The developer of Harbor East has dipped its toes back into Baltimore's tenuous condominium market, presenting the city with new plans for long-stalled luxury residences atop the Four Seasons Hotel.
The design calls for 63 condominiums instead of the roughly 150 initially envisioned in a project that the developer said still could be scrapped.
The uncertainty highlights Baltimore's tentative condo market. While sales numbers and prices suggest that the market is rebounding, condos remain an uncommon, often premium product in Baltimore, and many developers remain unconvinced that there is sufficient demand.
The Four Seasons design would add six floors to the 21-story building, making for nine floors of condos instead of 23 as initially planned. The developer, who originally planned a 44-story tower, halted at 21 floors in 2009 amid the recession. On Thursday, the city's design review panel approved the design for adding fewer floors of condos.
"We would love to build the full building, and we think the full building looked great, but we don't think the market can sustain it," said Jason Huss, development director for Harbor East Management Group, an affiliate of John Paterakis' H&S Properties Development Corp. "Honestly, we're still not certain whether or not the condo market will sustain [the new units]."
Baltimore's relatively affordable housing — particularly the abundance of often low-maintenance rowhouses — has reduced demand for condos in Baltimore compared with markets such as Washington, where condos represented 47 percent of sales last year, said Corey Hart, a senior product manager for RealEstate Business Intelligence, a research subsidiary of the MRIS multiple listing service.
In Baltimore, they represented about 7 percent of sales, with 477 closings, according to 2013 MRIS data. That market share has held steady over time: Condos represented 5 percent of sales in 2005, with a record 580 closing.
"Single-family homes are affordable in the city and there's ample supply. There's somewhat of a difference in the D.C. market, where everything's expensive and single-family homes are extremely expensive," Hart said.
The median condo price in Baltimore in 2013 was about $199,000, up 11 percent from last year. That's below the 2007 peak of $223,500, but well above $150,000, where prices bottomed out in 2011, according to MRIS.
By contrast, the median price for all homes in the city was $123,000 last year, down from the 2007 peak of $153,000 but up 3.7 percent from 2012.
In a city where housing remains relatively affordable, the decision to buy a condo in Baltimore is often driven by factors other than price, said John Maranto, a real estate agent with Re/Max Preferred in Baltimore.
"People have a perception that condos can be less work than houses, and for some people that may be true," said Maranto, adding that safety is sometimes a consideration. "It's mainly just a lifestyle preference."
Some of the condo price gains are driven by low supply: There were just 190 active condo listings in the city in 2013, down from 477 in 2007, according to Delta Associates which tracks the mid-Atlantic condo market.
Analysts said the price gains have not been large enough to drive new development.
The Four Seasons is the only announced condo project in the city right now. Others might be in preliminary stages, but nothing is expected to open in the next two years, according to Delta Associates. In Washington, about 1,800 new condos came online last year and 800 more are expected this year, according to the Alexandria, Va.-based company.
"We don't expect much new product to be developed in the short term," said William Rich, a Delta Associates senior vice president. "That could change ... as these price increases start to take hold and the development community becomes more comfortable with the prospect of adding new units to the market."
Developers' wariness reflects in part the difficulty of selling new condominiums.
Of the active listings, 177— about 90 percent — are never-occupied new units that have been on the market for years.
At 414 Water Street downtown, for example, 105 of 312 residences remain unsold since sales began in 2005, according to Delta Associates. At the Ritz-Carlton Residences on Key Highway, where sales started in 2004, 47 of 190 units remain unoccupied.
When the Ritz-Carlton opened, asking prices ranged from the upper $800,000s to $5 million. At 414 Water Street, prices ranged from $200,000 to $500,000.
"There's not enough demand," said Andrew Viola, vice president and regional manager for the Northern Virginia office of Bush Construction Corp., which developed 414 Water Street and is a majority owner. "There's a good quality of purchaser. There just don't seem to be enough of them."
Viola said they have reviewed prices and lowered them slightly. He said he hopes to sell out in four years.
"What we try to do is find a price point that we thought was fair for the type of product we deliver, and we're willing to wait for it, frankly," he said.
Financing projects can be difficult because lenders generally want a portion of the condos to be pre-sold before they will provide money for construction, while the Federal Housing Administration sets minimum owner-occupancy limits that range from 30 percent to 70 percent before it will back a mortgage, Viola and others said.
Liability also makes some developers leery: Should something go wrong, they face potentially hundreds of lawsuits. (HarborView, for example, was tied up in litigation over mold in one of the penthouses in the Key Highway high-rise before the lawsuit was dismissed in favor of the condo association in 2012.)
Pikesville developer Questar Properties opted for luxury apartments in its planned development of the former McCormick & Co. site on Light Street, rather than condos. CEO Stephen Gorn said he didn't think the timing was right, but a possible second tower on the site could include condos.
"We think in time the urban environment around the Inner Harbor in Baltimore will be fertile, and ultimately will be successful, for condos as the whole city environment continues its evolution," he said. "It's a timing thing. We have to see how the market evolves."
Re/Max Advantage agent Angel Stevens, who specializes in condos, said the market is strong and the listing service data doesn't always capture the full picture, because developers do not always list new units.
"I've always had a high demand for condos," said Stevens, adding that some recent condos on the market drew multiple offers.
She doesn't know why developers aren't more confident. "There's just always a need, especially for new condominiums," she said.
Yet Harbor East Management, which still is doing its research, isn't sold on the market yet. Whether it builds or not depends on sales, which haven't started, Huss said. The developer does believe, he said, that the kind of condo it wants to build — branded as part of the Four Seasons and managed by the hotel and resort operator — is without peer in Baltimore.
"We think the Four Seasons brand will certainly bring some value and some intrigue," he said. "The unfortunate piece for us is there's not much of a record for this level of residences."
The cost of the project, or the units themselves, has not been determined, he said.
The new condos could benefit from their location in Harbor East, which was a draw for Carol Daddazio and her husband, Terry Gaskill, who moved from Coolidge Corner in Boston to the Vue in Harbor East this month. They paid about $450,000 for the two-bedroom condo, helped by the sales of their previous home.
"We wanted to be in a place we could walk to restaurants or walk to the post office or walk anywhere we wanted," said Daddazio, 66, adding that the move also was prompted by a desire to be closer to their daughter and her family and not face the responsibility of a house. "It was definitely for the sake of ease. ... We think we're set up for a long time here."
If the market is strong, Harbor East might try for 80 condos at the Four Seasons, two stories more than anticipated today, but that's where the building will stop — about even with the Legg Mason tower, Huss said.
Members of the city's Urban Design and Architecture Review Panel said Thursday that they think the building would look better taller.
"I hope that the market is really strong and you can add two more floors," said panel member Richard Burns.
"Not as much as us," Huss replied.Copyright © 2014, The Baltimore Sun