Calling All Developers
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Several years ago, we sent out an e-mail to the development community that discussed the need for new inventory, especially in the city. We are sending one out again as the market is now in desperate need of new homes.
In the years following the crash, development became exclusively apartments ‘For Rent’ with literally no new development of ‘For Sale’ properties. Shockoe, Manchester, Monroe Ward, Jackson Ward, and now Scotts Addition, have seen the development of thousands of apartments in the past 10 years to help house the new residents moving into the urban center.
Developing ‘For Rent’ was understandable, considering the fact that most residential properties had lost anywhere from 20-40% of their value from 2008 through 2011 and we had an overhang of inventory that would seemingly take years to absorb. Developers were skeptical and banks were tentative to invest capital into anything other than apartments.
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The Overhang Was Not Urban
But in reality, the majority of the inventory overhang was in the suburban and rural marketplaces, not the urban ones, and by 2012, we could already see city inventory levels dropping quickly as buyer demand began to return to normal levels. It was becoming increasingly evident to us that without a substantial influx of new inventory, we were headed for an issue.
That said, I don’t think any of us would have anticipated the severity of the issue that we now face. The prevailing thought was that as prices increased, more homes would come to market, interest rates would likely rise, and the demand would somewhat abate. As is evident by the current condition of the market, that did not happen.
What has instead happened is that rates have remained low, encouraging demand, and despite a return of homeowner equity, the normal number of resale homes has not returned anywhere near the early 2000 levels. As the City continues to reinvent itself, residents are staying put longer, further dampening what is an already limited supply.
Current Market Conditions
For each of the last three consecutive springs, the market has begun earlier, peaked higher and prices have increased dramatically. Savvy buyers understand that due to an extremely constrained supply, if they do not get started early, they will miss opportunities and/or end up paying more as the comparable sales drive pricing upward.
Take a look at the charts below for the City of Richmond:
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Available Inventory
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Months of Supply
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Days on Market
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Pending Contracts
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Price per Foot
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Absorption Rate
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As you can see, the active listing count has fallen by at least 50%, if not more like 75-80% in some sub markets — and especially at the lower to mid level price points. Days on Market and Months of Supply reinforce the undersupply narrative while Price Per Foot, Pending Contracts, and Absorption Rate back the increasing demand narrative.
This wholly out-of-balance market not only presents an obvious problem for the buying marketplace, but an unprecedented opportunity for the development community.
The Core Problem
We have written two articles recently (see below) about the current pricing acceleration and its root cause.
In summary, the market is experiencing three trends:
- the normal supply of resale properties has slowed to a trickle
- the apartment based population is finally entering the buying market
- the empty-nesting population is returning to the city in increasingly larger numbers
This confluence of factors has created a never-before seen demand for urban housing options that simply do not exist in large enough quantities to balance the market.
City of Richmond Population Growth
And as in most urban environments, the ability to add housing stock en masse is largely non-existent. As long as the population continues to increase and demand housing, the lack of inventory problem will likely become worse before it gets any better.
Recent Posts on the Inventory Issues
At One South, we try to keep our clients updated on market conditions. We write regularly on the most pressing issues in our marketplace across our networks of blogs. Obviously, the most pressing issue currently is the acute lack of inventory.
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The B Word — Bubble
The ‘Bubble’ article compares the recent price increases to the last time the market accelerated this quickly in the period just before the crash of 2008. It examines supply, credit, equity, and a host of other factors that contrast current conditions with the 2007/8 conditions.
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What is Going on with Inventory?
The Inventory article is more of an opinion piece about the reasons behind the sharp increase in City of Richmond population and the impact it is having on our For Sale housing market.
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Recently Completed Development Projects
[ Additional projects represented by One South, or by founding members, can be found here ]
When we opened One South in early 2008, we did so largely to act as a mouthpiece for the developers in the rapidly re-emerging city marketplace. At the time, few brokerages understood the unique challenges to urban infill and adaptive re-use development. We actively sought to fill that void and built our brokerage to better serve the developers and contractors who were rebuilding the City from the inside out.
To give you a sense of the success that urban infill projects have experienced, we thought it would be prudent to offer a brief narrative of our most recent sales efforts. We will also discuss what is currently being marketed and where each project stands.
Similarly, we have made pricing statistics available for each project to help give you a sense of pricing and absorption. Pay particular attention to the year the projects were marketed as each spring has seen a substantial price increase. A project priced $260/SF in 2014 would obviously be priced higher in the current market.
Citizen 6
Citizen 6 pre-sales began in the spring of 2014 and were closed in the spring of 2015. 3 of the 6 units were sold pre-construction and 3 were sold soon once the developer was able to increase the rear yard size by acquiring some land from an adjacent parcel.
The importance of C6 cannot be understated as it demonstrated a demand for new infill at pricing approximately 20% above the market.
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Developer | Bill Chapman Enterprises
Architect | Burt Pinnock/Baskervill
[ Click for Sales Statistics ]
Huntts Row
Huntt’s Row is a collection of 8 infill luxury town homes located on the former Boys and Girls Club site at the corner of Kensington and Robinson in the western Fan District. 2 off street parking spaces were included with each sale. As this post is written, the last developer-owned unit is under contract. We have also handled the first resale, which further solidifies project pricing.
Huntt’s Row demonstrated some of the highest per foot pricing in the Fan District at the time of its completion.
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Developer and Contractor | Nolde Company
Architect | 510 Architects
[ Click for Sales Statistics ]
Tribeca
A joint venture between local architect Dave Johannas and One South’s Tom Rosman, Tribeca was a multi-phased project built on land acquired from the RRHA along the southern border with VCU. The last phase was closed out in the spring of 2016. Furthermore, the 9 units in the final phase were absorbed rapidly, taking merely 75 days to sell the majority of the phase.
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Developer and Contractor | Pyramid Properties / KBS
Architect | Johannas Design
[ Click for Sales Statistics ]
Currently Being Marketed
The following projects are currently being marketed by One South Realty.
We have projects in multiple neighborhoods, in a variety of sizes and features, and in a diverse set of architectural styles.
Carillon Place — 5 infill homes in the Byrd Park/Carillon neighborhood.
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Prices begin in the $800’s.
4/5 sold at the time of this post (updated 2/10/2019.)
A2 — a modern, affordable, infill town home development in the alleyway across from the GRTC Bus Depot development.
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Prices begin at $400k.
5/6 sold pre-construction at the time of this post (updated 2/10/2019.)
7 West — a luxury townhome development at the base of the Manchester Bridge along 7th Street in Manchester.
10/12 sold at the time of this post (updated 2/10/2019.)
Jefferson Green — a 3 unit contemporary and green project in Church Hill with commanding views of the Downtown skyline.
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Prices begin in the $600’s
2/3 sold during construction at the time of this post (updated 2/10/2019.)
Overlook — the final phase of the Overlook townhome development in Oregon Hill.
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Phase I was priced in the low $400’s and 5/5 sold in Phase I during construction at the time of this post.
Phase II is priced just under $600k with 3/5 sold pre-construction at the time of this post (updated 2/10/2019.)
Sugar Bottom — a 4 unit infill development on the east side of Church Hill.
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Prices begin in the $400’s.
3/3 completed units have sold at the time of this post (updated 2/10/2019.)
The Need
The chart below shows the number of listings available by price band.
As you can see, the lower price points have seen the most dramatic decrease in options. And anecdotally, any agent will tell you that the listings most likely to create multiple offers (we have been involved in instances where nearly 20 offers were received) are the price points below $500k in the Museum District, Fan District, Byrd Park/Carillon, and Ginter Park/Bellevue. That said, any quality home is likely to create either a full price offer in less than a week, or a multiple offer/bidding war scenario, even at higher price points.
If you own (or feel you can secure) a site that might be well suited for an infill development, we would love to discuss it with you. Furthermore, if you own an apartment complex and would like to consider conversion to condominiums, we would also love to chat. Our experience in bringing multiple infill and condominium projects to the market is unsurpassed in Richmond.
We can:
- Help you determine if the zoning required currently exists or can be obtained easily (and we can help with the entitlement process as well.)
- Model pricing and absorption to determine feasibility.
- Pair you with a developer, contractor and/or architect if you prefer to not be directly involved in the development process.
- Walk you through the complex steps to convert from apartment to condominium.
- Find you a development partner to allow you to capture more upside and/or minimize tax impact via a Joint Venture or other partnership formats.
We actively have contractors/developers seeking opportunities.
Please reach out to us with possible project sites or concepts.
Thank You,
Rick Jarvis, Founder and Lead Project Sales | 804 305 7722 | rick.jarvis@onesouthrealty.com
Tom Rosman, Partner and Director of Commercial Sales | 804 539 3017 | tom.rosman@onesouthrealty.com
Lory Markham, One South Commercial Agent/Formerly Principal Planner at the City of Richmond | 804 248 2561 | lory.markham@onesouthrealty.com