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No Places Like Home
Downtown New Haven confronts an improbable apartment shortage
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Business New Haven
08/18/2003
By: Lisa MiCali
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The image of downtown New Haven is morphing into a 24-hour city as millions of dollars is poured into new upscale apartment construction. Downtown buildings, once vacant, are now teeming with renewed life.
With the Residence on the Green almost completely leased and 227 Church Street (the former SNET Art Deco headquarters purchased by Elk Investors of New York) finally up for lease, and several more upscale developments coming along, there’s ample evidence to support the notion.
It’s no surprise to industry insiders: With its manicured central Green at the epicenter of the boom, smart, upscale boutiques at the periphery and bustling restaurants and java joints, downtown New Haven within the span of two years, has undergone significant changes, firmly establishing a self-sustaining life of its own for its newly minted 24/7 residents.
"Ten years ago, New Haven had a horrible image where the reality was better than the image, but [now] the reality and the image seem to be merging," says Michael Schaffer, CEO of Hotel Properties for C.A. White Inc. and the developer behind the firm’s new residential and retail project downtown. "There’s a lot of momentum in the city, and that is exciting."
How most of these new developments will fare is of course uncertain. Like most small markets, a cyclical boom in pricey multi-housing developments can only mean, eventually, a glut of overpriced apartments in a city desperate for moderate-income apartments. But will the fate of the Elm City’s newest downtown pads suffer a similar fate?
"There is a growing demand for apartments downtown that appears to be in line with the supply. So far, it has stayed in balance," says Schaffer. "There’s nothing at this point in time that gives us any indication that the market is over-supplied. It’s still a relatively tight market despite the new supply that has been added over the last two years."
"I think there is room for all the new luxury apartments coming online," adds Judith Normandin, a real estate agent in H. Pearce Co.’s Whitney Avenue office. "They’re being snatched up quickly, despite the prices. There’s definitely a market for them."
The views, say others, are worth every penny. "The skyline from that perspective is absolutely spectacular," coos Bill Demaio of Vacancy Busters. "New Haven is a great town but when you get up above and look down, it’s completely unbelievable. It looks like something out of a storybook. The apartments sell themselves."
So far, the surge in luxury housing shows no signs of abating as investors view downtown multi-family developments as a strong long-term play despite daunting market conditions and continued economic uncertainties.
Combined with an apparently unquenchable appetite for 24/7 urban living, the baby-boom generation is flocking to these modern, designer units located mere steps away from a tantalizing cosmopolitan scene. Fueled by the renewed desire to succumb to their metro cravings, the baby boomers, once homogeneous suburban dwellers, are scooping up high-priced condos along Audubon, Orange and Olive streets, too. The trend, once a bleep on the radar screen, can no longer be ignored. How it will play out though over the coming decade, however, is anyone’s guess.
Piloted by vanguard developers with cannibalistic connections and deep pockets, such as David Nyberg of College Street, LLC, long known for keeping a low profile regarding his projects, most city developers envisioned potential when confronted with a vacant, prime piece of real estate adjacent to the city’s central Green.
Nyberg and his partners came to view downtown not only as a potentially vibrant place to live, work and play but positioned their efforts flawlessly to garner support from city officials and Yale. College Street aimed with precision-like vision to develop the downtown housing economy by absorbing quality, idle space, renovating it into upscale, luxury units and aggressively marketing the new developments as a premier location to the real estate and general community, as the chic living spot for area residents and the newly relocated highly skilled, affluent workforce fresh to the proliferation of New Haven’s high-tech jobs. And it worked.
All of the downtown buildings being adapted for reuse were previously either un- or under-utilized. As a result, downtown’s housing stock is flamboyantly expanding, while historically significant buildings, like the Strouse, Adler Co. ("Smoothie") building across the train tracks on Olive Street, are being returned to productive, and profitable, service. Remarkably, the market has absorbed all of the offerings thus far. And this, above all, bodes well for the area as a whole.
"There’s certainly a lot of beautiful places to live in the downtown area," explains Demaio, a rental professional with Vacancy Busters, a staple in the local rental market for 15 years. "The landlords are sprucing up their complexes and making them look nice. It’s great to see them taking such an interest in their properties. It’s definitely helping the entire downtown area."
Neighborhoods not long ago derelict and/or ignored are thriving, vibrant venues for visitors and residents alike. Like the Temple Street district, buzzing with trendy eateries and pubs, its revitalization nearly complete with the anticipated re-opening of the Chapel Square Mall expected in the near future.
Or the Orange Street area, the heart of New Haven’s hip and rising Ninth Square, led by serial, powerhouse restaurateurs, Hasni (Jeff) Ghazali, a native of Malaysia, and his partner Bill Christiansen. Lower Chapel Street, too, is poised for a comeback as a new development by local commercial real estate firm, C.A. White Inc., takes shape in the corner buildings on Chapel and Church streets, expected to spearhead further revitalization efforts on that part of the block. With the financial hub of downtown stretching ribbon-like, from George Street to Whitney Avenue, the newly renovated 227 Church Street, currently leasing, ties the downtown package all together.
C.A. White’s project (groundbreaking is scheduled for the middle of this month) will transform the former Lerner/Strawberries building at the corner of Chapel and Church streets into a contiguous building. It will be undergoing a complete renovation that will provide 1,700 square feet of street level retail with 83 high-end apartments projected to open by the end of next summer. The merger of these two buildings will contain state-of-the-art apartments, designer kitchens and appliances with hardwood floors and fixtures. Michael Schaffer believes that they’ll enjoy a similar measure of success that others have had renting their units.
"The demand for this type of high-end rentals stems from a variety of sources," explains Schaffer. "It’s from the normal growth of the requirements of downtown, but we also appear to be attracting new tenants that historically would locate to suburban communities. Plus, we also seem to be attracting tenants from Hartford and Stamford who find the city very attractive in terms of quality of life."
Explains Schaffer: "More and more downtown residents drive upwards of an hour to go to work. As a result, the high-end supply has been absorbed readily. It’s great for the city because as the residential population grows downtown, the need for services will also increase as well. That will start to spawn new retail. Clearly, the more people you have downtown, the more retail you need, and the more people you attract. It seems to be steamrolling a downtown lifestyle."
Property manager and real estate broker Jan Demaio of College Street, LLC, who manages and leases for both the Strouse Adler "Smoothie" building and the Residences on the Green at 900 Chapel Street (rents start at $1,195 for a one-bedroom to $2,245 for a two-bedroom) says rental activity at the two buildings has been brisk since the company began taking applications.
"We took the first rental for the Residencies on the Green before the sheet rock was even up. But the real push came in this April," says Demaio. "We only have two apartments left since renting began in January and one recently became available in the Smoothie building."
The former SNET headquarters at 227 Church Street is now leasing, too. It’s one of the priciest developments to hit the Elm City market yet — perhaps even a bit too aggressively priced.
"It’s true, the views from the upper floors are incredible," says Bill Demaio of Vacancy Busters, "but it’s pricey. Rents start at $1,300 for a studio and go up to $2,500 for a two-bedroom."
Demographics point the way to an escalating demand for downtown living over the next decade as aging baby-boomers, the 30-something Generation X and newly arrived relocated knowledge workers populate the urban residences. "Echo-boomers," too (the so-called Generation Y, born in the 1980s), are also now moving into their first apartments and prefer to live close to entertainment destinations like restaurants and nightclubs. This trend is confirmed by a recent study by the National Multi-Housing Council, the industry’s leading advocacy group based in Washington, D.C. According to the group’s latest report, the number of apartment renters is growing and apartment living is becoming more popular with those who could actually afford to buy a home.
According to the NMHC, 15 percent of American households rent an apartment in a building with five or more units. In 1999 (the latest available statistics), the number of people who rent apartments in buildings with five or more units was up 2.2 percent, while the total number of households grew just 1.4 percent.
Not only is the absolute number of apartment renters increasing, but the profile of renters is likewise changing. They’re becoming older, they’re more affluent and more educated than their house-owning peers.
The NMHC notes that for the over two years, the fastest-growing segment of apartment renters is households earning $50,000 or more. These households are part of a growing number who now choose to rent an apartment for lifestyle and not economic reasons.
What is startling is that nearly 40 percent of current renters surveyed by Fannie Mae in 1999 said that buying a home was either not an important priority or not a priority at all. NMHC’s analysis shows that apartment demand could swell by as much as ten percent over the next several years due to the 1997 Tax Act, which profoundly changed the rent-versus-buy decision by making the first $500,000 of capital gains on homes sold by joint filers exempt from tax ($250,000 for single filers). Freed from the prospect of a huge tax liability, more homeowners are free to consider renting as a lifestyle option.
Why the sudden interest in apartment living, especially in urban areas?
"Changing demographics, evolving lifestyles and changes in the apartment industry are working together to increase apartment demand," says H. Pearce’s Normandin. "There is definitely a demand for condos and apartments downtown.
People want to take advantage of walking or biking to work. Many of the people coming in to the city are associated with Yale and take advantage of living nearby."
"People want to come back into the city. They’re tired of traffic. They’re looking for a carefree style of living where you park your car and you walk. [Their numbers include] empty-nesters and grad students. Some are taking into multiple units and turning them into larger units. We had one two-bedroom unit that was merged with a one-bed unit to make a two-bedroom unit with multiple baths," adds Demaio, of College Street LLC.The market in New Haven this year has been active, but not as active as the previous year, according to rental agents. Late spring and summer is the busiest time, and local rental agents say it has slowed since last year’s hot market.
"It might have to do with interest rates," explains Demaio of Vacancy Busters. "The buying market is always hot here because of demand and short supply."
Rents, too, have decelerated after an incredible rise last year, adds Demaio. With slower job growth, concessions are being granted in more affordable rentals. It’s a direct effect of a slower market affecting many of the rental markets across the country.
Jan Demaio of College Street, LLC, a Realtor in New Haven area for 18 years, says the New Haven apartment market operates like a pendulum.
"I’ve seen it swing both ways," Demaio says. "I’ve seen good times for renters and good times for landlords. That’s basically the cycle. The winner in the long run is going to be the one who can provide the best service for their tenants. If you have unhappy tenants, they’re going to go elsewhere. You not only have to worry about getting them [renter] in the door of the apartments, but provide excellent service from that point on to keep them happy. If you don’t do that, you’re not going to be a winner in this apartment game in a few years."
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