Easy Living At Precious Prices

November 27, 2005
By ROBIN STANSBURY, Courant Staff Writer

After graduating from the University of Connecticut five years ago, David Nielsen wanted to buy a home in an urban setting and chose downtown Hartford.

But there was one problem.

"There were so few condos downtown," he said. "I've been waiting and waiting. There have been no really good opportunities to live downtown.

"Until now."

Nielsen, an engineer at Pratt & Whitney, is trading his rental in Hartford for a $340,000, two-bedroom condominium at The Metropolitan, a former office building being gutted and transformed into a 50-unit upscale condo complex.

Despite signs that the local real estate market in general is cooling, experts in housing and economics say there are plenty of people like Nielsen looking for luxury condos, from suburban active adult communities to sky-rise buildings in downtown Hartford.

And it's a good thing, because the region is in the midst of a building boom.

More than 5,000 condominium units are planned for the region, including units already under construction, approved by local zoning boards or in the midst of the approval process. The condos, many of which resemble detached single-family homes, range in price from about $250,000 to $1 million.

"It certainly is a full plate of construction for the region," said Ron Van Winkle, an economist in West Hartford, where more than 400 new condos are planned. "But construction doesn't happen all at once. Not every single one of those units will be built. And those units that do will be absorbed over the course of a few years."

Van Winkle and other real estate experts say the region has the right mix of demographics to support the construction. Not only is the population growing modestly, but it has a large segment of the highly desirable empty nesters. Those are the buyers who more often trade in their longtime family homes for maintenance-free luxury condos - whether it's a stand-alone or a high-rise.

Also, the experts said, there is pent-up demand for high-end condos, particularly in downtown Hartford where the last significant development took place more than 30 years ago.

"Condos will continue to be a very hot market, even with the new inventory coming on," said Susan Coleman, a finance professor at the University of Hartford. "The baby-boom generation wants maintenance-free living and are proving they want their longtime single-family home converted into a luxury condo."

At the same time, the experts agreed that the region's growing population and wealth mean that there is enough demand to sustain the rest of the real estate market as well, from the upscale single-family homes the empty nesters are selling, to smaller houses that attract first-time buyers.

But the experts warned that there are no guarantees the trend will be sustained over the long term.

Any number of scenarios could derail the region's condo market, including a significant rise in mortgage interest rates that would steeply increase the cost of owning a luxury condo.

Major job losses in the region also would curtail demand.

And, eventually, overbuilding of condominium units would also weaken the market and cause prices to drop.

But so far, real estate developers, brokers, economists and others say, the Greater Hartford region is poised for a continuation of its robust condominium market.

AN UPSCALE DEMAND

Already, upscale condos are affecting sales averages in the region. In three communities - Bloomfield, East Windsor and Windsor - the median price of condominiums is now higher than the median sales price of single-family homes.

And there are early signs that the units being built will be absorbed easily.

At The Heritage condominiums in West Hartford, which are part of the Blue Back Square development, about one-third of the project's 62 units - priced up to $800,000 - are under contract. At the Metropolitan in downtown Hartford, almost half of the building's 50 units, which are priced up to $407,000, are under deposit.

"I think that speaks to demand, when so many units are sold and we didn't even have a building to show them. They were buying from drawings on paper," said John Hoye, of Prudential Connecticut Realty, who is a broker for the Metropolitan.

Developers such as Peter Standish, senior vice president of Northland Development Corp., say the time is right for luxury condo developments, especially in downtown Hartford.

Northland has become a major player in the downtown Hartford residential market - the company is finishing a 36-story luxury apartment complex at the site of the former Civic Center mall. A few weeks ago, it announced plans to build an 18-story tower overlooking Bushnell Park at the site of the Hartford YMCA. The project, which calls for 200 upscale condos and 100 luxury apartments, is estimated to cost $117 million.

"What we are creating is a revitalized city with new amenities and a new vibrancy," Standish said. "People living in the suburbs are trying to reconnect with the city, a trend that is happening in other markets as well."

Standish said Northland did an exhaustive study in 2000, surveying more than 11,000 people in the region - 1,500 residents in Hartford and 9,500 downtown employees - to determine the appetite for housing in downtown Hartford.

The results, he said, were overwhelming.

"The end conclusion is that demand would far exceed supply," Standish said.

The company updated the survey in 2003 and found similar results, he said.

"If you step back and think about it and look at the product - high-end luxury finishes, all the conveniences that people would expect for downtown living, tremendous views - and you compare that to the other projects that already exist, you are talking about a market that is very thin," in terms of supply, he said.

EMPTY NESTERS

Agents and others said a large part of the demand for upscale condominiums is coming from the region's baby-boom generation, empty nesters who want maintenance-free living and luxury accommodations in their retirement home.

These families are using equity from their longtime single-family homes, which have appreciated dramatically in the past five years, and using it to buy condominiums. But not just any condo. Local developers say these buyers are spending that cash on expensive amenities and upgrades such as granite counters, high-end appliances, spa-style marble bathrooms, and expensive trim work.

Not only is this segment of the population growing - the number of state residents aged 45 to 59 grew by 13 percent over the past four years - but more often these empty nesters are deciding to stay in Connecticut close to their family and friends, instead of retiring to places such as Florida or Arizona.

"There is a tremendous demand for condos from this population, and what we are seeing now may only be the start," said Steven P. Lanza, executive editor of the University of Connecticut's economic publication, The Connecticut Economy. "As the population grows so should the demand."

And these buyers don't just want to live in Simsbury or Tolland. In fact, some are heading away from the suburbs and back toward urban centers, a national trend that is now being seen in Hartford where so little condo construction has taken place in the past few decades.

"For so long Connecticut has under-invested in housing because of the big speculative boom of the late 1980s," Lanza said. "Finally we are seeing signs of activity we want to see in the places we want to see it."

Builders learned painful lessons in the late 1980s. That's when each year more than 20,000 housing units were built, a number the market couldn't sustain when more than 200,000 people left the state and the recession took hold. Many builders went bankrupt.

It took years for the excess single-family homes and condos to be soaked up by the market, and the extra housing deepened the recession. In fact, it was only a few years ago when the inflation-adjusted value of housing returned to levels of the late 80s. In the past few years, developers have been building an average of 10,000 units a year statewide, very few of them on speculation, with most of the high-end condos being built in towns such as Avon for the 55 and older buyers.

And it's been only in the last year or two that expensive condos with prices pushing $1 million have been proposed in places such as West Hartford and Bloomfield.

MARKET VS. RISK

But how much is too much?

Already, about 1,000 condo units are being proposed or under construction in downtown Hartford - from 210 units on Front Street to 120 units on Capitol Avenue, with still more developers scouring vacant properties as potential condo sites. About 600 new apartments are also planned, with rents for penthouses as high as $5,000 a month.

Across the region, approximately 4,000 other condo units are under construction or being planned, the vast majority as active adult communities with units that look just like single-family homes. Many have upscale price tags of $400,000 or more, with a handful of projects commanding prices of up to $1 million.

Local economists say those numbers are not as large as they sound, in part because not all of the proposals will actually be built. And those that do get built won't come on the market all at once.

"It's really not excessive when you think of the population of Connecticut, the growing number of people 55 and older, the wealth of the state and the sheer size of the existing housing market," said Coleman, of the University of Hartford. "Assuming the economy remains stable, and interest rates don't go through the roof, there will be people here to buy these homes."

The state's population is growing modestly, increasing by about 100,000 people in the past four years. At the same time, about 2,300 jobs have been added in the Hartford region in the past year - both statistics that help maintain a healthy housing market.

Hartford Mayor Eddie Perez said the city is well poised to handle construction of well more than the 1,000 condo units now proposed.

"I think 3,000 units in the central business district is not out of the question," Perez said. "People have confidence in the city. There has been significant public investment in downtown. People were waiting to see if that was going to work, and when it started working, you had private investors come in. We have an active condo market that is going to grow."

But others say the plans for so many condos are not without risks.

Agents say the local real estate market has slowed in recent months, with the number of homes listed for sale rising and, as a result, prices starting to level off from the rapid increases of the past few years.

"There's no doubt the market has shifted and there has been a slow-up - it's hard to say if it's a temporary blip or will continue into next year," said Curt Clemens Sr., a longtime Hartford real estate agent and owner of Century 21 Clemens & Sons. "The velocity of sales has slowed and it won't return to the speed of where it was nine months ago."

Clemens said builders of both single-family houses and condos should be cautious.

"If I was a developer and hadn't broken ground, I'd think twice," he said. "I might only build to order, not on speculation."

Interest rates have also been rising in recent weeks, reaching for fixed rates more than 6.3 percent - the highest levels in the past two years. Experts are predicting rates to increase throughout 2006, making the cost of buying a luxury condo more expensive.

And that could affect the number of buyers in the housing market for both single-family houses and condos, said Edward J. Deak, an economist at Fairfield University.

"Connecticut has also been slow on job growth, we have trailed the nation in terms of generating new jobs," he said. "Developers must have taken that into consideration, but that worries me because you need new jobs to sustain a strong housing market."