In Atlanta, the residential real estate market is something of a contradiction. Developers there are planning to deliver 15 residential towers in the center of the city between 2008 and 2010. Some of these buildings will reach higher than 40 stories, remaking the downtown into a place where people can live as well as work. But there is already a 22-month inventory of unsold condos in Atlanta, and in the first six months of 2007 condo sales there declined by 21 percent.
What gives? Part of the explanation is supply and demand; part of it is changing migration patterns.
Ryan Ward of Ryan Ward Real Estate, an Atlanta firm, sees the problem in simple terms. “The oversupply,” he said, “is a combination of lending guidelines becoming tighter and [developers] continuing to build more than the market can absorb.”
But Judd Bobilin, chief development officer of the Novare Group, builders of Twelve Centennial Park, a new project in midtown that features two 39-story towers adjoining a boutique hotel, has a different take.
“Immigration from places like New York and Chicago is sustaining the demand,” Bobilin said “And builders are anticipating strength in the market, otherwise they would cut supply as they’ve done in other markets.” As for the sales decline, Bobilin said developers are anticipating something of a swift recovery and a strong near-term increase in demand.
Demographic figures support Bobilin. According to numbers from the U.S. Census Bureau, Atlanta has had the largest net gains of 25- to 35-year-olds of any city in the country. Rather than move to the suburbs, this group prefers by about a two-to-one margin to live in the central city.
And this is why developers say the up-tick in downtown condo construction isn’t just a fad. Downtown Atlanta has reversed the population losses it suffered in the 1980s and 1990s, and it is adding about 6,000 new residents per year, according to numbers compiled by the Atlanta Regional Commission.
Those explanations notwithstanding, there are some who think that the market is doing well despite the glut of unsold condos. “Atlanta’s condo market is in relatively good shape” said Kevin Thorpe, an economist with the National Association of Realtors. “Condo prices rose 3 percent in the first quarter of 2007, better than the nation, which rose 1 percent. And with a median condo price of $155,800, Atlanta continues to have highly affordable conditions.”
The average prices for downtown condos have remained stable since 2005, at around $300 per square foot.
Perhaps affordability and price stability are the secret to the optimism about downtown Atlanta. They certainly seemed to have convinced Mark Roberts to buy, and developers hope to see a lot more buyers like him.
Roberts was so impressed with prices in Atlanta that he recently bought three condo units at Twelve Centennial Park. The owner of Mark Roberts Christmas Magic, a California-based maker of holiday decorations, Roberts divides his time between California and Atlanta, where his company maintains a showroom at the Merchandise Mart, the city’s trade show venue.
“I can spend more time enjoying life around my home, rather than having to travel out long and far to do things, and get things done,” Roberts said. He doesn’t miss having a yard, and he appreciates the urban feel of the tower, which offers many of the amenities of a hotel, including outdoor pools and a terrace with views of the city.
But convenience isn’t the only reason Roberts bought in downtown Atlanta. His company frequently sends employees to Atlanta for work, and Roberts realized that housing them in two of the condos during their stays in Atlanta would be cheaper than putting them up in the city’s hotels.
The high-rises being developed in downtown Atlanta represent something of a sea-change for development in its metro region. For years construction has been heavily weighted toward single-family homes in the suburbs. Each day new home building in Atlanta’s suburbs claims nearly 50 acres of farmland and forests, a yearly total that is about equal to the size of Manhattan, according to a study by economists at Emory University.
Though downtown Atlanta’s development future points skyward, the high point for condo construction in the city actually came in 2004. That year, more than 16,400 units went up, roughly 22 percent of all new home construction in the region. The next year condos declined to only 15 percent of building permits, or about 11,000 units. But in 2006 the number of condos surged again, to 14,100 units, nearly 21 percent of all new homes. Brokers say about half of these condos have gone up downtown.
One neighborhood that’s being swept along by the building boom is midtown. The biggest development there is Atlantic Station, a multibillion-dollar project that is being directed by Jacoby Development, an Atlanta-based firm, and is going up on 138 acres that were formerly home to a steel mill. When it’s finished in 2009, Atlantic Station will add 6 million square feet of Class A office space, 5,000 condo units, 1,000 hotel rooms and 2 million square feet of retail and entertainment space. Several hundred subsidized housing units are also included in the development.
Many market-watchers agree that the pace of construction has been torrid downtown. They believe that once subprime lending woes ease and conditions for borrowers improve, the trend of population movement back into the city will quicken and unsold condos will start to find buyers.
But every city has its naysayers, including Atlanta. One person who worries is Andy Liakos, a broker with Condo Atlanta. “There are a lot of glass-and-concrete condo towers downtown, and they’re not all occupied,” Liakos said. “I tell clients they’re not a good investment. They’re sort of like new Mercedes: They look good, but once you buy one you can’t re-sell it without losing money.”
The Novare Group’s Bobilin isn’t worried, though. “Atlanta is going through a strong trend of urbanization, and it is ready for high-rise living,” he said.
Besides, who wouldn’t want to live in the residential equivalent of a Mercedes?