Boom or Bust?

by Joel Smith & r & & r & & lt;span class= "dropcap " & A & lt;/span & year ago it wouldn't have surprised many Spokanites if they'd gone to bed one night and awakened in Greenwich Village. According to real estate developers, according to the press, according to the woman who checked your groceries, the future of Spokane was in condos. Chic, sleek, elegant condos. Lofts with 12-foot-high ceilings, exposed brick walls and granite countertops. Step out on your balcony and watch the train go by while you sip a martini. That was the image on everyone's minds at the time, as developers announced one new upscale project after another.





At least that's the image they were selling in a cover story we published last January, documenting the so-called "condo craze." We took you to the downtown loft of Chris Saettel, an Air Force pilot who helped design his own unit, complete with an interior, open-air atrium and an office that towered like a tree fort over his kitchen. Chris Batten, a broker for RenCorp (the company that designed and built Saettel's home in the Jefferson Street Auto Lofts), spoke of the transformative property of the building and promised that "First Avenue won't look like it does now in 12 months' time."





It wasn't that tough a story to swallow. Around the corner, between First and Sprague, RenCorp had two different projects in the works. Rumors swirled that investors were looking to buy the Otis Hotel and flip it from flophouse to penthouses. Down the street, Ron Wells planned to build 10 townhouses on a half-block area near many of his west-end apartment buildings. Mick McDowell was in talks with the city to erect a giant condo tower above Peaceful Valley that would cling to Riverside Avenue, not a block away. Across the river, the 77-acre Kendall Yards project was scheduled to break ground on a 2,600-unit neighborhood of condos, apartments and single-family homes by the end of the year. Just upstream, Don Barbieri was building a six-story condo with million-dollar penthouses. All the while, the city was requesting development proposals for the Rookery Block, right in the heart of downtown.





A year later, Spokanites with a yen for the loft life are a little less likely to buy the hype. First Avenue is not Bleecker Street. The lot for Ron Wells' Carnegie Square townhouses lies empty. Mick McDowell's tower on Riverside has been nixed (or at least postponed) by Peaceful Valley activists and the city's hearing examiner. Construction at Kendall Yards has been pushed back. Rob Brewster's plan for a high-rise tower on the east end of downtown, announced in the middle of last year, is hung up in negotiations with the city.





As of press time, demolition crews were chipping apart the famous "Hoop It Up" mural on the side of the Mohawk building. The Rookery building is long gone.





So was the condo craze just some halcyon pipe dream? The product of too much hype and too many bored journalists and PR flaks? Or are these just the growing pains of Spokane's slow transformation into an urban wonderland?





THE THRILL IS GONE


Jim Kolva believes that Spokane is now lodged in the gap between hype and reality. The land-use consultant and gallery owner, who opened some of the first downtown residential units on South Adams Street in 2001, says that in a city with very few existing condo units -- where the market isn't yet proven -- developers are practically forced to pre-sell their units, not just build them and trust that people will show up. Thus, the blaring of trumpets when a project is first conceived.





"You put your feelers out," Kolva says, as a train rumbles past his office, making the walls creak. Once the hype lures in potential buyers, who make a non-binding commitment to reserve a unit, the negotiations begin with banks and, finally, the actual construction -- the type of activity that fanfare alone can't pay for.





There was "a lot of the hype without the money to back it," says Kolva, of last year's condo boom. "People without experience didn't get into it far enough to understand the market reality.... We need to take that hype and make it a reality. I think that's where we are right now."





"Reality" is where many of last year's much-ballyhooed projects remain stuck today.





Development of Kendall Yards became tangled in controversial traffic studies and environmental impact statements last year. In the last few weeks, the project's proposed public funding has come under fire from County Treasurer Skip Chilberg. Project manager Tom Reese, who last year said he expected construction to begin by the end of 2007, now says that grading will begin next month, with vertical construction beginning in early 2008.





Downtown developer Ron Wells says his Carnegie Square Townhouses stalled last year when the price of the elaborate concrete insulation system planned for the foundation turned out to be four times as expensive as it should have been. "It threw the economics out of whack," he says. Now they're moving forward with a standard foundation and hope to begin construction of 10 units on the former site of a city fire station in the spring.





It's unclear whether ConoverBond's Vox Tower will ever be built. News of the proposed 33-story tower at Browne and Riverside -- which would include 275 apartments, 24 penthouse condos and 14,000 square feet of retail space -- has been rare since the company's president, Rob Brewster, announced last May he had financing lined up for it. Development director Ryan Romaneski says the project has been pushed back indefinitely as the company looks for assistance from the city and state.





Mick McDowell has been planning to build a condo tower on Riverside Avenue since 1999. When a 2003 land-use change limited building height on part of his parcel, he took it to the city's hearing examiner, who rejected the project in April. McDowell sued the city for $7 million, saying he was "illegally down-zoned ... under cover of night." The City Council is expected to discuss a negotiated settlement with him in the next few weeks. But even if he wins, McDowell says, he's not sure he'll ever even build it.





SLOWER AND STEADIER


None of this is to suggest that the condo market is defunct. It's not. Results from the Multiple Listing Service (MLS), an electronic database used by many real estate brokers, shows that 31 condos have sold since January of last year, as opposed to only 11 in the two years before that. That's an increase of more than 300 percent.





Plus, the MLS shows there are 24 more units currently on the market and available. And if last year's stats bear out, they'll only be there about 38 days.





"The market is good," says Ron Wells, smiling broadly in his First Avenue office. "We just had the best year we've ever had." He acknowledges the hype of 2006, characterizing it as "an extremely go-go year," but says that in terms of interest, sales and a strong median price increase in the market, his business has been good (notwithstanding the delay of the Carnegie Square Townhouses). Wells and Company, he says, has finished work -- or is nearing completion -- on both the Morgan Building on East Riverside and West 809, perhaps the city's most visible condo project up to now. Although only half the units in the latter are sold -- and only one person has moved in so far -- the project came in on time and, Wells believes, it's already making an impact on downtown life.





"We turned a mundane, ho-hum building into, literally, a trophy building," he says.





Still, Wells, Kolva and others point to a number of challenges that continue to plague developers in Spokane, including rising construction costs and a national cool-down in the housing market.





They also say that while property is cheaper in Spokane than in other cities, the costs of turning it into condos are about the same. "The trick in Spokane," says Kolva, "is in selling units for the kinds of low prices expected in Spokane while spending about the same amount as you would in Seattle or Portland to build them."








BUILDING A NEIGHBORHOOD


The narrower profit margins may make Spokane developers a little jealous of their counterparts in Seattle and Portland, but the low prices locally are also a clear advantage.





Michael and Linda Harrington have been looking to move out of their three-story house in Peaceful Valley for years. Ready for the condo lifestyle, the founders and owners of Brassfinders, a company that makes brass railings for restaurants (Cyrus O'Leary's, Beverly's) and Las Vegas casinos, had been eyeing a number of buildings in the Seattle area. They were considering paying upward of $5 million for them, until they heard about the Upper Falls Condominiums being built by Don Barbieri and Sharon Smith on the north bank of the Spokane River. For about a quarter of the cost of those Bellevue condos, they could get the same square footage in a rooftop penthouse condo overlooking the falls. They scooped it up before construction even began, in the summer of 2005.





"It's a new project for us," says Linda, standing in the elevated gazebo that overlooks the river running past their home in Peaceful Valley. The couple built their modest house together 25 years ago, planting 10,000 bulbs and laying 150 tons of basalt columns in the meticulously landscaped backyard. They've watched their trees grow from five-foot starters until they towered above the house.





"[But] it's getting to the point where we can't go away for a couple of weeks really feeling confident," says Mike. "What if something happens to the sprinklers?"





On a wall in their entryway, they've posted schematic drawings of what their Upper Falls unit will look like, with a rounded, booth-style dining room table and huge floor-to-ceiling windows. On the roof, around the penthouse that sits above the main sixth-floor unit, they're building an open-air dog run for their poodles and a 12-foot waterfall along one wall. It'll pale, of course, with the north fork of the river, which, swollen with run-off, rushes past the building six stories below.





The Harringtons sound giddy about trading in a merely gorgeous view of the river for a fantastic one. Though they're not scheduled to move in until May, they visit their future home often and have already met many of their neighbors, including Don Barbieri and local sports mogul Bobby Brett (both of whom also have rooftop penthouses) and restaurateur Cyrus Vaughn, who will be moving into a sprawling double unit on the second floor.





"It's like a dormitory for grown-ups," they both say, noting that it's not just the very rich living in the building. The units, which range from $550,000 to $1.3 million, also, they say, will house younger couples and three families with school-aged kids.





"There's every walk of life in that building," Mike says.





COST QUESTIONS


Well, not every walk of life. While higher-end buildings like Upper Falls and West 809 fill up, many are left to wonder: When are they going to build something I can afford?





Jim Kolva's with you. He stresses the need for affordable downtown living, especially for younger, creative types. "We need to find housing for people just out of school, young professionals [who are] important to the vitality of downtown but just don't make a lot of money," he says, noting that a broadly diverse population of people living and working downtown is the life blood of a city, what makes a city vibrant and unpredictable.





But that housing is not there yet. According to the Multiple Listing Service, the cheapest unit on the market today is an 800-square-foot loft in the Minnesota-Oakley building near the Satellite on West First, which is going for $190,000. After that, prices jump into the $200,000 range and average out around $344,000.





Sitting in the corner office of the AmericanWest bank building he developed on the east side of downtown, Mick McDowell bellows out at the 26-year-old secretary at the front desk. "Miranda, would you live downtown if I could sell you a 900-square-foot condo for $120,000?" She shouts back, "In a second. And so would all my single friends."





"The problem is," he says, "there's no one figuring out how to provide appropriate housing for people like her." McDowell and partner Dan Spalding report that they're exploring the idea of a rehab project that could provide housing in the $120,000-to-$200,000 range, but they've made no plans yet.


Again, developers say the problem goes back to the thin profit margins for building in Spokane today. To make affordable units really pencil out, they say, you have to build enough of them all at once to spread out the cost of construction.





Compounding the problem is that nobody in the development community seems to know where the market is the deepest, because there are not enough condos out there and available to clearly demonstrate demand.


RenCorp broker Patricia Sampson, whose name seems to appear on half the sales reported on the MLS, says, "There's so much hype of product, but really there's not that much product ... and buyers are really savvy right now."


Ron Wells suspects that Spokane's inability to walk prospective buyers through actual available units may be losing it some customers. Buyers looking for condos in Spokane, Wells says, are often also looking in Seattle and Portland, where there's a more abundant inventory. "People are reluctant to buy something that's planned for 2009," he says.





That leaves developers with speculation, anecdotal evidence and a 2003 study that suggested downtown Spokane could absorb as many as 500 new units per year through 2008 (so far, it's taken in about 50). What price ranges are the most popular still remains uncertain. Sampson says she feels there's more demand in the high-end market. Ron Wells says his cheapest units at the Morgan Lofts on Riverside Avenue were the first to sell. Stephen Barbieri says that if Upper Falls had more penthouses to sell, they'd already be gone.





The solution, developers seem to agree, is for someone to step forward with a big project (besides Kendall Yards) that will prove, once and for all, how much demand is out there and what buyers are willing to pay. It could also kick-start a flurry of complementary development.


But who's going to take the first step?





"Everyone's waiting for everyone else to do something," says Linda Harrington.





"It's like a Mexican stand-off," adds her husband.





LITMUS TEST


The first to pull the trigger could be Prium Companies, of Tacoma, which is expected to announce next Thursday whether it will move ahead with plans to build a 15-story, 126-unit condominium high-rise in the parking lot north of Interplayers.





Paul Harrington, an associate principal at Spokane's OMS architectural firm and the project architect, says Prium is in the middle of "a final gut-check to see if it's a go or no-go." If built, it would be the first of its kind in Spokane. "That's what makes most people nervous," Harrington says.


Aside from the 126 apartment-style residences (mostly one-bedroom, running between $200,000 and $700,000), the building would also include 462 parking stalls and 7,000 square feet of retail space. Whether that will house the grocery store that many believe is vital for future downtown development remains to be seen.





Harrington admits that the building doesn't have the most "elegant proportions" but notes that the floor-to-ceiling glass on the upper half of the building will provide expansive views across the city and up the South Hill (and, for some in the middle of the north side, of the back of the Wells Fargo building).





Jim Kolva says the building would be a "true test" of what the downtown market can bear. "We don't really have anything that tells us what the market is. It'll be nice to get that ... project."





STILL GROWING


The hype has diminished since last year, but just barely. While developers all over town wait to see how Kendall Yards fares in its 15- to-20-year phased construction on the north bank, Patricia Sampson says that investors are already starting to snap up property within the future University District. Her company, RenCorp, has begun work on the Edge, a 30,000-square-foot, four-story mixed-use building in the old Western Soap building on Sprague. On the district's far eastern edge, in a project that will be called the Iron Bridge Condos, Andrew and Kawal Chester are turning an old commercial building into 12 condo shells on the Spokane River.





And though they're more guarded when they speak about the potential of Spokane's condo market than they were this time last year, developers say they foresee steady growth ahead. They'll take it with or without the craze. n





Comments? Send them [email protected]