PHOENIX

Condo market returns to downtown Phoenix

Eugene Scott
The Republic | azcentral.com
Tim Forsman and his fiancee, Michelle Stevens, show Tim’s parents, Susan and Ed Forsman, their new condo at the Summit at Copper Square in downtown Phoenix on  May 23, 2014.
  • Phoenix%27s first downtown condo project re-entered the condo market this year
  • Infill residential development one of the 2014 top 10 real-estate trends
  • Condo projects remain risky for developers

As the economy recovers, experts say more people are taking a closer look at downtown living.

They like the commute (or lack of). They like walking to nearby restaurants. And they like the increased interest in development in the area.

Experts say people from across the Valley have shown interest. And not only to rent;they want to buy.

In response, at least four condominium projects have popped up or are planned downtown.

"What we look for is positive momentum so we don't have to fully create it," said John Graham, president and CEO of Sunbelt Holdings, which is making its first foray into downtown condo development. "And I think the momentum of positive change and acceptance and maturity is alive and well in downtown Phoenix."

Experts say, however, there are still some concerns about the returning condo market.

"Compared to other markets, Phoenix will remain relatively low but it will be stronger than it has been," said Mark Stapp, director of the Master of Real Estate Development program at Arizona State University. "In the Phoenix metro area, we are maturing and the more dense we become, the more demand you're going to see for 'for sale' higher-density units."

Millennials and Baby Boomers who desire a lifestyle free of yard work and with shared amenities such as pools and clubhouses are driving the market locally and nationally, Stapp said.

About 8,500 people live downtown, but city officials had expected many more to call the area home by now, according to city officials.

In 2004, the Phoenix City Council approved the Downtown Strategic Plan, which identified "downtown living" as a major focus. The recession made meeting the goal of 10,000 new units by 2014 impossible, said Scott Sumners, Phoenix's deputy economic development director. The city has seen an upswing in interest in building projects on city-owned land, however.

"One year ago, we were taking calls, but the level of interest has definitely increased," he said.

Tim Forsman talks with his fiancee Michelle Stevens after picking up their keys to their new condo at The Summit at Copper Square in downtown Phoenix on May 23, 2014.

Projects planned

Downtown's first high-rise condo project, which changed direction during the recession, has re-entered the market.

The Summit at Copper Square was planned for condos when built in 2007, but the project converted its units into rentals because of the economic downturn. But the project began selling condos recently, and leasing agents say fewer than 20 units out of 198 in the luxury high-rise remain available. Starting prices for a one bedroom are $179,000. Penthouses start at $469,000.

Other projects are in the predevelopment stages, including:.

• Phoenix-based Senexco Arizona Star Holdings is developing a 44-unit project at Second and Moreland streets.

• Madot Ventures is developing a 76-unit project at Central Avenue and Willetta Street.

Drawings for both projects are underway and developers hope to break ground by December at the earliest. Selling prices will range from $200,000 to $400,000.

• Scottsdale-based Sunbelt Holdings plans to break ground on Portland Park, a mixed-use project with 170 condos and retail, by the end of the year. The project, in collaboration with developer Habitat Metro, is the second phase of Portland Place, a high-end condo project to its immediate west. Portland Park will be on Portland Street just west of Central.

Graham said his interest in the market was spurred in part by his kids — Millennials who enjoy living, working and playing in dense urban environments.

"I've spent enough time down there, so now I can understand why they enjoy it and why other people of all walks like it," he said.

National trend

The move to build condos is a continuation of increased interest in living downtown, said Tom Simplot, president and CEO of the Arizona Multihousing Association. The city and private sector often speak of the need for more market-rate housing downtown.

"You may have somebody who previously lived in an apartment who has now decided that that is the lifestyle for them. And they are choosing to now invest in the downtown area," he said. "There's been a lot of dating, now there's a long-term commitment."

Building housing in cities like Phoenix, which still has space for infill development, is one of the top-10 real-estate trends for 2014, according to the Urban Land Institute, a Washington, D.C.-based land-use think tank.

One reason the condo market is returning is because those wanting to own in downtown Phoenix have limited options, Simplot said. It is harder to find a detached single-family home in the urban core than in the suburbs, making a condo the only ownership option for some, he said.

Stapp expects condo development to stretch beyond downtown Phoenix into other urban parts of the city.

"The whole metro Phoenix is moving more towards the infill development," he said. "And when you look at what builders are facing on the periphery, the development opportunities inside the (Loop 101) are considerably better."

Safer but still risky

Some owners saw the downside of buying an urban condo after they purchased units in developments originally intended for condominiums like the Summit and 44 Monroe, the tallest residential high-rise in Phoenix. During the recession, those units significantly decreased in value and most of the units became apartments. But Simplot said those days are past.

"The downtown and midtown market is extremely stable," he said. "There is no longer the fear that if somebody purchases a condo, they will lose their investment because of a falloff in the market."

Despite the risk factor decreasing for owners, condos remain a risky project for developers, Stapp said. Unlike housing communities that can grow over long periods, entire condo projects must be built up-front regardless of interest.

"I worry about it a little bit only in that financing those condo mortgages has been a little tough," he said. "The entire mortgage industry has slowed way down."

In response to that risk, the Urban Land Institute reports that some developers are building rental projects with plans to turn them into condos in the next 12 to 16 months.