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Nothing but Rent

Apartments keep popping up in Richmond. How much longer can it last?

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After sitting dormant for years, the majestic Central National Bank building on East Broad Street is being converted into apartments. - SCOTT ELMQUIST

Striking in its art deco style, the Central National Bank building at 219 E. Broad St. was one of those showcase skyscrapers that went up in large Southern cities in the late 1920s just before the stock market crashed.

For years, the 23-story edifice was the tallest in Richmond back when Broad Street was a lively avenue thronged with shoppers and fun seekers. But as Broad declined, so did the bank building. It has been vacant since 2000 when Central Fidelity Bank, its last occupant, packed up after merging with North Carolina-based Wachovia.

That is about to change. Douglas Development Co., the real estate development company noted for its renovation of the landmark Woodward and Lothrop building in downtown Washington, is finally moving forward with plans to remake the aging, 240,000-square-foot Richmond structure into about 200 apartments according to RichmondBiz-Sense.com.

It's the latest in the rush to build or renovate downtown apartments that includes makeovers of the Hotel John Marshall and the First National Bank building on Main Street, along with other projects in Manchester, Scott's Addition, the tobacco warehouse district, Shockoe Slip and Shockoe Bottom.

"I've been in the market for two decades and have never seen it this strong," says developer Tom Papa. "Nothing happened for decades and it happened slowly."

Some may wonder if the downtown rental market is being overbuilt. "The trends are good downtown, but how long it will last, I just don't know," says Michael G. Miller, president of M.G. Miller Evaluations, a property appraisal company.

Shifting lifestyle tastes and demographics continue to support downtown's popularity. Younger people tend to marry later in life, and remain in apartments longer. According to the Pew Research Center, only 20 percent of adults between the ages of 18 and 29 were married in 2010 compared to 59 percent in 1960. Meanwhile, older baby boomers are tiring of cul-de-sac life as they consider downsizing and opting for urban apartments and condos. Relatively new entertainment attractions such as Richmond CenterStage, the National and restaurants are a walk away.

Helping keeping the pipeline full of apartment dwellers is the ever-expanding Virginia Commonwealth University, which sparked demand for apartments, particularly north of Broad Street and east of Belvidere Street.

Downtown rents at the newer units average $1,060 a month, about $120 a month more than the metro average. Shockoe-area apartments are somewhat more costly, says Ken Brown, senior managing director of Integra Realty Resources in Richmond.

While rentals "are going gangbusters in terms of the proposed new construction and work under way," Brown says that the downtown market is actually small relative to the metro area. Downtown has perhaps 5,000 to 6,000 units now "and that's less than 10 percent of the total market," he says. He says his company counts about 2,700 new apartments in the downtown area.

That may seem big. For a sense of proportion, however, consider plans to renovate the defunct property where the inner-suburb Cloverleaf Mall, the first regional mall in the Richmond area, was recently torn down. Construction is expected to begin soon on 600 new apartment units by Charlotte, N.C.-based Crosland Southeast at its 83-acre Stonebridge project at the mall site at Midlothian Turnpike and Chippenham Parkway.

 Reflecting current market demand the apartments will be designed for either young people or seniors older than 55. A 123,000-square-foot Kroger Marketplace, the largest store owned by the Cincinnati-based grocery chain in the mid-Atlantic region, opened last month. The project represents a major reinvestment in what's long been a dying retail corridor along eastern Midlothian Turnpike and, depending on the success of the accompanying residential development, could provide a new model for reviving seemingly left-for-dead retail districts.

The demand for apartments is understandable considering that Richmond took a drubbing in the housing market during the latest recession.

Foreclosures are declining, according to recent reports. The Richmond Association of Realtors says that house sales in Central Virginia increased 15 percent from 2011 to 2012, almost double the state average. Despite the improvement, potential buyers remain wary of investing heavily in property they might not be able to sell.

That has brought vigor to the rental market. Vacancy rates for downtown rentals are just 5 percent to 7 percent, says Miller, the property appraiser. Brown, at Integra Realty, says vacancies drop even further, to 3 percent or lower, in prime areas downtown.

"A 3 percent vacancy rate is very, very good," says Stu Patz, of S. Patz Associates of Potomac Falls, which is looking for rental investments in Manchester and Rockett's Landing among other places. Vacancy rates such as these make Richmond one of the hotter markets in the South. Better than Raleigh, N.C., and most cities, it is surpassed only by the likes of Dallas and Charlotte.

Asked about the Central National Bank project, Patz says its success depends on how soon it goes up. He says that the market is "fully supplied" until about 2016. If demand continues to grow after 2016, the project will be fine, he says. Developer Papa predicts increasing demand year after year for the foreseeable future.

Experts say there is constantly a fear of the apartment market reaching a saturation point, but it is "very difficult to predict," Brown says.

Despite the influx of new restaurants and nightspots, the area around the Central National Bank building at Broad and Third streets is transitioning. One a blustery recent day last week, a man sold trinkets from a folding table on the sidewalk. Several storefronts along Broad remain boarded up as they have been for years. A flock of VCU students wearing hard hats listens to a professor lecture about real estate development from the inside of a gutted building.

Over at Harvey's Progressive Barber Shop, barber Thomas White waits for a customer. He's been cutting hair there since 1972. "New apartments at the bank building?" he says. "Well maybe it will help my business. They'll need their hair cut and they've got to go somewhere." S

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