Condos vs apartments
What’s the driver for new development?
By Kate A. Hallock
Resident Community News
From all appearances, the development bust in Jacksonville is over. Five skinny years in construction followed the heady housing success of the early 2000s and now developers are again coming out in small force with exciting – and yes, controversial – developments on both sides of the river.
As reported in The Resident, Hallmark Partners is undertaking new projects for both luxury condominiums at Beacon Riverside and apartments at 220 Riverside targeted at professionals working downtown. At the same time, the revitalization of two pre-2008-economic-downturn development projects has taken a turn from condos to apartment complexes.
The Resident reached out to respected professionals in the financial and real estate industries for their take on what’s driving which type of building and why.
According to Gil Pomar, president of CenterState Bank’s Northeast Florida Region, from a lender’s standpoint, there are pros and cons to each. “Condos are easier to lend to in a sense because typically they are 50 percent or so presold which greatly reduces the market/project risk assuming the deposits are large and non-refundable,” Pomar explained. “Apartments typically have no preleasing requirement when getting financing because it is not practical, so in essence, if you build it…they better come.”
Anita Vining, Prudential Network Realty, concurs. “Typically before a bank will loan a developer money for a condominium project they require them to have a certain percentage of pre-sales or reservations by potential purchasers. Banks today are very strict about the number of investor buys versus actual resident buyers,” she said.
Pomar further noted that from a demographic standpoint, apartments are appealing because the country in general now has a younger population that is waiting longer to marry and have children. “They also (financially) need a roommate in most cases and leasing does not require the same commitment from a roommate that home ownership has.”
In addition, the financial requirements for home mortgages are also more stringent than before, especially for condos, and those who have had foreclosures or short sales generally have to lease until they can build their credit back up, the CenterState Bank executive noted. “I believe this is driving so much of the apartment construction around town,” Pomar said. “There is more big/outside-Jacksonville equity fund money chasing apartments in general versus condos as well. From a practical matter, apartments can be a hold investment for a long period of time while, by definition, the developer is effectively out of the investment once all of the units are sold which they hope will be very short term.”
From a realtor’s perspective, Vining offered: “With a need for apartments in the San Marco area, and frankly Avondale as well, it makes sense that developers are building as apartments but, as in past years, if the market demands change it is very possible you will see those apartments convert to condominiums.”
The Commander redevelopment project was originally slated to be a luxury high-rise condominium, but the plans filed with City of Jacksonville Planning Department now call for luxury apartments in three buildings no higher than five stories. Chase Properties developer Michael Balanky has indicated that the luxury build on St. Johns Avenue is being planned with an eye toward conversion in the future.
“My guess is that [the Commander redevelopment] is going apartment, not because the banks are less likely to lend on condos, but it is more that Mike [Balanky] believes it is a better apartment market in that location in this environment and/or 50 percent presales requirement for condos is too difficult in that location in this environment,” Pomar said. “There was a time when presales on condos were relatively easy. That is no longer the case for the reasons mentioned, plus a lot of the deposits from consumers to hold their units before the bubble burst were not large or firm enough and buyers simply walked on them…which of course led to higher supply, a plunge in prices, lots of foreclosures and short sales.”
As with Avondale’s Commander project, a mixed-use plan for both residential and retail was recently proposed for East San Marco, a joint venture between The St. Joe Company, Regency Centers and Whitehall Realty Partners, which will develop the multi-family complex.
East San Marco was originally proposed with fewer, larger units as luxury condos but, like Chase Properties’ Avondale plan, will instead be built with more, smaller apartments. While both developments will include retail, the East San Marco project will include a new Publix.
“The East San Marco project was committed with a grocery store, but from what I have heard, the grocery store chain would not start construction without a commitment for a residential project on top,” Vining shared.
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