For most of the decade prior to the housing- and mortgage-market meltdowns in 2008, condominiums were prime movers in downtown Knoxville’s remarkable residential surge. With the crash, however, financing for condo developers and buyers (which are intertwined) virtually dried up, and hardly any additional units have been built since then.
Not that the constraints on condos have put much of a crimp into downtown’s ongoing residential growth, mind you. Resourceful developers with good track records have found financing for apartments more readily available, and the demand for them has seemed almost insatiable. David Dewhirst, to name just one, reckons he’s converted more than four times as many buildings and dwelling units into apartments over the past seven years than the 57 units he renovated as condos in preceding years. And Buzz Goss is well on his way to completing construction of by far the largest new apartment complex that downtown has ever seen, the 255-unit Marble Alley off State Street.
Yet the penchant of many would-be downtown dwellers to own rather than rent hasn’t gone away. And with the gradual easing of lending constraints and strengthening of borrower confidence as the economy has recovered, the market for more condos is showing signs of a resurgence. Consider:
• Developer Jeffrey Nash is well along with the renovation of a former warehouse on Central near Magnolia into 10 condos. Presales of the mostly two-bedroom units are due to begin within a month for occupancy next spring. The English native has given a distinctive London touch to the development, as he’s done with most of his others, including the Crown & Goose gastropub. Its name, “The Mews,” connotes carriage houses fronting on an alley, and the greenspace onto which the condos will open has been named Mews Way.
• Tim Hill, of Hatcher-Hill Properties, has razed on Vine Avenue atop Summit Hill for the construction of 10 condos, several of which will be priced “north of $650,000 and $850,000” and feature two-car garages. While the project is still in the design phase and there are no presales as yet, Hill insists his financing is firm and that he is proceeding toward a spring 2016 completion date.
• Both on its website and via the maven of downtown residential Realtors, Kimberly Dixon Hamilton, the somewhat mysterious development firm of Henry & Wallace has been promoting presales of 12 condos on the upper floors of the Century Building in Gay Street’s 300 block. “The Century Building’s conversion to twelve beautiful residences will preserve the building’s 19th Century charm,” the website states. But to judge by the absence of any windows on the north and south exterior walls of the building, that conversion hasn’t proceeded very far. And a Henry & Wallace spokesperson has “no comment” on the status of the project.
• Looming on the horizon is a much larger development on the block of North Gay street that was long graced by Regas Restaurant. Realtor/developer Joe Petre is the general manager of a partnership that’s shaping plans for the block that’s now known as Regas Square. He foresees up to 100 condos going into a new six-story building, plus ground-floor retail on which Petre says he and his partners hope to start construction by late summer. (The building that housed the landmark restaurant has been sold separately to the Knoxville Leadership Foundation as a haven for not-for-profits.) Petre’s credentials include successful development of just about the only downtown condos undertaken since the 2008 crash: namely, the 19 units in the Southeastern Glass Building at the corner of Jackson and Broadway.
The resurgence of the condo may well reflect pent-up demand that’s been awaiting relaxation of the severe constraints on credit imposed by the 2008 debacle of foreclosures and defaults on mortgage-backed securities. (The Knoxville market wasn’t nearly as hard hit as many others, but mortgage lending giants Fannie Mae and Freddie Mac didn’t spare us from their clampdown, and local lenders pulled in their horns as well.)
Now, according to Nash and Hill, financing is becoming more readily and expansively available to qualified buyers. “Where there used to be a 15 percent deposit requirement, it’s down to 5 percent,” Nash reports. Meanwhile, Hill cautions that “We still have a way to go to get back to where we were before the crash, I think that as long as interest rates stay low we will see a steady increase in demand.”
Millennials and empty-nesters are the two prime breeds of prospective downtown condo buyers. “The empty-nesters moving in from the suburbs for the attractions of an urban lifestyle are the component we didn’t see coming,” Hill says.
When it comes to renting versus buying, Nash contends there are compelling reasons to buy right now for anyone who plans to stay put for any length of time. He insists that, for a residence of any given size and amenities, the monthly payments on a 95 percent mortgage at 5 percent interest are lower than the monthly rent on a comparable apartment. His comparison takes property taxes and homeowner-association fees on a condo into account as well.
Another incentive to buy is, of course, the potential for gain on the investment, albeit coupled with a risk of loss. Dixon Hamilton advises that, of the 26 downtown condo resales she brokered last year, “the overwhelming majority of the sellers experienced double-digit appreciation from their original purchase price.”
So even through the worst housing-market debacle in nearly a century, most downtown condo owners have fared well.
Joe Sullivan is the former owner and publisher of Metro Pulse (1992-2003) as well as a longtime columnist covering local politics, education, development, business, and tennis. His new column, Perspectives, covers much of the same terrain.
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