Rental units surge in downtown Raleigh
6/25/2007 8:23:48 AM
Source: News & Observer
the following article appeared in the Monday, June 25 edition of The News & Observer.
Rental units surge in downtown RaleighRise in interest rates, downtown employment fuel trend
Jack Hagel, Staff Writer
RALEIGH - Downtown's hodgepodge apartment market -- carved out of big homes, tucked away in luxury condominium projects or above street-level shops -- is about to get some company.
Emboldened by the swelling ranks of employees and rising mortgage rates, developers are close to sparking the center city's biggest apartment boom.
At least 179 apartments are planned and another 250 could be on the way in the biggest wave of apartment projects the downtown area has ever seen.
Crosland is expected to be first in. The Charlotte developer plans to begin next month on 179 apartments at Boylan Avenue and Tucker Street.
McClain Development Group this fall plans to begin on 115 apartments at Seaboard Station, a new shopping center north of Peace Street, east of Capital Boulevard.
And Gordon Smith, the founder of Raleigh's Exploris museum, has snatched up the better part of a block east of City Market and Moore Square, where he is pondering apartment plans.
In recent years, big apartment projects have been a tough sell in and around downtown. Historically low interest rates allowed more people to buy, drying up the pool of renters. And surging land and construction costs put developers in a position where they would have had to charge record-high rents.
In most cases, once the math was done, it made more sense to sell rather than rent the units.
There are exceptions. Downtown Housing Improvement Corp. this year built the 80-unit Carlton Place, a southeast Raleigh project where most units are reserved for people who make $30,000 annually or less. Only 16 units aren't income-restricted, going for $700 to $1,100 a month.
But now that interest rates are rising, apartments throughout the Triangle are filling up, and downtown is being helped back to life by millions of dollars in municipal improvements, including a new convention center and the opening of Fayetteville Street to cars. Suddenly, what was a sleepy state capital has more bustle. Developers now think renters will be willing to shell out the bucks to be close to the action.
There are at least 18,000 downtown workers within a one-mile radius of downtown's center -- up 16 percent from two years ago, according to estimates by booster group Downtown Raleigh Alliance. The work force is projected to grow at least 23 percent in the next two years. Meanwhile, the number of bars and restaurants in the Glenwood South entertainment district has doubled to about three dozen since 2001, and more are coming.
"Downtown is more attractive," said Dan Douglas, the city's chief downtown planner. "People are willing to pay a premium to walk to the new restaurants and the nightlife. ... We're getting people from other markets who have rented in downtowns before, who come and say, 'Oh, O.K., $1,500 for a 1,000-square-foot apartment is not bad.' "
Crosland is crossing its fingers that those people materialize. It began marketing its Tucker Street units for sale in April, when the 30-year fixed home mortgage rate averaged 5.76 percent in North Carolina, according to Bankrate.com. But as rates hit a five-year-high of 6.44 percent on June 14, Crosland backed out of the sales mode, fearing a ghost town once the project was complete.
Now, Crosland estimates it will ask roughly $1,200 a month for a 1,000-square-foot apartment -- 46 percent more than the regional average for the same-size unit. Smaller units will go for $650.
Others might see how Crosland fares before getting started. Gordon Smith says he'll wait about six months before he decides whether to build apartments near Moore Square. "People thought historic Raleigh was dead," he said. "They now realize that the lungs are good. But with that, you still need to be cautious."