Arbor Update

Ann Arbor Area Community News

If We Build it, Will They Come?

3. April 2006 • Juliew
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In all the flurry of potential residential building downtown, one question lingers: what is the actual market for downtown condos? With 530 or so condos and several hundred apartments proposed for downtown in the next two years and the Klines’ lot RFP still to be released, the DDA realized they needed a better idea of the actual supply and demand for condos downtown. The results of the study they commissioned can be found in the following memo: 2006_klines_phasing.pdf.

The moderate-growth scenario “indicates that in the next five years demand is unlikely to catch up with supply.” The high-growth scenario is more optimistic, with all currently proposed units being “absorbed by 2008.” This, however, assumes that no other units will become available in the intervening years. One result of the study is that the Klines’ lot RFP will not be released until next year.

More information is in this article from the Ann Arbor Business Review.

  1. Great question. Glad the DDA is keeping track of these things. Personally I wouldn’t want to see a lot more projects approved than have been so far…

       —Young Urban Amateur    Apr. 3 '06 - 09:33AM    #
  2. Imagine doing a study before actually taking action. It’s a wonderful thing!

    I’m curious if anyone knows whether all the Ashley Mews units are occupied. Whenever I go past there I’m unable to figure out which ones are lived in and which ones are vacant.

       —Young OWSider    Apr. 3 '06 - 04:01PM    #
  3. YOWS: I’m told they’ve all sold. That’s different from being lived in, though – apparently several of them are investment / football Saturday vacation homes.

    Which is, of course, exactly the kind of residents we need for a vibrant, well lived-in downtown.

       —TPM    Apr. 3 '06 - 05:11PM    #
  4. TPM—
    Thanks for that info. By the looks of the strip on Main Street, it seems pretty dead. There aren’t any personal touches at all to indicate that, yes, people live here.

    But if a good portion is vacation rentals and just there for football Saturdays, then I guess that explains why it might look like that.

    How depressing. I’m so checked out of football here, that it never even crossed my mind that they’d be rented out for game weekends.

       —Young OWSider    Apr. 3 '06 - 05:38PM    #
  5. Yup, all the Ashley Mews condos (not sure about the penthouses) finally sold at least once as of last year (three years after they were first available). Several of them have sold more than once now though and there are always at least a few for sale. When I last checked, about half of them were in theory “owner-occupied” (meaning the owner address matched the condo address), but in the now four years since they opened, I’ve only seen three people walk out of one of the doors. Part of that is because all the regular units have underground parking accessible through their basements so they drive out, rather than walk. It definitely has not contributed much to the vibrancy of downtown. If anything, it makes that area feel less vibrant because there is so little activity there. And yes, many of the high-end condos around town are used almost exclusively for football games.

       —Juliew    Apr. 3 '06 - 06:24PM    #
  6. Thanks for posting this, Julie! I wasn’t aware of the footbal-game specialty market. Go Blue!

       —David Cahill    Apr. 3 '06 - 06:34PM    #
  7. Juliew – what was there before Ashley Mews? I’m curious about the baseline behind, “If anything, it makes that area feel less vibrant”.

       —TPM    Apr. 3 '06 - 06:54PM    #
  8. I’ve been trying to remember what was there before Ashley Mews. I don’t think there was much there on the Main Street side. There were houses on the Ashley side that had people living in them. When you have buildings that look like residences (and I think the brownstones do), and there are no lights, no activity, no little personal knickknacks, no cats in the windows, it makes it look desolate, as if no one wants to live there even though they could. Just like empty shop windows, I think empty houses suck a bit of life out of an area.

       —Juliew    Apr. 3 '06 - 07:20PM    #
  9. Juliew—
    Because of the lack of life at Ashley Mews I just figured they were empty—especially the brownstones on Main Street. I don’t think I’ve ever gone by and seen the curtains open or anyone sitting on the stoop . . .

    I used to live over there, and for the life of me cannot remember what used to be where Ashley Mews now sits.

       —Young OWSider    Apr. 3 '06 - 07:25PM    #
  10. Re: what used to be in the Ashley Mews space.

    My recollection was that facing Main Street, there was an old, large, three-story house in a state of marked decay, which became unoccupied not long after ‘96, with adjoining open grassy lot.

       —HD    Apr. 3 '06 - 08:13PM    #
  11. Ashley Mews was constructed at the site of property acquired by the city for a Packard-Beakes bypass. In the early 90s, the council signed a development agreement with Estelle Schneider to develop two condos there. Additional land was freed up by moving two large Victorians (at least one of them is now a medical office on Huron Parkway south of Washtenaw). The development failed after excavating two large holes. The city erected a chain-link fence and the holes and associated weeds were the only amenities there until the Ashley Mews development was initiated.

       —Vivienne Armentrout    Apr. 3 '06 - 08:28PM    #
  12. Vivienne, was this the site of the somewhat infamous “Downtown Hole in the Ground”? I thought that happened earlier than the 90s?

       —Juliew    Apr. 3 '06 - 09:06PM    #
  13. Yes, that was the infamous hole. It might have been as early as 1987 but not much earlier. I found a Detroit Free Press article that said “the late 80s”. The first development agreement for Ashley Mews was passed by council in 1999, so it sat vacant for a decade.

       —Vivienne Armentrout    Apr. 3 '06 - 09:35PM    #
  14. I read the study Julie provided a link to. It uses what is called a “moderate growth scenario”. But one of the graphs shows more than a 50% drop in condo sales over the past four years.

    Considering this fact, wouldn’t a “low growth scenario” make more sense? Under such a scenario, when would the Kline’s Lot project come on line?

       —David Cahill    Apr. 4 '06 - 04:45AM    #
  15. David,

    The graph is based on MLS data. At the beginning of the report they point out that they did not use MLS data specifically because that data does not include pre-construction sales. The researchers found that a large portion of condo sales were pre-construction.

    I made the same mistake and had a post written about how the cost was rising while the sales were dropping. I was going to use this evidence to support a request for more inexpensive condos. I scrapped that post after reading the report again.

    It is a bit confusing that the report refutes the data, but still includes it.

    I would be interested to know which cityies were used for the case studies and what aspects of those cities were considered in their analysis.

       —Scott TenBrink    Apr. 4 '06 - 07:05AM    #
  16. Wow, it never even occurred to me that someone would rent out a condo just for a U of M football game…that is behavior so bizarre it’s completely ouside my worldview.

    If that’s the case, is there any hope? If visitors don’t want to use Ann Arbor as anything more than a crash pad before the football game…doesn’t that suggest there are some larger problems that need to be addressed?

       —Young Urban Amateur    Apr. 4 '06 - 05:47PM    #
  17. what was there before Ashley Mews?

    A big hole from a failed development in the ‘80s, is the earliest thing I can recall. It was filled from dirt dug up by enlarging (deepening) the UM stadium. The site was a vacant lot that attracted some unsavory types… I recall seeing a school bus there that was used as a mobil home, complete with an ‘outhouse’ that was just a big bucket on the dirt. :-p The bus was repeatedly kicked off the property for trespassing.

    I like cutting through AM when I’m in the area because I like the space. I often see cats there, and like some of the plants in pots that people put out on their stoop. I agree it is pretty quiet though. It seems like the AM residents need to organize block parties or something to get to know each other. It just goes to prove that you can create an urban environment, but you can’t make the people urbanites.

       —KGS    Apr. 4 '06 - 06:59PM    #
  18. “Wow, it never even occurred to me that someone would rent out a condo just for a U of M football game…that is behavior so bizarre it’s completely ouside my worldview.”

    Hm. I don’t follow sports, so apologies if I’m confused. But aren’t there only 6 or 7 game weekends here a year? Surely noone’s making back the cost of one of those condos just on renting it out for those few weekends?

       —Bruce Fields    Apr. 4 '06 - 07:08PM    #
  19. No, the condos mostly aren’t for renting out, they are for the owners to come to Ann Arbor, have some high-end parties and tailgates with their friends, and then go to the game. It is worth it to them to spend $300,000-600,000 to have a guaranteed nice place to stay (just try finding a hotel room in Ann Arbor for a game day coming up in the next two or three years, they sell out that early). Many of these condos are ostensibly used for corporate football deals so they can be written off as business expenses. Football in Ann Arbor is an enormous business. We tried once to count up how much money might flow through Ann Arbor on a given football day, but got lost in the zeros. To give you an idea: the UM golf course holds 5,000 cars. Last year the going rate was $40/car for that lot. That is $200,000 profit per game multiplied by 6-7 games/year, for one parking lot. I’ve always been surprised that the University doesn’t build high-end condos on the Keech lot. They would sell for millions.

       —Juliew    Apr. 4 '06 - 07:39PM    #
  20. “Surely noone’s making back the cost of one of those condos just on renting it out for those few weekends?”

    No, but if you’ve got the money to buy something like that outright, might as well stick it in some real estate you use a few times a year. This happens a lot in NYC. It’s infuriating, actually. I live near Central Park West which is almost entirely residential all the way up, but judging by the number of people I see coming in and out of buildings on that street (where apartments start in the millions), I wouldn’t be surprised to learn only about half the apartments are occupied at any time. A lot of people who come to NYC frequently (say, once a month for a few days) will buy a place rather than pay for a hotel. Real estate prices rarely plummet, and have been skyrocketing, so it’s a much better deal than paying for a hotel, if you already have the money… And if you need the money at some point, sell the property and you’re unlikely to lose anything…

       —Scott T.    Apr. 4 '06 - 07:43PM    #
  21. Well, selling condos like this does admittedly bring in money for the city…kind of gross, but it’s a fact. (“We’ll get our property taxes yet, you rascally University!”) Still, the idea of Ann Arbor as nothing more than a cluster of hotels and restaurants to support out-of-town football crowds is pretty sad. I certainly hope there is some way to discourage this!

       —Young Urban Amateur    Apr. 4 '06 - 07:49PM    #
  22. —I should have said “The idea of downtown Ann Arbor”...

    And OTOH this is a college town with a big football program, so I’m sure that will always influence things. Just a fact.

       —Young Urban Amateur    Apr. 4 '06 - 07:52PM    #
  23. Resort communities in Northen Michigan deal with this all the time. I don’t see how it is infuriating in it of itself.

       —jcp2    Apr. 4 '06 - 07:59PM    #
  24. “I certainly hope there is some way to discourage this!”

    Why? IF the demand exists for these units beyond Football Saturday occupants, the developers are going to build addt. units to accomodate that demand. If not, well, the City’s getting something (tax revenue) for next to nothing (occupancy 6 – 7 times a year).

       —John Q.    Apr. 4 '06 - 08:50PM    #
  25. It’s infuriating to me in NYC (Ann Arbor it’s more just amusing) only because combined with the rich kids who don’t have to work, their demand just drives up the already stratospheric housing costs for people who are actually useful. When you’re paying a godawful sum to live in a decaying tenament, it’s frustrating to walk past block-after-block of half-empty luxury apartment buildings on your way to work. That’s all I’m sayin’...

       —Scott T.    Apr. 5 '06 - 12:45AM    #
  26. I’m not saying it’s infuriating, but it is kind of a drag. I have to put up with a dead city block in the heart of downtown just so somebody can watch a football game. I guess it would be less troubling if there were other developments on the same scale that I knew were contributing to the city in other ways—like housing a young family, for example, or housing anyone who shopped regularly at local businesses. As for resort communities up north, well, alright, fine, but I guess I like to think of Ann Arbor as something more of a tourist attraction. Hope that doesn’t make me a snob or something!

    And like I say, I agree that there’s something to be said for tax revenue. Again, it’s a matter of balance—I’d just prefer some kind of assurance that this sort of thing is the exception to the rule, or that it’s making the city more liveable, or that other developments will contribute something more meaningful to the city than money, or that we’re not about to turn downtown into a cluster of low-vacancy hotels. Nice hotels, admittedly, but hotels nonetheless.

       —Young Urban Amateur    Apr. 5 '06 - 12:55AM    #
  27. Resort communities in Northen Michigan deal with this all the time. I don’t see how it is infuriating in it of itself.

    Yes, and it’s generally a good deal for those communities. The 2nd home owners pay property taxes at the higher non-homestead rate, can’t vote, and they put minimal demands on local sevices (in particular, they pay school taxes but do not send any kids to the schools).

       —mw    Apr. 5 '06 - 01:09AM    #
  28. combined with the rich kids who don’t have to work, their demand just drives up the already stratospheric housing costs for people who are actually useful.

    Scott, this statement is so interesting because that is how a lot of us feel in the downtown neighborhoods about student housing. The houses in my neighborhood that are sold as “student housing” go for literally double the price of the houses that are sold as owner-occupied. This makes it harder on the students, harder on the houses, and harder for lower-to-moderate income people to actually buy houses near downtown. Even if a homeowner buys a house under $200,000, the taxes are comped to “similar” houses that have sold in the area and when those sell for $400,000, the tax burden is really high. It is a weird system.

       —Juliew    Apr. 5 '06 - 01:12AM    #
  29. I don’t mind the football trade. I think it is a cash cow that actually allows some small local businesses to stay afloat and it certainly brings in a lot of income for people who might otherwise not have much (for instance, people can make several hundred $/day taking cans back and people who live near the Stadium can pay a good chunk of their taxes or even their mortgage with parking money).

    I suppose the more high-end condos there are downtown, the more dilute the “just for football” market gets and the less we might notice it. Right now it is pretty limited to One North Main, Ashley Mews, and Sloan Plaza with Ashley Mews being the really noticeable one.

       —Juliew    Apr. 5 '06 - 01:41AM    #
  30. “people who live near the Stadium can pay a good chunk of their taxes or even their mortgage with parking money”

    Sounds like a testament to the market’s ability to handle parking demand when required.

    Most people aren’t choosing to go to some other game out in the suburbs just to avoid a little parking hassle, and the neighbors aren’t complaining so much when they’re seeing the benefit of the high parking prices.

    Which to me is an argument for abolishing parking requirements and finding ways we can all profit off the demand instead of just providing the parking for free and subsidizing driving….

       —Bruce Fields    Apr. 5 '06 - 02:06AM    #
  31. Bruce, that may have been the smartest comment ever written on this blog.

       —Dale    Apr. 5 '06 - 02:54AM    #
  32. ”...people who are actually useful.”

    I wasn’t aware of an objective scale to rate people’s usefulness. Is it inversely linked to conspicuous consumption patterns or merely a reflection of how envious one is of another’s apparent material status? We don’t really want to go there, do we?

       —jcp2    Apr. 5 '06 - 04:08AM    #
  33. Julie,

    That’s a very interesting point on the impact of student housing on property tax. I always thought that assessment values were adjusted at point of sale and that property tax was based strictly on assessed value. I see the reason behind checking against similar houses, but I assumed there was a distinction between rental and resident housing tax rates.

    Student housing is a bit different than football villas in that students occupy the housing for most of the year, but the impact on housing prices and taxes seems to be similar. However, how does the fact they are students play into this? If the rental market had high demand from non-student renters, it seems to me that the impact would be the same.

    I agree that we would never have such high rental demand without students, but that argument quickly spirals into the impossibility of extricating the city from the University.

       —Scott TenBrink    Apr. 5 '06 - 06:24AM    #
  34. I believe that rental housing is assessed (and pays taxes) as commercial property, not residential property. So I’m not sure Juliew’s analysis of how the properties are valued, at least by the city is correct. However, the real estate market may view these properties differently. But she’s right about the impact. Converting a owner-occupied home into a rental not only affects the use of the property, it also inflates the value (more valuable because it can generate income) and makes it less likely that it will ever be converted back to a owner-occupied home.

       —John Q.    Apr. 5 '06 - 07:58AM    #
  35. Juliew, what is your proof that units in any of the buildings you mentioned are ‘football condos’? the reason I ask is that I have heard of only one being used as a third residence by an owner who comes on football Saturdays and a few other times during the year like Art Fair. It seems tricky to look at the ownership and try to derive the unit’s actual use. For example, I have heard of parents buying condos in Tower Plaza for their sons or daughters to use while they go to school, and then rent out after the students are gone. It’s a good investment for them, apparently. Likewise for people who live in A2 part time, or companies that send employees here frequently.

    Regarding assessed values – to complicate things further, I learned this when I worked on the Affordable Housing task force: people often ask why we can’t build affordable units in the same location as market-rate units. The reason I heard was that the state assessor will look at the prices of the market rate units and tax the affordable units at the market rate, making them quickly unaffordable. We seem to have no local control over this and the state assessor was unwilling to change their calculation format. Unless you have a third party who can step in and pay the difference, the units simply can’t remain affordable for long. It is one of the few arguments against mixing unit types in a single project that actually makes financial sense (at least in light of the current state organization).

       —KGS    Apr. 5 '06 - 05:27PM    #
  36. John Q, rental housing is assessed and taxed the same as any residential property. I imagine apartment buildings are taxed as commercial property, but as far as the city looks at it, a house is a house, regardless if it is owner occupied or rental. Mortgage rates, insurance, and inspections are all different if it is a rental, but not the assessment or city tax.

    KGS, I don’t have proof that people whose mailing address is, say, Boca Raton, are here only for football (and certainly many have other reasons for owning here), but I do know several people who have or are doing it. You are right, they also come for Art Fair and maybe an occasional symposium or theater event here, but mostly it is the football that brings them in. The units at Tower Plaza are not in the same category. They are geared toward the student/visiting scholar/grad student market and are much smaller, cheaper, and less high-end than Sloan Plaza, Ashley Mews, or One North Main. Perhaps some of them are used as football condos, but I don’t think many are since they are a very different market.

    And because I just found this information, I’ll toss it out: there are currently 16 condos for sale at Tower Plaza (ranging from $149,900 to $249,000), 7 for sale at Ashley Mews (ranging from $407,900 to $615,000), 1 at Sloan Plaza ($389,000), and 1 at One North Main ($775,000).

       —Juliew    Apr. 5 '06 - 07:59PM    #
  37. Just a note on taxes and new construction downtown: this has been discussed before on AU, but someone reminded me that almost all taxes on new residential in the DDA go to the DDA, not the city general fund. So new developments within the DDA do not help the city pay for services other than what the DDA or the developer might contribute, and any city services the new residents receive (updated utilities, police, fire, garbage, and so on) are additional costs for the city and must be paid for via other mechanisms (city general fund, millages, or increased city-wide taxes).

       —Juliew    Apr. 6 '06 - 12:25AM    #
  38. Juliew said:

    ”’combined with the rich kids who don’t have to work, their demand just drives up the already stratospheric housing costs for people who are actually useful.’

    Scott, this statement is so interesting because that is how a lot of us feel in the downtown neighborhoods about student housing.”

    And I totally understand why people who live in areas also convenient for students feel this way. Which is why I also think it’s important that good, dense development should be encouraged. The students aren’t going away, nor should they, so build as much housing as you can as near as campus as you can for them. Students are highly location sensitive. Most student I know would much rather have an apartment in a nice building 2 blocks from campus than a converted house apartment 1/2 a mile away, if the prices were the same. The reason beautiful old houses are carved up and turned in to shithole student rentals is because decent housing stock hasn’t been built to otherwise meet the demand. Where do you expect them to go?

    And jcp2 said:
    ‘”...people who are actually useful.”

    I wasn’t aware of an objective scale to rate people’s usefulness. Is it inversely linked to conspicuous consumption patterns or merely a reflection of how envious one is of another’s apparent material status? We don’t really want to go there, do we?’

    Sure, I don’t deny I’m a little envious of people who can afford to drop a few million dollars on an apartment they use only occasionally, or for an apartment for their brat kid who goes to all the indy rock shows and does a lot of coke. I also don’t think there’s any problem with a little righteous indignation over the fact that while those places stand empty, I’m stepping over homeless people on my way to the train… And yes, it’s not that they (the purportedly non-useflu) are bad people (though I reserve the right to label people as useful by my own subjective, bias, and sometime contradictory standards), but it sure makes it easy to see social stratification; which is one reason I think city dwellers, even wealthier ones, tend to lean so liberal.

       —Scott T.    Apr. 6 '06 - 07:29PM    #
  39. I was surprized that this didn’t get its own post, but maybe we are reaching the saturation point of parking & development interest for the week.

    Council approved 9 story Kingsley Lane and held off on addressing Metro 202 at a similar height. No surprise that parking was a concern for Metro 202.

    Chris Crockett, speaking for you’ll never guess the OWS says, “”In addition, we have the constant problem of parking,’’ she said. “Why is there no parking required under this behemoth structure? Why would anyone approve such an enormous development without parking on site?’’

    Metro 202 is a 9 story project with 1st floor retail, 42 apartments, and an arguably stupid name. Parking would be provided in DDA structures (even if the News refers to them as “city parking garages”).

    Demanding on-site over no parking is one thing, but demanding on-site over structure parking is really seems misguided to me.

       —Scott TenBrink    Apr. 6 '06 - 07:33PM    #
  40. Scott: You mean “OFW” in relation to Chris Crockett, not OWS.

       —Murph    Apr. 6 '06 - 08:17PM    #