While residential developers in New York City reap healthy windfalls with multimillion-dollar condos, it’s tougher to do the same in New York’s struggling upstate cities.
Developers there face multiple obstacles and often need government subsidies to fund their projects. Taxes are high, environmental issues often present formidable challenges, and sales prices remain astonishingly low by New York City standards. Despite this, developers are pushing ahead with projects in older industrial downtowns that are working to reclaim their vitality.
This month, The Real Deal takes a closer look at development in the four largest upstate New York cities.
In a follow-up story to an article in our May issue looking at prices upstate, our examination of Albany, Syracuse, Buffalo and Rochester finds the state capital faring best and Rochester, the worst. As reported earlier, the median house price in the counties of the four major upstate urban areas was $128,547 in February 2007. Without Albany, the figure drops to $109,780. In a dozen upstate counties, the median home price is lower than $75,000. In Lewis and Allegany counties, the median price is $51,500.
Albany
Blessed with the best location of the major upstate urban centers, Albany is about two and a half hours from Montreal, Boston and New York City, and its winters are more moderate than in the western part of the state.
In the 1960s, urban renewal projects displaced city dwellers, and suburban shopping centers like the Crossgates Mall drained people from Pearl Street, the center of downtown. In the 1970s, preservationists reclaimed the neighborhoods of Pastures, Mansion Hill and Center Square.
Prices reflect a population that’s highly educated, thanks to the presence of the state government, a built-in local economic engine that means Albany’s fortunes more closely mirror the ups and downs experienced downstate. From a $169,900 median benchmark in February 2005, prices hit $185,000 in February 2007.
“The city has changed so much in the last 10 years that people who went to school here and come back cannot believe the transformation,” said Pamela Tobin, executive director of the Downtown Albany Business Improvement District. “The next 10 years will be even more busy.”
Around 250 condominiums are slated for downtown, she said. One development at 733 Broadway began as a rental, then switched to a rental and condominium, and is now going to be all condominium, she said.
“Condominium development downtown has been talked about for a long time, and now it’s really happening,” said Sara Zappi, vice president at TL Metzger & Associates. “The relocation market is picking up, and when I talk to the sophisticated professionals looking for homes, they cannot believe the prices.”
Last year the city passed the Urban Reinvestment Tax Incentive Program, which offers developers a seven-year property and school tax abatement on an increased assessed value of developed land, as long as it meets job retention and job creation requirements, and phases out after 11 years. It’s modeled on Section 485-e of the New York State Real Property Tax Law.
The entire downtown is wired for high-speed Internet connections, which has helped spur development of the area’s nanotechnology center and startup incubators clustered around SUNY-Albany and Rensselaer Polytechnic Institute.
Success is still measured in small doses: A recent relocation of the British lithography firm Vistec brought 25 to 30 jobs to the city.
The downtown’s rebound is attracting investment from downstate. Lon Ballinger, owner of Webster Hall in Manhattan, plans to open a club in Albany. SDS Procida, a real estate firm based in the Bronx, is closing on a lot where the company plans to build a 150-room extended-stay hotel and a 65-unit residential rental building in the heart of downtown that will include an affordable housing component, said Mario Procida, principal at SDS Procida.
“An Albany partner of ours found the property, brought it to us, and we’re there,” said Procida. “It’s a great location, and we think the economics are sound.”
He said the company is considering other projects in Albany but is not pounding the pavement to find them. Back home, his foray raised some eyebrows. “As I was going to close, I got a phone call from my bank. They asked ‘What are you doing in Albany?’ I said, ‘Great things.'”
Buffalo
Buffalo, the state’s second-largest city, is located on Lake Erie, where the Buffalo and Niagara rivers meet. The waterways fueled the city’s growth in the 19th and early part of the 20th century through shipping, manufacturing and energy production. Today, the city is undergoing a shift from a manufacturing base to biotech and banking industries. As a result, a major redevelopment of the waterfront is under way to create new parks, restaurants, marinas and retail.
Buffalo has a rich uncle of sorts in Warren Buffett, whose Berkshire Hathaway company owns the Buffalo News and holds a large stake in M & T Bank, which has a large local presence. Insurance giant Geico, part of Berkshire’s vast holdings, recently opened a service center in the area, and the New Era hat company built its headquarters there this year.
Planning has long been a hallmark of the city, which was designed in 1804 with a radial street and grid format, one of three in the United States. It was also the first city for which Frederick Law Olmstead and his partner Calvert Vaux designed an interconnected park and parkway system, instead of stand-alone parks.
However, planning isn’t everything.
“Buffalo had the best planners and the worst implementers,” said Rocco Termini, a builder who is helping to spearhead a downtown revival.
Merle Whitehead, CEO of RealtyUSA, based in the Buffalo suburbs, agrees. “The due diligence you have to conduct, the environmental studies, the traffic studies — it drags out the process, raising the cost and increasing the timetable,” he said. “If there’s demand today, and you have a turnaround that keeps you from delivering to the marketplace for two or three years, it’s going to stifle investment.”
High taxes also offset housing price gains. “It’s like taking two steps forward and one or two steps back,” said Whitehead. “For people who want to live in their homes, it’s one thing, but buying a home as an investment makes no sense.”
Rents of $1 per square foot per month also hobble the market, said Termini, who has completed 140 new downtown rental units and has more under way. Even that figure can be hard to get.
In his IS Lofts, “I put in a penthouse, 2,000 square feet, with granite, stainless steel appliances, marble bath and a Jacuzzi, and I had to beg to get $1,950,” he said.
A list of recently completed projects shows a total of 62 units added to the downtown housing stock over the past two years. Only one project is under construction, Termini’s 30-unit Ellicott Commons II. Termini also bought the 119-year old Webb Building, where he plans to build another 32 apartments with a day-care center on the ground floor.
Construction on this scale in Buffalo requires heavy subsidies, he said. For the Webb Building rehab, he plans to raise $2.2 million from state and federal historic tax credits, and another $3 million from federal New Markets tax credits to offset the projected $9.2 million cost to refurbish the dilapidated building.
“What happened in every other Rust Belt city 10 or 15 years ago is starting in Buffalo,” he said. “We’re taking boarded up downtown blocks with no retail whatsoever and we’re starting to bring them back.”
To bring a critical mass to downtown, Termini is proposing a 200,000-square-foot Bass Pro Shop, a mall featuring a fishing goods retailer that would resemble a miniature South Street Seaport on Lake Erie.
Artists are also moving in. “The pioneer residents are young Gen Xers who don’t have a land line and probably never will,” said Whitehead. “They have no desire to maintain half an acre in the suburbs.”
Designed to bring young residents to downtown around the clock, and to jumpstart a Soho-like revival, a consortium of government agencies and private donors has contributed to the $16.9 million Artspace, which will consist of 60 subsidized live-work lofts, along with 10,000 square feet of commercial space reserved for an art-friendly establishment.
Last year, Manchester, England, magnate Bashar Issa boosted the city’s morale after he bought the iconic 18-story Statler Tower for $4.5 million and announced an $80 million plan to convert it into a mixed-use building with 200 residential units. Last year he also pledged to launch a new 40-story, 1.2-million-square-foot mixed-use building, a $361 million project that would include office space, a luxury hotel and 10 floors of condos starting at $500,000
It’s difficult to see where this demand will come from. With the median price of a home in Erie County, where Buffalo is located, at $95,000 in February 2007, down from its 2005 peak of $112,800, the city and its environs have among the lowest housing prices in the country.
Rochester
Rochester, the third-largest urban area in the state, earned the nickname Smugtown USA after the title of a 1957 book that criticized its prosperous elite. The cradle of formerly dominant industrial businesses like Eastman Kodak and Bausch & Lomb, Rochester’s business climate is troubled, its real estate market is now stagnant, and the once-proud city is desperate for development and an infusion of people into its downtown.
Located on a dogleg off the New York State Thruway along the shores of Lake Ontario, the city’s downtown economy took a big hit when Kodak and Bausch & Lomb slashed jobs after the dot-com bust.
In January 2006, the city pulled the plug on the so-called fast ferry between Rochester and Toronto. Though it provided service on and off since 2004, the venture saddled taxpayers with $43 million in debt and tarnished the city government’s reputation.
Housing prices in Monroe County rose from $91,400 in 2001 to $111,441 in February 2007, an 8.2 jump that has barely spurred new downtown housing. In the last few years, around 500 residential units have been built, said Steve Golding, the city’s manager of downtown development.
Most projects are mixed-use. None have new construction. All require subsidies.
“You can’t do a project in downtown Rochester without some type of incentive,” said Golding. “It’s so costly to build that you just can’t get a return.”
In Monroe County sales volume is robust, but values are declining and prices have hardly gone up in the last 20 years, said Nunzio Salafia, broker-owner at RE/MAX Real Estate Associates.
“Some sellers are retirees moving south, but more and more people are leaving to get relief from the taxes and to get new jobs,” said Salafia. “Many people are watching what’s happening around them and are fearful of being next.”
Not all brokers espouse the doom and gloom scenario. “People love to complain about where they live,” said Jeff Scofield, who leads his own group at RealtyUSA. “I’ve been selling for 13 years, and it’s better than it was after the re-adjustment of the early 1990s. If Kodak had a layoff 25 or 30 years ago, it was devastating. Today, no one notices it. Half the people sell their homes, it doesn’t flood the market, and the other half gets jobs locally.”
The city and county’s fortunes are closely bound. “We call ourselves a 20 to 24 minute town because that’s how far you are from any two points in Monroe County,” said Scofield.
Signs of hope downtown include the 150 to 170 new units scheduled for the current construction season, said Golding. The city is also seeking to boost the number of owner-occupied dwellings downtown from the current level of 62 out of 2,400 households to gain more residents with a stake in downtown.
“We’re fighting for our lives up here,” said Golding, “but there’s a lot of potential.”
Syracuse
Last year, downtown Syracuse got its first supermarket in 40 years. Not a chain, but C.L. Evers & Company, a gourmet emporium, which opened on the ground floor of a renovated warehouse built in 1878 that also includes 19 condominiums, a fairly new commodity downtown.
Syracuse, the snowiest big city in the U.S., is located along the shores of Onondaga Lake and owes its early prosperity to canals and trains. Suburbanization in the 1960s sucked the life out of the downtown, abetted by the development of strip malls and shopping centers, including Carousel Mall, built by the Pyramid Companies.
As activity returns to the long-neglected center core, the developer of the historic Loew’s theater, which included 24 rentals, is converting the units to condos that are expected to sell for $140,000 to $160,000. And GML Tower announced plans to build a $19 million mixed-use high-rise with 54 condominiums from 775 to 2,200 square feet.
“People are yearning for quality residential space,” said Doug Shepard, principal broker at CNY Alliance Realty, who has built several downtown residential projects. “True, it was like a ghost town not long ago, but even with the corporate downsizing there are still young professionals who make above-average incomes and enjoy coming into downtown, where they can go out to have some drinks and dinner.”
The conversions to condominiums represent a significant development in the residential market, said Christopher Moreland, broker-owner at McKenzie Realty, an investment firm.
“We had an explosion of 200 new units in the last few years, which doesn’t sound like a lot, but we also have about 1,000 on the drawing board in the next two or three years and $2 billion invested by the fourth quarter of 2008,” he said. “Suburban sprawl in the ’70s and ’80s hurt the downtown, but now people want to move into the city.”
Subsidies are essential to completing projects. To turn the city’s old Masonic Temple into 35 live-work lofts with ground-floor commercial space, Masonic Lofts LLC will finance the $5.6 million project with a combination of historic preservation tax credits, low-income housing credits and tax-free bond financing.
Even students are benefiting from the upswing. Amenity Housing Group of Central New York recently bought 21 townhouses for $4 million and plans to offer them to Syracuse University students for $500 per bedroom. Each building will consist of eight rentable rooms in suites that feature hardwood floors, new appliances, flat-screen TVs and high-speed Internet.
Median residential prices in Onondaga County have gone up 31.6 percent, from $85,000 in 2001 to $122,750 in February 2007. Prices tapered off at the end of 2006 but rebounded in early 2007.
In the wealthy eastern suburbs, some builders are building spec and custom homes, “but nothing on the scale of Levittown,” said Mary McNeill at RE/MAX Masters in Fayetteville. Why bother, when she listed a horse farm with 35 acres, a paddock and a 5,900-square-foot home built in 1993 for $799,000?
Downtown, Shepard said he is trying to sell four-bedroom townhouses with exposed brick, halogen lighting and stainless steel appliances for around $230,000.
He expects the market to remain steady. “After Sept. 11, a lot of people reconsidered what they were doing and began demanding a better quality of life,” he said. “We’re in a market that obviously was not defunct.”