Downtown renaissance

[sunshine]

With thousands of condos and $1.5 billion in development in Orlando's core, a question arises: How much is too much?

By Beth Kassab and Jack Snyder | Sentinel Staff Writers

Posted March 21, 2005

Developers, condominium buyers and city leaders are playing a crucial role in one of the most dramatic transformations in Orlando's history, with more than $1.5 billion in the downtown-development pipeline.

They're driven by desire for profit, urban living and the chance to breathe new life into the city's core.

With those roles comes some risk.

Developers, and the lenders behind them, are betting hundreds of millions of dollars that the city center will flourish -- and that they won't smother the market by building too much.

Droves of would-be residents are voting with their checkbooks -- making hefty down payments and pledging future income in hopes of reaping handsome returns.

City officials are putting millions of tax dollars into incentives aimed at encouraging development. The X-factor here is the recent indictment and suspension of Mayor Buddy Dyer, who has championed the area. Most developers shrug it off as inconsequential when speaking of the short term. But long term could be a different story, they say.

Developer Cameron Kuhn cited Dyer's predicament as one of the reasons he scuttled plans to build a 10-story office tower on top of a city parking garage. Kuhn, however, is continuing with redevelopment of the former J.C. Penney building and the former Jaymont block -- now called Premiere Trade Plaza -- which includes a 12-screen movie theater, office space, shops, restaurants and condos.

Still, his decision to drop the smaller project is sure to heighten tension in downtown circles.

"Money doesn't like uncertainty. Lenders want stability," said David Barley, president of The Palm Beach Land Trust Inc. and leader of the redevelopment of the so-called Pizzuti block at Orange Avenue and Livingston Street.

Still, Barley sees no reason to pull back: "The city can move forward because of demand. We're absolutely moving forward as fast as we can."

Regardless, in coming months, the number of construction cranes downtown will multiply quickly as project after project gets under way. Soaring towers nibbling close to the height of SunTrust Center, the region's tallest building, are in the works. More condominiums, a grocery store and a movie theater are on the way.

The downtown condominium market -- fueling much of the recent development -- essentially is a new frontier that developers are scrambling to diagnose.

Experts say 4,000 to 6,000 condos are in some phase of development or planning. And there will be many more if some developers have their way.

The sticky question for all is: How much is too much?

Some, such as local economist Hank Fishkind, offer words of caution: "The market is a little ahead of itself. Some buildings that are announced won't get built. Some under construction will probably be OK, but there's a little too much speculation going on."

Risk of overbuilding

A spate of empty condominiums could quickly deflate Orlando's burgeoning market and the building frenzy that has steadily climbed during the past three years.

Developers are unable to say for certain what the breaking point is. They offer little more than an acquired sixth sense.

"You just get a feel for how much better you can do than what the studies say you can do. It kind of becomes a trick to developing," said Craig Ustler, a developer most widely known for his role in revitalizing Thornton Park.

They are betting that young professionals and empty-nesters will continue to be drawn out of the suburbs and into the cities by the thought of living in modern towers near restaurants and entertainment.

They are also betting on mortgage rates staying low: Anything higher than 8 percent could dampen sales, said Gary Benson, a partner in Chicago's Garrison Partners Consulting Inc., a real-estate advisory firm. The average 30-year mortgage rate was 5.95 percent last week, according to Freddie Mac.

Low rates and the buzz about city living have fueled a wave of buying by investors, looking to make money off condos -- sometimes before they have even been built.

They are buying and then reselling the rights to condos, often at a substantial profit.

Though that may work out well for the individual investor, the practice injects an element of risk into the overall market by essentially creating a false demand.

"That activity can overheat a market and cause problems when things slow down," Benson said.

Such worries have prompted some developers to apply the brakes.

Atlanta's David Eichenblatt, who is building The Metropolitan at Lake Eola, said his contracts required down payments as high as 10 percent and prohibited buyers from flipping the unit before they actually bought it.

Further, only 25 percent of the units were sold to investors planning to use them as rental properties.

Still there are thousands of units planned for the area, with some developers predicting there is room for many more.

"Our intuition tells us that still is not a significant enough inventory. We think there's demand for 10,000 to 15,000 units downtown right now," said Ustler, a partner in a project at the corner of Orange Avenue and Park Lake Street.

David Tufts, founder and executive vice president of The Condo Store, an Atlanta-based real-estate company handling many Orlando condo sales, insists the local condo boom is in its infancy.

"There's no way to predict when a market matures, but Orlando is just now experiencing the back-to-the-city residential movement," Tufts said. "It's a well-balanced market right now."

That's not to say things can't go bust.

Michael Cannon, managing director of Integra Real Estate Services South Florida, has seen condo markets in Miami and elsewhere surge and collapse through the years.

The problem often can be traced back to lenders who become so eager to loan money for new projects that they allow the market to become saturated as developers rush to outbuild one another, he said.

"When everything gets too hyper, the market overheats and can collapse," Cannon said. "The Miami condo market has seen that."

As for the question -- how much is too much? -- he thinks he has the answer.

"When you can't sell what you've built, you have too much."

Residents' leap of faith

It's not just developers who are gambling at the high stakes table of downtown revitalization.

The people and businesses buying space in those towers are putting their faith -- and sometimes their financial fortunes -- in the belief that downtown is on its way up.

Residents, in particular, are attracted by the idea of living in an urban neighborhood close to work. Of course, that means downtown needs to create more jobs to keep enticing suburbanites to give up their cul-de-sacs and swimming pools.

Marc Peltzman, 28, was lucky. He already worked downtown as an attorney for Orange County when the condo market began heating up two years ago.

He had considered buying a house near downtown -- until he drove through the tree-lined streets and saw people rake leaves.

"That doesn't look like very much fun," he said.

So he settled on a unit at the older Park Lake Towers, where he got an 815-square-foot condo with high-speed Internet and 85 channels of cable for about $151,000.

It may not be as trendy as some of the projects going up now, but Peltzman is confident in his investment in the 30-year-old building.

"I really think they're only going to go up," he said. "As people say, 'I want to buy in to downtown,' if they can't afford the new ones, I think they'll start looking at the existing buildings."

Those folks buying in the newer properties are just as certain that they are making the right moves.

Chris Danielski, a Maitland resident who paid $230,000 for his condo in 55 West on the Esplanade, is thrilled.

"I've bought and sold houses and have a feel for markets. Downtown is an area that will definitely appreciate," said Danielski, an advertising sales representative. "Downtown was way overdue for a face-lift, and it's happening in grand style."

Businesses also have been snapping up space.

James Dicks, president and chief executive officer of Premiere Trade LLC, an Altamonte Springs financial-services and technology company, bought enough condo office space -- $10 million for 61,000 square feet -- at Kuhn's project to have the development named for his company.

"I want to be part of downtown," he said. "It's being revitalized, and five years from now, it will be 10 times better than now."

Dicks said he has already rejected overtures to sell the space for 20 percent more than he paid.

Still, not everyone remains convinced.

Marc Collins, a downtown-business owner, and his wife, Kristin, a teacher and actor, seemed the ideal prospects for a condominium-fueled lifestyle.

Last year, in the midst of planning a getaway Paris wedding, they plopped down $1,000 to reserve a spot in 55 West.

Instead they wound up in a one-story Colonialtown home.

An unexpected 20 percent price increase and the sheer volume of condos on the horizon forced them to reconsider their earlier commitment.

"It went beyond where I thought it was worth the risk," Marc Collins said of the price, which jumped from about $320,000 to $369,000.

Orlando leaders remain fans

Despite the surge in new developments in recent months, city leaders remain convinced that downtown is on the right path.

City Commissioner Patty Sheehan said she isn't concerned about oversupply -- particularly considering that many people are growing increasingly tired of long commutes on crowded roads.

"As long as that's the case, it's going to be easier to get around downtown, and people are going to prefer to live there," she said. "I think easy transportation is going to be the next beachfront property."

Certainly the city has done its part to encourage development -- though the recent indictment of Dyer on a charge of violating absentee-ballot law raises questions among developers about the city's involvement in future deals.

Since 2000, the city of Orlando has been among the state's biggest spenders when it comes to incentives aimed at the city core -- pledging more than $50 million in cash, loans and tax rebates to more than a dozen projects.

The biggest chunk -- more than $35 million in cash, tax rebates and loans -- went to two projects, 55 West and Premiere Trade Plaza, which received the largest share, at $22.5 million.

Among other deals, the city pledged $3.7 million in incentives to a Thornton Park project featuring a 16-story tower and a long-coveted downtown grocery store.

But figuring out exactly why certain projects get incentives and others don't hasn't been easy for some developers.

Eichenblatt, the Atlanta developer, thought he had made a good case for financial help with his Lake Eola project, considering his plan to offer some units for $110,000, far lower than most competitors.

The city said no.

"I never got an explanation on why not," Eichenblatt said. "Why do some people get them and some people don't?"

The city has been retooling its position on incentives, using an approach that has evolved through the years.

Though some of the city's earliest incentives to developers went bust because promised restaurants and retail shops never opened, Dyer's administration sought to put more safeguards in -- generally in the form of performance benchmarks -- in the agreements to cushion the city's risk.

Before Dyer left office, he had pledged that the city would shift its focus from encouraging housing in downtown to creating more homes and jobs in Parramore.

Mayor Pro Tem Vicki Vargo said future requests for incentives will be evaluated on a case-by-case basis as they have been in the past.

"The city of Orlando has made a lot of progress in Parramore, and we need to continue our work there as we have in the past," Vargo said. "Nothing has been interrupted."

Despite coming away empty-handed from City Hall, Eichenblatt remains interested in pushing more projects downtown but admits the market is getting crowded.

"It looks like there's going to be a lot to absorb," he said.

Attorney Barry Miller, a developer who has invested in downtown projects for more than 10 years, said Orlando leaders need to shift their focus from encouraging housing projects to luring new, high-paying jobs downtown.

Miller has done mostly smaller residential and office-building projects downtown."I'm still very positive on downtown," he said. "I'd just be more comfortable as an investor and developer if I see more jobs."

[sunshine]

Imagine 15000 units are all built with 2 person per units, we will have 30, 000 people in downtown.

[accatt2204]

^ very encouraging. If the trend continues we will see more office and retail developers headed downtown for a piece of the action.

" Soaring towers nibbling close to the height of SunTrust Center, the region's tallest building, are in the works"

that sentence eats me up when i coud have been,

" Soaring towers over the height of SunTrust Center, the region's tallest building, are in the works"

[firemick]

Money doesn't like uncertainty. Lenders want stability," said David Barley, president of The Palm Beach Land Trust Inc. and leader of the redevelopment of the so-called Pizzuti block at Orange Avenue and Livingston Street.

Still, Barley sees no reason to pull back: "The city can move forward because of demand. We're absolutely moving forward as fast as we can."

Barley is my new hero!!!!!!

[Dale]

I'm strating to get pumped about the Pizzuti block.

[prahaboheme]

^Its size alone will be larger than the Plaza block so I bet we'd have a much larger project. At least I hope so.

[sunshine]

The organization that gonna plan that block have a website, they are Project for Public Space (PPS)

[Brickell]

I was up the coast this weekend and saw that headline sunday morning, but didn't get a chance to read the article. The only think I could think of was when was the last time the Sentinel asked "how much sprawl is too much". My guess is never.

Turns out the article isn't as bad as the headline sounded, but it wasn't good either.

[GreenHills]

I was up the coast this weekend and saw that headline sunday morning, but didn't get a chance to read the article.  The only think I could think of was when was the last time the Sentinel asked "how much sprawl is too much".  My guess is never.

Turns out the article isn't as bad as the headline sounded, but it wasn't good either.

<{POST_SNAPBACK}>

Great point. As far as residential development downtown, my main concern is not the number of units but the cost of some of the units. I don't think developers will have any problem selling all the condos they build in the $250-400 thousand range, but above that I just don't know the market. Of course there is a limit to demand, but I just don't think we're anywhere near it. If you look at new neighborhoods in the suburbs, there has to be at least 10 times as many units going up in the same range (and I'm almost certainly significantly underestimating the number here). No one ever seems to question these developments, so I'm not sure why the Sentinel is so interested in running what seems to be a monthly article speculating about when the downtown residential bubble is going to burst.

[Dale]

Because gloom and doom sells.

[hueblue]

Because gloom and doom sells.

<{POST_SNAPBACK}>

And a lot of the editorial decision makers there are very gloomy and doomy .....hyper critical..... (i used to work there and am now much happier not being surrounded by all of that negative thinking and cynicism)....

[prahaboheme]

It woudl be nice if we had more than just the Orlando Sentinel as a news source, but I suppose there isn't a large enough population at this point to support two competing newspapers.

[Jaybee]

The problem with the Sentinel is that there isn't enough editing going on, not too much editing. Too many managers are comfortable, and not doing enough to edit stories... and the stories themselves need help in the writing department

[Dale]

I read the otherwise smut-rag Orlando Weekly for news. Also the Orlando Magazine and the OBJ. The Sentinel has good pictures sometimes.

[GRS328]

The Sentinel has good pictures sometimes.

<{POST_SNAPBACK}>