A new condominium conversion project in Detroit is testing whether the recent red-hot rental market for downtown-area apartments created an appetite for condo-buying.
Prior to the recession, at least a dozen condo developments were taking shape in or around the downtown, riverfront, Midtown and Corktown areas of the city. But as the real estate market slowed and then tanked in 2008, many of the completed projects had to convert their units to rentals to fill all the empty space.
Even as demand picked up for mid-level and higher-end apartments, Detroit’s condo market remained stunted by the reluctance of many banks to give people mortgages for new city condos, regardless of how strong an individual borrower’s income and credit history might be.
Yet now a growing handful of local banks and credit unions are willing to make Detroit condo loans, and many of those pre-recession condos have finally found buyers.
Enter the developers of FD Lofts Condominiums, 3434 Russell St. in Eastern Market, who believe the city’s condo market is ready for new inventory.
FD Lofts’ owner Robert Heide and his codeveloper in the conversion project, Brian Giles, are converting and upgrading the building’s fully occupied rentals into 32 for-sale condo units. They say the current tenants, which include many businesses, were made aware of a possible condo conversion when they signed their leases and offered price discounts to buy their units.
“What we’re finding is that there’s a significant demand for high-quality condominiums in the city. There’s not a great supply of them,” Heide said in a recent interview.
Developers and real estate agents will be closely watching the project to see whether the condo market has truly bounced back from its crash. In the downtown-area rental market, most nicer buildings have been almost fully occupied for the past two years.
“I think a lot of people have their eyes on this project to see how quickly it absorbs and how easy it is to get financing on the units,” said David Blaszkiewicz, president of both Invest Detroit and the Downtown Detroit Partnership.
The new FD Lofts condos — about half of them already have deposits — are to range in price from $124,800 for a 523-square-foot studio, $199,800 for a 1,200-square-foot one-bedroom unit and $329,800 for the largest two-bedroom unit with nearly 2,000 square feet.
About $1 million in upgrades are happening in the units and throughout the building, and monthly condo association fees will average about $300.
The units have been renting for between $1,100 to $1,500 a month.
FD Lofts is situated in what was once a vehicle repair garage for the Detroit Fire Department. Heide bought it from the city in 2002, and with help from federal and state historic tax credits and brownfield tax credits, undertook a $4-million redevelopment.
He opened his building to its first tenants in late 2005 and fully completed the phased construction two years later. In an interview, Heide said he always envisioned turning his apartments into condos after the five-year requirements for the historic tax credits expired.
That expiration happened in 2012, he said, but at the time there weren’t enough lenders making Detroit condo loans for the project to be worthwhile.
Local development experts say the reason most large banks haven’t sold mortgages for new Detroit condos is that the buildings are considered nonwarrantable, meaning Fannie Mae, Freddie Mac and the FHA are unwilling to buy loans on the secondary market that originated in such buildings.
This situation makes the mortgages riskier for lenders, who must keep the loans on their books rather than sell them off.
In 2012, Detroit-based First Independence Bank became one of the first lenders since the recession to write mortgages for new Detroit condo buildings with 10% to 20% down payments.
At least five other local banks and credit unions have since followed suit. First Independence Bank is also financing the construction for FD Lofts’ conversion.
Among the Detroit condo projects that got squeezed in the recession but are now doing better are downtown’s 64-unit Westin Book Cadillac and Midtown’s 68-unit Willys Overland Lofts and the 31-unit 55 West Canfield Lofts.
After selling just two condos upon opening in 2008, 55 Canfield converted to a rental property. It later went back to condos in late 2012, and by last fall had sold all of its units at increasing prices, according to sales manager Kevin Wobbe. Its final sale was $179,000 for a one-bedroom unit.
The Book Cadillac’s condos underwent a similar conversion and re-conversion and are 80% sold. Units still available include $1.3-million and $1.1-million luxury penthouses.
Following its own slow start, Willys Overland Lofts is down to 18 available build-to-order condos. The building’s broker, Austin Black II, said couples arriving from suburban houses are buying their largest units or combining two units into one. Standard units measure about 1,384 square feet and go for between $280,000 to $312,000.
“They want the city-living lifestyle, but they don’t want a 1,200 square-foot condo. Two thousand square feet is more suitable for them,” Black said.
With her daughter now in college, Jane Morgan is ready to downsize and sell her house in Detroit’s North Rosedale Park. After scouring the city, she put down a deposit for a $330,000 unit at FD Lofts that is 1,900 square feet with new flooring and quartz kitchen countertops.
She feels lucky that she nabbed a condo, even though it won’t be ready for her until fall.
“Detroit is building quite a lot of rental stuff in downtown and Midtown, but it’s tough finding a condo,” Morgan said. “When you find them you have to rush out and take a look because there just aren’t that many to pick from.”