architectural and engineering firms, and their employees want to live nearby.

“The image of downtown has completely turned around,” says Van Ness. “[Employers] see this as more of a creative place. They like the new downtown. It's newly vibrant, and it helps them hire.”

Part of the lure, she notes, is the city's new walkability. “When you're in one place, you need to be able to see the next place,” she says. “So the convention center, the park, the shopping center, the Houston Pavilion, Macy's—they [will be] all in a row, in a line. If you can't see the next thing, it might as well not be there.”

Architect Rick Emsiek, a partner with McLarand, Vasquez, Emsiek & Partners in Irvine, Calif., agrees. “The continuity of a street pattern is really important. ... The typical shopper will go to the first empty storefront and will stop.”

To keep people walking, cities such as Charlottesville, Va., are requiring downtown developers to mix retail with residential. “Mixed use makes sense for a small city such as Charlottesville, because they're not making any more of it,” Dave Phillips, CEO of the Charlottesville Area Association of Realtors, says of the 10-square-mile city. “The only way to get enough commercial and residential property downtown and to keep the proper mix of services and housing opportunities is to offer some sort of mixed use.”

So on the bottom level of every new Charlottesville condominium building is a row of retail. “That's a direct effect of having a limitation of land,” says Phillips. “It's the most efficient way of developing what little land you can develop.”

SHOE FACTORY: Sandwiched between restaurants and big-box retailers, the 41 bohemian-style lofts in this one-time shoe factory sell for $180,000 to $300,000 in Atlanta. Many young Shoe Factory Lofts buyers were renting high-end apartments nearby and appreciate upscale finishes in kitchens (below) and baths.

Without mixed-use ordinances, he notes, cities tend to become compartmentalized, with businesses in one section and homes in another. “That makes the city less walkable,” he says. “It spreads things out, so instead of being able to walk across the street to a restaurant or a store, you might have to get in your car and drive or take the bus. This is very related to a new walkable trend that's going on nationwide.”

In other cities, such as Seattle, zoning boards have raised the roof—literally—on residential height restrictions so builders can add more floors—and more units and more potential profits—to each building.

The municipal concessions, says Phillips, came once city officials realized that bigger populations equal more tax revenue and higher state and federal subsidies. “A lot of it had to do with the city saying we need to either grow or die.”

Today, he notes, “Charlottesville is a hot market.”

Even in a hot downtown market—or as hot as one can be when sales are cooling—builders have to take special care to suit those who might move there. It wouldn't make sense, for example, for Toll Brothers to install a playroom instead of a gym at its 21-story condominium building in hip, young Union Square because couples with kids aren't moving to that part of New York. Likewise, it's empty-nesters, not young singles, who are buying uptown Manhattan apartments, so the trendy finishes that appeal to young adults won't sell there.

“People have made mistakes with finishes and layouts,” notes David Von Spreckelsen, Toll Brothers' division vice president for urban New York. “Some builders are not doing well because they didn't understand the market, or the location wasn't good enough, or they mismatched the amenities to the part of the city and who will buy there.”

In an overbuilt market such as Miami—where 25,000 condominium units are under construction—for-sale buildings are everywhere, says building consultant Jack McCabe, CEO of McCabe Research & Consulting in Deerfield Beach, Fla. “We've got residences built where we never would have built them before,” he says. “We've had people paying $400,000 for a unit next to a dump, when the real price should have been only half. It upscales the neighborhoods by adding new residents, but when they go to the sales office and they see homeless people and broken liquor bottles on the streets, it's very hard to market.”

McCabe predicts that more developers will cancel their plans to build downtown condominiums, especially high-end units, in cities where the oversupply is acute, and opt instead to build affordable rental units in high-rise apartment buildings.

Indeed, many builders are constructing more affordable units right next to luxury homes, sometimes in the same building.

In downtown Seattle, where 8,000 condominium units are on the drawing board, mixed-income housing is slowly becoming a fixture. Historically, says architect John Savo, a principal with NBBJ, downtown housing has catered to two market extremes: the luxury home buyer and the low-income renter. Lately, though, “Developers have been coming in and recognizing that there's a real opportunity here for middle-income housing,” says Savo, whose firm has designed homes that Seattle's downtown working people can afford to buy.

URBAN CHIC: Toll Brothers' One Ten 3rd sits betweens New York's eclectic East Village and the trendy Union Square Park and is selling to singles and childless couples in their 30s. The 21-story building (below), which will open this summer, will feature 76 condo units starting at $850,000.

To cater to that crowd, says Emsiek, who is seeing more mixed-income properties in California as well, builders are cutting the cost of construction: The units aren't on the water; they don't have sweeping views; and the buildings lack spas, for example. Kimball Hill Homes in Chicago is redeveloping two major public housing sites into mixed-income communities, which will include a mixture of 800 affordable rental, affordable for-sale, and market-rate for-sale properties. “The goal is to realize an economic continuum,” says Doug Guthrie, president of Kimball Hill urban centers. “It results in a healthy community.”

Indeed, says Emsiek, well-heeled empty-nesters and cash-strapped first-time home buyers often want the same community amenities, even if they can't afford the same interior designs.

So his firm sometimes designs “airspace condos” with no completed interiors. The wide-open loft spaces range from $280,000 to $3.5 million in the same building—depending on size and view—and allow the buyer to customize the interior with walls and finishes according to taste and budget. “We see a very broad cross-section of socioeconomic status and demographics,” says Emsiek. “They're all after the same thing, but they can't do it the same way.” So a buyer who can afford a $300,000 unit will have a sparsely appointed bohemian-style loft; the buyer with $3 million will opt for lavish finishes on the top floor.

Likewise, Lander Group has built condominiums in downtown Minneapolis that sell for $149,000 to $800,000 in the same building and has sold some “shells” that buyers later finished with the help of a custom builder. And the firm builds a basic unit and offers lots of upgrades “so folks can size the pricing to their needs,” notes Lander.

Phoenix builder Eric Brown, a regional manager for Engle Homes, says builders will have to find creative ways to keep prices reasonable so downtowns can grow into bustling residential neighborhoods. “We know who wants to live downtown,” he says. “The question is at what price? They may want to live downtown but may not be able to afford as much as it costs to build there. The question is: How much are young people, teachers, and hospital workers willing to spend?”

Still, he notes, “2007 is going to be the make-or-break year for most projects. ... It's never too late to try to bring back your downtown.”

Twenty-somethings and their 50-plus parents are redefining downtown living.

• The reuse of existing downtown property will continue as builders convert historic hotels and factories to condominiums.
• The demand for urban housing will remain steady and, over time, so will the increase in property values.
• The temporary pullback in home sales could begin its recovery in the cities as more empty-nesters and young, first-time home buyers opt for an urban, walkable lifestyle.
• Single women, whose incomes are on the rise, will become an important target for downtown builders as cities become safer.
• Cities will increasingly require builders to mix residential with retail and offices so residents can walk to work, restaurants, and shops.
• Population declines in downtowns will continue to reverse as cities lose fewer people than they gain. Cities will be home to smaller, childless households, while suburbs will remain appealing to young families.
• City homes will be almost exclusively condominiums and townhomes, and the square footage will both expand and shrink. High-earning empty-nesters will move from large suburban homes into large condominium units and townhouses, while their 20-something children will sacrifice square footage for the opportunity to own.
• The well-off will share neighborhoods and even buildings with the just-getting-started. Older, wealthier buyers will buy bigger, more lavish units with views, while young, entry-level buyers will settle for smaller units, inexpensive finishes, and ordinary views.
• Because of a lack of downtown land, the potential for new center-city housing will be quickly exhausted. Once it is, second-tier downtowns will blossom in town centers within driving distance of large cities.
• Fringe downtowns will sprout up around big-city waterfronts and new sports venues.
• More builders will focus on workforce housing—affordable units for downtown workers within walking distance to jobs.
• Developers will consider apartment buildings as an alternative to condominiums in the most condo-saturated markets.