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Urban Apartment Boom (Raleigh)


orulz

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Yeah, pretty boring, but I really don't care.

 

Oberlin is really seeing a lot of activity. A 30 unit, 3-story apartment building on 2.14 acres is also proposed at 818 Oberlin Road, as well as a 3 story mixed-use office/residential building across the way at 815 Oberlin.

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I'm all for terrible. bland stuff over in Carolina-boy land, aka Cameron Village. However I'd guess Crescent has less than 10 occupied units and Devon (a much better design) has 4 at last count. At some point the REIT bubble is gonna burst and even that source of capital will dry up and with it residential construction. Paying this much for land in Cameron Village is borderline stupid, and certainly risky given that no apartment comps in the area justify that price. 

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How do no comps justify the price? Crescent's Cameron Village deal was a pre-sale and sold for 35-40% more than what it would cost to build today. That more than justifies the price they paid and if the land were openly marketed today, I'd guarantee it would sell for even more. 

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Yeah, pretty boring, but I really don't care.

 

Oberlin is really seeing a lot of activity. A 30 unit, 3-story apartment building on 2.14 acres is also proposed at 818 Oberlin Road, as well as a 3 story mixed-use office/residential building across the way at 815 Oberlin.

 

I'm not as concerned about this one either, because fortunately it's not in the heart of downtown and located in a more residential area.

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I'm all for terrible. bland stuff over in Carolina-boy land, aka Cameron Village. However I'd guess Crescent has less than 10 occupied units and Devon (a much better design) has 4 at last count. At some point the REIT bubble is gonna burst and even that source of capital will dry up and with it residential construction. Paying this much for land in Cameron Village is borderline stupid, and certainly risky given that no apartment comps in the area justify that price. 

 

To me, in today's Raleigh, Cameron Village is probably the most sought-after address for rentals in the city. The central location , wide variety of interesting and in fact very useful retail (two grocers and a drug store!), access to the university, multiple transit lines, all while not being located on a massive noisy road like Six Forks or Glenwood, give it a leg up over basically anything else as far as livability is concerned. Glenwood South and downtown proper may have a slight edge for partiers and people who work downtown, but then CV does have a small nightlife scene to itself, is closer to Hillsborough street, and is also only a mile down the road from Glenwood South (and there's nothing like walking a mile to burn off a buzz before going to sleep!)

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How do no comps justify the price? Crescent's Cameron Village deal was a pre-sale and sold for 35-40% more than what it would cost to build today. That more than justifies the price they paid and if the land were openly marketed today, I'd guarantee it would sell for even more. 

I understand that an appraiser's definition of comp is last 12 months generally, but if everyone rushes in with wads of cash in hand all at once those essentially simultaneous sales should not count as comps for each other. This is "how bubbles form 101". The fact is these buildings simply aren't leasing up. I walk past all of these at least weekly and sometimes daily (nightly). I have also lived square in the middle of downtown for 22 years and have a good feel for where people are ending up...along with actually seeing lights on, or no lights on, I more or less surmise that St Marys Square Apartments was probably our last building to lease up quickly. 401 Oberlin got to about 50% fast, because it had that perfect beige and brick combo that works here and its easier to access on the quieter side of the street. Skyhouse may also lease up ok since its different and decidedly more urban feeling. The prices being paid for others are based on a desktop analysis only and will not provide the returns the buyers are expecting.  Yes there is a ton of demand for rentals downtown and Cameron Village, but not at these "luxury" price points. If the 1 br units were $900 and 2 br $1200, they'd be booked solid. There aren't enough Red Hat and Citrix people to fill up that many units $2 sqft/month. 

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Not to mention the 1,000+ units about to become available around Crabtree and the couple hundred at Jones Grant.  I have no idea who is going to fill all of these.  2015 will be a very interesting year for apartment rentals.

 

I wonder if Kane's warehouse residential tower will swing toward condos instead.

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I wonder if Kane's warehouse residential tower will swing toward condos instead.

 

I think that downtown, and the rest of Raleigh for that matter, could use more condos. Developers slacked off on condos when the economic downturn hit and focused more on apts and affordable housing. Now that the economy is on the uptick and the demand for urban living is growing, I think that now would be an excellent time for Kane to introduce more urban condos to the market, especially in the Warehouse district with close proximity to Union Station.

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I think that downtown, and the rest of Raleigh for that matter, could use more condos. Developers slacked off on condos when the economic downturn hit and focused more on apts and affordable housing. Now that the economy is on the uptick and the demand for urban living is growing, I think that now would be an excellent time for Kane to introduce more urban condos to the market, especially in the Warehouse district with close proximity to Union Station.

The kicker is that condo purchasing requirements went way up after the bust such that unless you have 10% down you can forget it. Naturally this is good personal finance anyway, but condos tended to appeal to younger buyers or empty nesters and the young buyers often were looking for that 100% financing option. The two condo communities I know that are actually selling units are both being marketed straight at empty nesters and that is the row on Fairview in Five Points and the soon to be converted building at the northeast corner of Wade and St Marys. Condo buildings will have to be smaller because banks want something like 50% of a building to be reserved before they will finance construction. I personally would love to see smaller buildings(10-50 units), whether apartments or condos, since that increases the chances for interesting architecture...at least it *should* make it more varied (this is Raleigh I realize), but also in general I find those streetscapes more interesting than block after block occupied by single huge buildings. Buildings like 1001 Hillsbourgh, 610 Hillsborough(originally apartments), and the Byrum Building condos at 737 West Hargett come to mind as small scale stuff from the original condo 'boom' downtown. 

Edited by Jones_
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 marketed straight at empty nesters and that is the row on Fairview in Five Points

 

At 4,000 sq ft a unit, I doubt that these are targeting empty nesters.  Just my feeling though.  Also, either all or all but one of the units are sold.  (12 total units over 3 buildings).  Buildings 2 and 3 are going through site / foundation work now.

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Another interesting thing that I haven't seen anyone comment on is how the planned Dix park will impact residential development in the surrounding areas. A park of this size and in this location is almost certain to attract new residents who want to live close to an urban park where they can walk their dogs, play with their kids, etc.

 

Since Boylan Heights, the Warehouse District, and a few other neighborhoods are within walking distance of Dix, I can see these areas becoming even more desirable as places to live. The park may help to spur new developments in those areas.

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I know two of the guys who have reserved at Caraleigh Commons...one is a realtor who is making it his residence, so I think that bodes well for it. They both want to stay close to Dix Park (they currently live in the Mill but want more room). 

Anyway, I wish the urban street network around Dix was better..... folks that want to live close to Dix, options are limited. I don't think the Centennial master plan has residential in it along the Parkway but I could be wrong. Western Blvd has nothing beyond the Bilyeu neighborhood (Boylan Heights counts I suppose but is separated by Western) so that leaves us with Fuller Heights area off Lake Wheeler as the only immediately adjacent residential areas. I imagine the City will look at Park connections as they work on ideas for the actual park. 

 

I had no idea the Five Points condos were that large even for the whole floor units, but I stand by my statement....the target buyer is people in Five Points who are "downsizing" from even larger places in the area. There was also on overemphasis on the elevators. Certainly possible some or all went to middle age wealthy types but my gut says otherwise despite the size. I am glad they have sold well...the buildings have good form and fit into the area nicely despite being uber expensive and wrecking three perfectly salvageable large homes already there. 

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