ULI "Real Estate Roulette" on Oct. 13th

[Steve]

I agree Betts. I think the real problem is that our natural progression of downtown residential development was halted by the economy, and now by more restrictive lending policies.

[bdhumphreys]

I recently bought a brownstone for just over $200 a square foot. The kitchen and every bathroom have granite, I have far more wood floors than in my last house and nothing came from home depot. My walls are solid concrete, my roof is slate and my gutters are copper. I'm pretty satisfied, considering what I had in my other houses for what money. And, considering what I had to spend for my other houses, I'm not sure the builders downtown are raking in "absurd" profits compared to builders elsewhere. I'm pretty sure I read the Maywood Lofts cost $14 million to build. I'm trying to figure out how the builders are going to break even at that cost, much less make an absurd profit.

In every city I've lived in, it was more expensive to live downtown than in the suburbs. The only reason prices downtown here aren't even higher (and closer to what they are in other cities) is because there's less demand and more land. But, building costs are building costs, and if you get a bargain, you've either bought an old house, a house someone is desperate to sell, or one built with cheaper materials: cheaper quality wood, less insulation, cheaper roofing and gutters, builders grade tile and appliances, etc. Again, you get what you pay for, and if you need to pay less, you usually get less. If you want to pay more, you can get more.

You are right! I the construction cost are still the construction cost and the finishes found downtown are expensive. The land underneath the downtown projects is also more expensive. Plus the projects often have more expensive construction methods (i.e. steel over wood framing), more expensive regulatory processes, and additional amenities such as elevators. Thus it makes sense that downtown projects cost more and the downtown developers (sans Randy Hogan) are lucky so far to squeeze out a profit.

That said, hopefully Midtownr's point on the fact that suburban housing remains an affordable substitute to downtown is well taken. "Posh" was overstated in a comparative sense because the finishes on most downtown projects are truly first class. Still, he didn't mention some of the things that bring the most value to Putnam City or your old home in Deer Creek - schools!

At the end of the day, we know the economics for downtown rental apartments (vis-a-vis the tremendous success of Deep Deuce) work. What has not been proven is that the cost/benefit of a downtown luxury units outweigh the cost/benefit of alternatives in the historic center and burbs for a large demographic of home-buyers. Currently, there are certainly pioneering types, who receive a greater personal benefit and thus have made the decision to move downtown, and are rewarded with lower commute times and transportation cost, being apart of a burgeoning urban community, and walkable access to great entertainment and events. I think two years ago, many believed that another primary benefit was that downtown offered "a good investment" and it likely still does if you have staying power and a long-term view, but any short term gains are no longer likely. So buyers who were pushed over the edge to buy because of this investment benefit are no longer around.

George, you put on a hell of a program. The panelists were great.

Having my post read to kick things off was a heck of a surprise.

I think there was a consensus which I could easily agree with -- building a critical mass of people in downtown is going to require a more diverse bouquet of options than is currently available and maybe the new financing rules which will pretty much kill condo projects for the foreseeable future will help that come to pass.

Two things. Yes - thank you George. It was a great event to be apart of, had a first class group of attendees, and I feel lucky have had the opportunity.

"diverse bouquet of options" is dead-on and believe that is the appropriate direction...but Betts does point out why this is more difficult in OKC...

One of the things that was not discussed, and which I think might be worth discussing, was an offshoot of the pyramid concept of development. Obviously, the meeting started with a discussion of the fact that there is not lower per square foot priced housing available downtown. Although I understand the concept that if you start off with less expensive housing downtown, you get the young, active people who create a vibrant environment that then older, wealthier people want to emulate, so you eventually get them buying the space and improving it. I think the concept works better in older cities. In New York, you originally had high end housing (brownstones) which, over time, gradually became less and less desirable as people moved away from the city center. When prices reached rock bottom and then some, you had a return of the vibrant community that again made the area a popular place to live and homes were improved. However, those homes were very well built to begin with, and their quality of construction has stood the test of time.

I fear that if you start with very inexpensive housing initially, the quality of construction will be such that it will actually decay rather rapidly, and you risk it becoming VERY low income housing over time. I've seen that happen with some of the new condos in places like Florida that attracted young buyers because of the low price points. That seems to make the concept of higher end housing eventually replacing lower end housing moot, but I'd be interested in hearing other opinions.

Betts - I think this is a very valid point and wish you or someone else would have challenged me (or others) on this at the event. Oklahoma City simply does not have the high-quality historic apartments and brownstones that lie waiting for rehabilitation in other cities. So I see now that the problem of creating sustained quality downtown is more complex than simply flooding it with cheap apartments for young people.

At the same time, I remain convinced that it was mistake to focus exclusively on high-end condos. Developers will tell you that the economy is to blame (and there is no doubt that has made it more difficult) but the truth is that many red flags had already gone up on a number of projects that had units slow to move.

At the end of the day, from a city standpoint, we should be focused on two things - how to encourage residential density and ensuring an urban street environment that can mature over time. With Deep Deuce they got some density and when combined with residual historic fabric have provided opportunities for intermittent urban street environment. Maywood Brownstones offers a excellent urban street environment and (when filled) will have solid density. Block 42 offers a urban feel, just okay density, and a urban street amenity in the form of the park. The Hill...

Ultimately the market should decide the unit mix. It would be just as flawed to require all cheap, rental units in the hopes of attracting young creative types, while restricting luxury units developers think will sell. I am not as worried about the ghettoization of affordable units in the future. I think we can avoid this issue simply by insisting on having a mix of developers, unit types, and price range within a given area.

[betts]

Ultimately the market should decide the unit mix. It would be just as flawed to require all cheap, rental units in the hopes of attracting young creative types, while restricting luxury units developers think will sell. I am not as worried about the ghettoization of affordable units in the future. I think we can avoid this issue simply by insisting on having a mix of developers, unit types, and price range within a given area.

This is the perfect solution, I think. This is actually what one of our more successful developers, G.A. Nichols, did a long time ago. He zoned so that his then suburban development contained a mix of sizes of homes from cottages to mansions. It remains one of the most expensive developments per square foot in the city, I believe, but because there are houses barely over a thousand square feet, all the way up to 8,000 to 25,000 square feet mansions, it is affordable to a wide range of age groups, and attractive to all. It has retail and parks, and only suffers from a complete lack of sidewalks.

I would love to see an urbanized version of Nichols Hills downtown, with housing ranging from lofts to brownstones to highrises, and prices in all ranges. Then, as you said, you don't have to worry about the entire area decreasing in desirability and value as new housing ages, and it's the attractiveness of the neighborhood that encourages people to buy and renovate rather than the housing itself.