Betting On Condo Buyers - The News & Observer

June 26, 2008

Developers bank on demand in Chapel Hill with mixed-use projects

CHAPEL HILL - Outside a former Franklin Street gas station, hundreds of developers, dignitaries and potential condo buyers will gather under a big tent Friday. They'll glimpse flashy renderings, nibble smoked salmon crepes and sip adult beverages while a DJ spins adult contemporary tracks.

And they will eventually mosey down to a sales center a block away. At least that's the hope of Ram Realty Services, which is creating the hubbub to introduce its 140-unit condominium project, 140 West Franklin.

"We're going to be upbeat," said John Florian, Ram's senior vice president of development, "not sedate."

The scene sounds so 2005.

Back then, when easy lending was fueling the housing boom, lavish parties introducing condominium projects cluttered the calendars of developers and potential buyers across the country.

Now, amid one of the biggest housing slumps in national history, it may seem difficult to take a pre-sales campaign seriously.

But Ram and two chief competitors -- East West Partners and Greenbridge Developments -- are betting that Chapel Hill is an oasis of pent-up demand.

Buoyed in part by UNC-Chapel Hill's growth, developers think there will be enough buyers to snap up 368 condos by 2012.

"It has such a broad appeal to so many different segments of the market: retirees, people who are involved with the university, people that just want that as a place to raise children or a place to live," said Casey Cummings, Ram's president.

Ram will begin taking reservations at 140 West Franklin next month. Its goal is to finish the building, on a 1.7-acre parking lot at Franklin and Church streets, by the end of 2011. By then, Ram hopes to have sold out.

It's a lofty goal. Because of the housing and credit crises, it is generally harder for potential buyers to sell their homes elsewhere.

Plus, the project will have to catch up to two competitors: Greenbridge and East 54.

Construction began last year on East 54, off N.C. 54 and U.S 15-501. It's being developed by East West Partners of Chapel Hill. The project, which is to include shops, offices and a hotel, touts ample parking and proximity to Interstate 40 as the easy choice for Research Triangle Park workers.

Its 53-unit first phase is sold out, and one-quarter of its 40-unit second phase is pre-sold. "We've had unbelievable success," said Roger Perry, East West's president.

The project will include 175 condos. Perry expects to sell out by early 2009. The green factor East 54 also is seeking a designation from the U.S. Green Building Council's Leadership in Energy and Environmental Design, or LEED, rating system, which would help it compete with Greenbridge, a 98-unit project at Franklin and Graham streets.

Greenbridge got financing through a Bank of America fund aimed at eco-friendly investments, said Tim Toben, a partner in Greenbridge Developments, the Chapel Hill group building the project. It has pre-sold about half its units, he said, adding that much of the project's planned office and retail space have been leased to eco-conscious businesses attracted by its downtown location and ultra-green design.

Excavation for an underground parking deck is under way. Vertical construction is to finish in April 2010, Toben said.

The 140 West Franklin project has a more central location and more parking than Greenbridge. It will feature earth-friendly design features, but the developer won't seek LEED certification.

Ram wants 25 percent of its condos to be pre-sold before it breaks ground on the building, which includes 26,000 square feet of shops.

In recent months, lenders have tightened standards for developers, requiring more equity and pre-sales from condo developers. Ram launched an equity fund that can finance $650 million in construction projects across the country, including 140 West Franklin.

The Chapel Hill projects, 368 units in all, range in price between $400,000 and $600,000. "There's enough to go around out there for all three of us," Toben said.

That optimism could defy history. It took three of the most robust real estate years -- 2004 to 2006 -- to sell that many new condos in all of Orange County, according to Market Opportunity Research Enterprises. Is optimism warranted? "Developers are very optimistic risk takers," said Bernard Helm, president of the Rocky Mount company, which tracks North Carolina housing trends. "They have to be.

"While I think there is room for condominium development in exclusive neighborhoods in Chapel Hill, it's going to require some patience on the part of the developers," Helm said.

Developers say the town's arduous, often contentious, planning-approval process limits risk. It took Greenbridge two years to be approved. In downtown Raleigh, a similar project probably would be approved in less than a year.

"If you're willing to be patient and do things the way the town wants it done, [Chapel Hill is] ... a great place to do business," Perry said. "A lot of people don't have the time or energy to do that."

The benefit of patience: "When you build something in Chapel Hill, the market risk is pretty much mitigated, because there's never enough supply," Perry said.

Ram is familiar with supply. The company is based in South Florida, the epicenter of the nation's condo bust. It built 800 condos in recent years, of which 600 have been sold, Cummings said.

Ram isn't starting condos anywhere else in the U.S., but it's so comfortable building in Chapel Hill that it is looking past 140 West Franklin to 345 additional condominiums and townhouses it wants to build. Construction of Ram's Grove Park wouldn't start until mid-2009, at the earliest.

"If you make the investment in time in a community," Cummings said, "you're rewarded for that."

By Jack Hagel, Staff Writer - The News & Observer

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