Town houses are back in town

CHARLOTTE –Call Wendy Field one of the post-recessionary urban pioneers, a bellwether for what expert observers say is a slowly re-emerging trend in Charlotte multifamily development: Small for-sale town house projects – and even a few condo efforts – in close-in city neighborhoods.

Back in 2011, as the current avalanche of apartment developments and the flood of investor-owned single-family rental homes began picking up steam, Field embarked on a venture that went against the rental tide: She developed the Cottages on Euclid infill town house project in a corner of Dilworth near South End.

“When all the developers went into for-rent, I actually did the reverse,” said Field, who has been involved in joint development ventures in the Charlotte market since the 1990s, when she worked with what is now Bank of America to kindle the re-development of Uptown’s Fourth Ward with the landmark 400 North Church Condominiums project.

“I went out on my own with Cottages.”

Condo projects such as those in Fourth Ward pretty much died when the recession hit as values dropped and financers backed off, and urban-infill town house development were comatose. Post-recession, they have been slow to come back, trailing the incremental comeback of the detached single-family home market. Multifamily development in Charlotte, which includes for-sale town houses and condos, has largely been limited to for-lease apartments.

But by taking the road less traveled, Wendy Field Consulting helped demonstrate that those kinds of multifamily development were viable in the post-bust paradigm, in the right place and targeted at the right market: Half of 18 units in the Cottages on Euclid were sold before the bulldozers began rolling, and all of them were occupied as the project wrapped up last year.

Now Field is on her second Cottages project, the appropriately named Cottages on Providence, on the corner of Providence Road and Providence Drive. Fifteen of the 19 town houses were sold before infrastructure work began in January.

Other developers have taken notice of Field’s success, and are following suit – both small developers and large – as single-family lots in the city grow scarcer; more young singles and couples tire of high rents; and more older empty-nesters crave the convenience of city life.

Frank Martin of New Carolina Income Properties, another veteran of urban infill development dating back to the 1990s and Fourth Ward, is scheduled to break ground later this month on a 12-unit owner-occupied project around the corner from Cottages on Euclid.

And two weeks ago, Martin put in a rezoning petition with the city of Charlotte for another dozen units right next door.

On the other end of the scale is David Weekley Homes, the Houston-based national production builder that has long been constructing houses in large single-family developments in the Charlotte market.

In the past year, the city of Charlotte has approved two smaller town house developments by Weekley in Dilworth, and a small, half-and-half single-family/town house development in the SouthPark area.

Weekley’s agent in the developments, Charlotte-based Walter Fields, says the company shortly will announce another two similar projects.

This kind of activity, while still dwarfed by the ongoing apartmentalization of Charlotte – and now, even some of the suburbs – has caught the attention of at least one city official, Charlotte Mayor Pro Tem Michael Barnes.

At last month’s Charlotte City Council rezoning meeting, Barnes announced his joy at seeing a recent spate of for-sale multifamily projects coming to the council for rezoning. Under Charlotte’s zoning ordinance, for-sale town houses and condominiums, like for-lease apartments, are considered multifamily for zoning purposes.

“The reason I said that is that over the past several years, much of the residential development we have seen is apartments,” Barnes said. “We want to have as much balance in the market as possible.

“Too many apartments are being built – thousands of rental units are being built right now, and more are planned – so it is great to see more balance. (Apartment development) is happening all over the city, and a lot of that is driven by the densification of the city. So owner-occupied and not just rental is a good thing for Charlotte.”

Lots, demand and financing

Two of the Charlotte market’s homebuilding analysts say that there has been a significant increase in both town house sales and starts this year.

Bill Miley, who runs the Charlotte operation of the national Metrostudy analytics firm, said town house closings in the second quarter of the year were up nearly 27 percent over the first quarter to 184.

More important, he said, attached housing starts were up nearly 40 percent quarter over quarter to 195, an indication that builders expect sales to continue to strengthen.

Both Miley and Bernard Helm of Rocky Mount-based Market Opportunity Research Enterprises said a shortage of city lots, the relatively small size of those lots, and pent-up demand for city living are key driving factors behind the quickening town house activity.

Town house development has not been completely absent in the Charlotte market in the past few years, Helm noted. It has, however, been slower to recover after the recession than single-family housing.

But just in the past year, and especially in the past few months, that has begun to change, especially in entry-level price ranges, Helm said.

“There’s not a shortage of lots in the city for houses above, say, $300,000; but there is a real shortage of lots, and a real shortage of sales, for homes under $250,000,” Helm said.

“That equates to a significant pent-up demand for less expensive homes – and that’s where attached housing has begun to happen: where entry-level detached housing is scarce. It has happened first with the resale of existing town homes and, to a much smaller extent, condos. Now that those existing town houses are largely absorbed, that’s where new town homes are coming in.

“It’s a limited market, but it’s growing faster than single-family homes in that price tier. Town homes fill in that pent-up demand.”

Martin said that is exactly what he is seeing from a developer’s point-of-view.

“The existing condos, left over from the recession, have been absorbed as the resale market has strengthened,” Martin said. “Now the demand for new product is starting to strengthen.”

That demand is nowhere near where it was during the boom years for owner-occupied multifamily projects, in the late 1990s and early 2000s, Martin and Helm both said, when large condo and town house developments sprouted throughout the market.

“Back then, buyers bought because they thought values were going up, that they would be worth more when they sold – and they did – so we could presell large projects,” Martin said.

“But in 2008-2012, that absolutely didn’t prove to be the case; values went down 30 percent, and the confidence of the buyer disappeared, and we were no longer able to presell the projects.”

With that disappearance of buyer confidence, out went the confidence of lenders and investors, who want to see at least half of town house and condo units sold before they will risk sinking their money into a project, Martin and Wendy Field said.

Surmounting that presale hurdle is one of primary reasons today’s town house projects are smaller.

“You just can’t do a 100-unit town house or condo unit and expect to pre-sell 50; but with 12 – that’s more realistic,” Martin said. “You are going to see more boutique projects, infill.”

Location and ‘unique appeal’

One of the key factors in pre-selling units is not just location, but targeting locations at one of two primary market sectors whose members want the amenities of urban lifestyles that are “important to for-sale multifamily,” Martin said.

Those sectors comprise young singles and childless couples, and “move-down” empty nesters who either can’t afford a single-family home in a desirable urban area or don’t want the maintenance that comes with one.

“Many of those people would rather have a detached house, but in exchange for close-in location, they will now accept a town house,” said longtime Charlotte builder Jim Burbank, owner of Saussy Burbank and JCB Urban.

Wendy Field agreed with Martin and Burbank, but said her experience indicates it’s not just neighborhoods, but niches within neighborhoods.

“It’s got to be in the right neighborhood, and in the right site,” Field said. “That detail is important.”

And, she said, the details of the location often mean that the two target markets don’t mix. Her two Cottages projects – one in the South End side of Dilworth and the other on the border of Eastover and Cotswold – are separated by more than distance.

“I found that on the Euclid project that the buyers are younger people who are moving from the high-end apartment complexes; they didn’t want to pay that much in rent,” Field said.

“On Providence, it’s the empty-nesters who want to downsize from their house.”

That second sector is also spurring some small-scale town house activity in farther-out locations in the city, but mostly in those offering urban amenities, like South Park; and in some of the more new-urban, mixed-use developments such as Antiquity in Cornelius.

Saussy is constructing some town houses in the Riverwalk development, which is near the population center of Rock Hill.

And Burbank is acting as a general contractor for another builder’s small-scale project to build town houses at Providence and Ardrey Kell roads, which will be near the coming Waverly mixed-use development and another just-completed town house project.

“Those two small town house projects are fueled more by the move-down sector of the market,” Burbank said.

There’s one more factor, Martin and Field said, that drives all important pre-sales: Buyers who are considering putting down money upfront on a residence want to see site plans and elevations of, in Martin’s words, “a product of unique appeal” that will spur them to buy before the opportunity is gone.

“If a buyer sees it as commodity instead of distinctive, the buyer will be resistant to pre-buying,” Martin said. “They want uniqueness, and with only 12 (town houses in a project), that creates a sense of urgency in the buyer.”

Martin said his two Dilworth projects, designed by Charlotte-based Axiom Architecture, “are really cool,” while Field said her Cottages on Euclid are just that: traditionally cottage-y, but with modern touches and finishes.

Caution and condos

But, cautioned Martin and others, the post-housing-bust demand for owner-occupied multifamily is still in its infancy, and the demand for town houses and especially for condominiums is not yet deep enough to merit hopes that the market will ever reach pre-recessionary levels.

As one of the busiest land-use lawyers in Charlotte-area rezoning cases, K&L Gates attorney Collin Brown said he has observed the same uptick that Mayor Pro Tem Barnes noted in the number of multifamily rezoning petitions for town houses.

“But as for condos, I don’t think we’re that far yet,” Brown said. “But I think we’ll see some on the horizon in the near future.”

Martin, however, is already taking the condo plunge.

Martin’s 12-unit Dilworth Terrace project that is set to break ground in a few weeks on East Tremont Avenue is a condominium building with units priced in the $315,000 range. Nine are presold.

The presale number is so good because, he said, the market is right for two-bedroom, two-bath condos – in that particular location, and for a specific sliver of the market.

“Singles and young couples are attracted to that close-in location,” Martin said. “There’s Dilworth’s historic appeal, and the soundness of Dilworth real estate values, and there’s the entertainment of South End.”

But he’s also hedging his bets with Dilworth Court, a 12-unit town house development right next door, at East Tremont and Euclid avenues.

Although the town house project will not get an initial public hearing until September, Martin said he is confident enough of success that he will be begin presales in August.

If Barnes’ comments are an indicator, Martin’s confidence is not misplaced. But Martin said he will remain cautious, especially until six of the town houses are listed as sold.

“Don’t hold me to these exact figures, but I tell people that the market (for town houses and condos) is still off 70 percent,” Martin said. “But supply is off 90 percent.”

Martin, Field, David Weekley Homes and developers like them are betting that those 20-percenters in between will buy – and buy fast.