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Hoping high-end renters will buy into resurgence

THE BALTIMORE SUN

There's an old saying in the real estate business: Today's renters are tomorrow's homebuyers. And it seems that the adage applies to Baltimore now more than ever because these days the city is appealing to renters more than ever.

New, trendy apartments in Baltimore are offering more than just fresh paint and new appliances. Rental developers are investing the kind of attention to detail that is usually reserved for ownership.

Renters can find New York-style lofts in Federal Hill, with beautiful high ceilings, sound-dampening windows and sleek open spaces. In the central business district are older, rehabbed buildings that maintain original architectural trimmings.

But with the extras come higher rents. Tenants can be expected to write monthly checks ranging from $1,200 to $3,000 for places that they will never own, never acquiring equity or getting a chance to capitalize on their investment.

The principal and tax-deductible interest on a $200,000 mortgage at 7 percent amounts to $1,330 a month. For that price, according to real estate agents at the Fells Point office of Long & Foster Real Estate Inc., a four-bedroom, 2 1/2 -bathroom home in Fells Point listed for $205,000 is within reach.

So why rent in Baltimore?

For many people, it's not just economics. It's lifestyle.

According to experts in the field, renters are just not ready to buy. Many are young or recently out of college or have relocated to a new job. They want to get to know the city before handing over a down payment on a house.

Then there's the fastest-growing segment in the rental market - the empty-nesters. They are returning to the city and renting apartments to rid themselves of the hassles of caring for a house.

Based on a survey released by the Downtown Partnership, 85 percent of the city's potential rental pool is made up of single, young professionals or young married couples with no children; 8 percent are empty-nesters; and 7 percent are families.

This demographic breakdown mirrors the homebuying trend that has been driving Baltimore's resurgence during the past five years.

Renting and homebuying may be two different markets, but if renters eventually become homebuyers, then it is reasonable to hypothesize that more apartments in Baltimore will eventually translate into more home sales in the city, says Joseph T. Landers, executive vice president of the Greater Baltimore Board of Realtors. He points out that the relationship between renters and homebuyers is not lost on lenders and public policy makers who are looking for ways to keep stoking interest in Baltimore's housing market.

Tracy Gosson of Live Baltimore Marketing Center, an organization whose mission is to promote city living, said establishing a high-end rental market is just part of what is needed to keep the city exciting. As long as Baltimore continues to improve, from offering a wider selection of rentals, to more grocery stores and other amenities, the city will gain drawing power, she said.

"The thing with Baltimore is because the [for-sale] housing is so affordable, what you pay in rent or less, you can pay in a mortgage and own a house," she said. "We're not like Boston or New York where the prices for houses are so oppressive."

For the past two months, Toni Paz, 30, a fund-raiser for the Baltimore Symphony Orchestra, has perused the homebuying market. She's focusing on the Mount Vernon area, the neighborhood where she settled as a renter when she moved to Baltimore from Cincinnati.

"Initially, when I first moved here, I was probably not making enough [to buy]," she said. "Then when I did start making a decent salary, I wasn't sure if I was going to stay in Baltimore."

Now she knows.

She likes Baltimore, and her landlords, whom she calls "my Baltimore parents," offered to sell her the house next door to her carriage house. Suddenly, the idea of fixing her own plumbing doesn't sound like a bad idea.

While statistics are not available to support the metamorphosis from renter to homebuyer, Bill Cassidy, manager of the Fells Point Long & Foster office, has seen about a third of the renters who found apartments through his office become homebuyers.

He says he would advise renting in an area before buying there. "I might prefer someone who rents and learns the neighborhood to [someone who] jumps right in to [buying] something and then comes back six months later and says they made a mistake," Cassidy said.

According to experts, most people don't stand at a crossroads trying to decide whether to rent or buy. Renters and buyers exist in segmented markets, they say, but there's nothing like a strong rental market to prime the residential sales of the future.

"Certainly the downtown rental market is a nice incubator for future homeowners," said Robert M. Aydukovic, director for downtown housing for the Downtown Partnership.

"It's an age and lifestyle issue. You rent an apartment why? Because it fits your needs," said Joseph Cronyn, a commercial real estate consultant for Lipman Frizzell and Mitchell LLC. "Then you develop your career, make more money, you get married, you're interested in putting down roots and buying a home."

Having recently moved to Baltimore from Los Angeles, Joan Mitchell wants to decide whether she can handle a cold winter before she considers buying in the city. She says things are looking good.

Mitchell is thrilled about renting a four-bedroom house in Belair-Edison for $750 a month, an amount that wouldn't fetch her an apartment in Los Angeles. At 27, Mitchell said she's "test driving the city" before investing in a house.

"I think the biggest thing is that each neighborhood is so different," she said. "My biggest concern is just picking the right neighborhood."

Bill Ariano, vice president of residential lending for Key Bank and Trust in Owings Mills, said rentals have always laid the groundwork for revitalization.

Ariano, who was pictured in Newsweek as a Fells Point urban pioneer in the 1970s, remembers a neighborhood 20 years ago that was mostly rotting wharves, oil tanks and a declining community of cannery workers when the former plant of Tindeco, a manufacturer of decorative tin boxes, was converted into apartments.

The neighborhood?

Canton.

"In order to have a healthy market, you need the renters," said Ariano. "The renters, first-time homebuyers and move-up buyers work to form the dynamic in the marketplace."

Ariano said the city needs more desirable housing to draw those professionals who "come in the city, park and then drive back to the suburbs."

Baltimore's most significant magnet has been the Inner Harbor waterfront. But, developers are looking to new apartment buildings farther inland, on downtown's west side and the central business district, to attract renters.

In September, the Atrium - with 173 apartments carved out of the former Hecht Co. department store at 118 N. Howard St. - opened. A few blocks away, work has started on the Stanbalt Building at 501 St. Paul Place, where 202 apartments are planned inside old offices.

And there is 300 N. Charles St. and its 36 apartments being developed by Savannah Development Corp., and the Munsey building at 200 E. Fayette St., which is being developed by Struever Bros., Eccles & Rouse Inc.

Next year, Bank of America's Centerpoint on Fairmount Avenue is expected to get under way on the west side as is architect Leo D'Aleo's Saratoga Court on Saratoga Street and Schulweis Realty's project at 300 E. Pratt St., on the site of the former News American.

According to Downtown Partnership figures, downtown's central business district and its adjacent neighborhoods have 3,200 new rentals opening up in the next two years.

Of the new units, 25 percent are leased, and that percentage is expected to rise as renters come out to look in the spring.

"I really do think Baltimore is developing a really sophisticated clientele of people who really do want to live downtown," said Betty Jean Murphy, president of Savannah Development Corp.

With details including arches, columns, trusses and lofts, 300 N. Charles is drawing people who want to live within walking distance of the best of what downtown has to offer - restaurants, museums, theaters and historic areas like Mount Vernon.

In Fells Point, Ken Klotz has converted an old warehouse into 13 apartments, boasting fireplaces, hardwood floors and lots of windows. Two-bedroom apartments there rent for $1,300 to $1,600. The units feature rosette moldings and restored doors - "little things that carry that 19th-century look," he said.

Klotz, whose apartment building is just south of Eastern Avenue, said he's offering a high-end rental property in the middle of the neighborhood, while most attention has been paid to Fells Point's waterfront. Klotz said instead of selling the units as condominiums, he prefers to charge rent and count on property appreciation - "It's only going to become more valuable" - to increase his investment.

In Federal Hill, Patrick Turner of Henrietta Development Corp. created spacious New York City-style lofts out of the historic Southways bowling alley.

Ranging from 2,000 square feet to 3,200 square feet, the Federal Hill Lofts have hardwood floors, plaster walls, countertops made from the bowling lanes, skylights and in some cases decks that offer an expansive view and a feeling of privacy.

Turner has plans to renovate the former Holy Cross School at West and William streets, turning an auditorium into lofts with 32-foot ceilings.

As to why he's putting all this effort and expense into rentals, Turner said, "People don't want to live in cubicles."

"We're getting higher rents and the value down the road is better," he said. "They will be good for rentals and they will be great for sales."

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