Royal Mills was slated to be Struever Bros., Eccles & Rouse’s only project in Rhode Island to include a condominium component. But in the end, it appears that they just weren’t meant to be in the historic West Warwick mill.
John D. Sinnott, managing director of Providence operations for Baltimore-based Struever Bros., said in an interview that the company has decided to drop plans for 78 condominiums in the $80 million project, opting to market all of the development’s 249 units as rentals.
The spaces designated for condos had 10-foot-tall windows overlooking the Pawtuxet River, and with prices as high as $400,000, they were seen as a way for Struever to “get back some of our investment fairly quickly,” Sinnott said.
But sales of the units never took off. “There’s just been a turn in the market,” Sinnott said. “We’ve been talking about it for years, and it finally came.” Struever also decided to apply for federal tax credits that are only available for projects that include only rental units for at least five years.
Struever is not the only developer to drop or scale down condo plans. Blue Chip Properties and Granoff Associates, developers of the One Ten Luxury Residences, announced in January that they would scrap 60 of the planned 130 condos in the Westminster Street project, and add a hotel to the building instead.
Is this a sign that condos have lost their appeal?
The Rhode Island Association of Realtors and Boston-based The Warren Group issued conflicting figures for the first quarter of 2007 in May. On one side, the Realtors reported a 4.3-percent spike in condo sales, despite a drop in the median price. The Warren Group, which also said that prices dropped in the first quarter of the year, said that Rhode Island had experienced a 4.3-percent drop in sales.
Leonard Lardaro, a professor of economics at the University of Rhode Island, said last week that he doesn’t expect the condominium market in the state to disappear, but he does expect it to be harder hit by market adjustments than single-family home sales will be.
Another factor, Lardaro said, is that he doesn’t believe that condominiums ever took in Rhode Island the way that they were intended to, despite the hype.
“I don’t think Rhode Island condos became as incredibly motivated as other ones in cities across the country,” Lardaro said.
Colin Kane, principal of East Providence-based The Peregrine Group, said there “seems to be a glut” of condos, and many lenders are shying away from new developments.
For one of the larger projects that he is developing, Rumford Center in East Providence, Kane said, Peregrine and its partner, Kirkbrae Properties, opted not to include any condominiums in the 123 residential units. Aside from the vast amount of condominiums becoming available in the state, Kane also cited the federal tax credits that will make Rumford Center more feasible.
However, Meredyth Church, a broker for Armory Properties and director of condominium sales at the Armory Revival Co., said she is actually seeing some strength come back to the condominium market as developers readjust their prices.
In her view, there is an oversupply of condominiums at certain price points, particularly in the $300,000 to $400,000 range. Units priced higher or lower than that seem to be selling, she said.
Church said that Armory was witnessing a lag in sales last year at several of its properties. However, once the prices were adjusted – in some cases, by as little as $10,000 – the units sold.
In the case of the Pearl Street Lofts, the company only has two of its 19 units still available.
“What I’ve been telling my real estate agents is make sure you have all of your condominiums aggressively priced,” Church said.
[Editor’s Note: The Warren Group reported July 9 that condo sales in Rhode Island surged in May, though their prices declined. READ MORE.]
While there aren’t immediate signs that more condominium projects are going to turn rental, there are signs that there is demand for more rental units in the state.
Struever’s Sinnott said that Royal Mills also had to readjust its apartment plans as the project progressed. With units at 700 and 900 square feet, the company noticed that the smaller units tended to be more popular.
“At Royal Mills, all of our smaller units got gobbled up right away,” Sinnott said. “We checked the competition and in all of our market research, smaller units were getting picked up right away.”
Kane said that new apartment buildings that include as few as 10 units are practically impossible to build given the cost of supplies and regulations throughout the state. And in terms of affordable housing, more units could mean more cost-effective living spaces for residents.
“We are at the upper limit in terms of what Rhode Island employees are willing to spend on rental units,” Kane said.
