Apr. 03, 2008
Condo plan nixed in favor of rentals
Developer of South End site changes plan amid slowing home sales

DOUG SMITH

The developers of a 75-unit condo project in South End have stopped sales and will build it as apartments instead.

"We designed Chelsea South End with multiple strategies, and one strategy was a condo building," said Terrence Llewellyn, whose Llewellyn Development is doing the project with Dean Kiriluk of Kirco.

Since condo sales began there in November, home sales have slowed, financial markets have become more volatile, and lenders have tightened mortgage lending requirements.

All the changes created more risk than the developers anticipated and persuaded them not to proceed with the $20 million project, Llewellyn said.

"We are returning deposits and releasing buyers from their contracts," he said.

The developers declined to disclose how many units were under contract for purchase in the five-story building.

The shift is the latest example of how the housing slowdown is cooling construction, especially in the uptown high-rise market, and causing developers to shift attention to apartments.

In the center city, two high-rises have been postponed, and work has slowed on two others.

Instead of a putting a deposit on an announced project and waiting for it to start, more buyers are avoiding uncertainty and turning to existing inventory, said multifamily-housing analyst Emma Littlejohn of The Littlejohn Group.

At the same time, tighter lending standards are making it difficult for developers to come up with the presales and equity to proceed with construction, she said.

Chelsea, inspired by New York's neighborhood of the same name, is planned at West Boulevard and Hawkins Street on the edge of Wilmore and is to include about 8,000 square feet of shops and offices.

The site is only 250 feet from a light-rail stop, which still makes the location ideal for transit-oriented residential construction, the developers say.

Kiriluk said they have purchased the majority of the land needed for construction but still are determining when to break ground for the apartments.

"The great news is they are still going to do apartments because they believe in South End, the rail corridor and the overall Charlotte market," Littlejohn said.

Other multifamily developers have adopted strategies similar to Chelsea's and are shifting to apartments, which lenders and investors regard as less risky than preselling condos and are more willing to embrace, said real estate analyst Frank Warren of Warren & Associates.

In the Charlotte area, the apartment vacancy rate rose two percentage points to 9.2 percent over the past year due mainly to a flurry of new construction, especially along the light-rail line.

"If Chelsea's developers have any challenges," Warren said, "It's going to be the potential for an oversupply of apartments in the South End market."

Often projects built as apartments are later converted to condos, and real estate experts say that could happen at Chelsea when conditions improve.