Two years after the big residential boom in downtown Spokane -- a time when, as one builder puts it, every "developer worth his salt" had his hands in some condo project -- the real estate scene has slowed way down.
Projects that were promised within a year's time, like Ron Wells' Carnegie Square Townhouses, have yet to break ground. New construction projects, like Prium's condo building at 153 S. Wall, had their announcements delayed ad infinitum. Even Kendall Yards -- the massive development that, two years ago, many said would help pave the way for their own projects -- has been pushed back. Nationwide, real estate has been suffering of late -- especially residential real estate -- as the subprime mortgage mess has made borrowing more difficult, which has impacted the activity in the market. Prices have gone backwards in many cities, as well, but for now places like Spokane, Portland and Seattle have seen modest gains in sales prices.
Lately we've been noticing an unusual number of commercial properties for sale in Spokane. Various multiple listing services show that all or parts of more than a dozen downtown buildings -- some of them well-known, iconic ones -- are on the market.
Rob Brewster's ConoverBond Development has two buildings -- the Montvale Hotel and the Hutton Building -- for sale. Also for sale: the Sylvan Furniture and Dania buildings, the Globe Bar & amp; Grill and the adjacent Midas Muffler on Spokane Falls Boulevard, Third Avenue dive bar Judi's Place, the Interplayers building (the theater group is expected to stay put), half of the Big Easy complex on West Sprague (the venue will stay intact), the Empire Ford building on Third Avenue, part of the building housing Thai on 1st and some space in the floors above BlueRay's new commercial plant in the Commercial Building on First Avenue (the company has yet to make or distribute any discs). Even Corbin Mansion, on West Seventh Avenue, is on the market, for $1.6 million.
Asked what he thought about the wealth of inventory on Spokane's commercial market, Tomlinson Black Commercial president Mark Pinch, says it's "higher than usual," but he wouldn't say it was symptomatic of a larger problem in downtown Spokane.
"It isn't like downtown's going south or sour," Pinch says. "It sounds coincidental. [There is a] higher inventory of old buildings than we'd normally see. [But] I don't see a consistent pattern on those buildings. These are different types of sellers selling for different reasons. It's not indicative of any pattern downtown."
Still, he points to a couple of problems plaguing the market, downtown and elsewhere. Most important, he says, is the "unprecedented rise in construction costs" -- especially the costs of concrete, steel, copper and labor.
Indeed, the Associated General Contractors of America reported earlier this month that the producer price indexes for construction costs soared in March and that "red-hot steel prices, combined with record diesel fuel costs, are making construction unaffordable." The association's chief economist told the Wall Street Journal that reports of falling profit margins outnumbered reports of rising profit margins for the first time in five years. The News Tribune in Tacoma reports that prices for steel, concrete and copper are only going to continue to rise through 2010. Newspaper reports from around the nation highlight delays -- or rising prices, or both -- for civic construction projects.
Pinch says those rising costs are magnified when you can't charge in Spokane what a developer with the same inflated construction costs in Seattle is charging. "A lot of people want to teach you in Econ 101 that you take all your costs and you add profit margin and that's market value," he says. "There's very little relationship between cost and market value." What happened to all the projects that were promised two years ago, he adds, is that "all of the sudden we couldn't make the numbers work. The demand's still there. It's a supply-side problem."
Downtown Spokane Partnership president Marty Dickinson thinks it's also important to note where in downtown activity is taking place. "I think it depends on pockets of downtown. You see one [building] go vacant. In another part of town, you see another one that's been vacant for six-plus years that's being rehabbed," she says, pointing to a long-empty building at Post and Riverside that will soon be home to Banner Bank and SRM Development.
Besides, she says, it's "not necessarily a bad thing that there's options on the market." She says the DSP has seen continued interest from out-of-town investors -- and not just of the sell-it-and-flip-it variety. She cites as an example Seattle-based Unico Properties, which recently bought -- and is refurbishing -- the Bank of America building.
Dickinson says the downtown market ebbs and flows. SDS Realty agent Vic Overholser agrees. He says that many of the buildings now for sale have changed hands in the last three years, with the intent to convert them, but the projects are no longer feasible. "If I were in their shoes, I would have a sale number on my building, along with a lease or rent number," he says. "The old adage of 'everything is for sale, for the right price' is what is mostly the case." Overholser opines that the "frenzy days of spinning buildings are over but the infrastructure built over the last six to eight years is still here."
Developer Dan Spalding points to the economy and adds that times of big promise are often followed by reined-in expectations. Still, "There are always going to be people willing to come in and do cool stuff."
He's apparently right. While there's an unusually large number of downtown commercial properties on the market, there are also a handful of new and interesting ones coming online. Spalding's bar, Zola, opened last month across from the Magic Lantern film house and has seen lines outside the door. Down the street, a small bar called the Riff is scheduled to open before Hoopfest, according to development blog MetroSpokane. Two blocks down, the Monterey Caf & eacute; (a whole-wheat pizzeria in the former Mootsy's pizza location) and the Casbah (a second-story club) are both set to open this spring.
"If you were to look at that area along West First a year ago and see [ahead to] the activity you're now seeing at Scratch, the Fox, the Madison Hotel," says Marty Dickinson, "somebody would've looked at you a little crazy."
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