Housing on hold

Housing on hold

August 29th, 2010 by Ellis Smith in News

Staff Photo by Tim Barber/Chattanooga Times Free Press/ Aug 25, 2010 - The Pinnacle Condominiums, top right, looms over the top of One North Shore on Manufacturer's Road where most units remain dark on Wednesday evening. Tough economic times have slowed sales of condos, but developers remain optimistic for the future.

Staff Photo by Tim Barber/Chattanooga Times Free Press/...

Lori Cleghon moved into the One North Shore complex when it opened in 2007, selling her Signal Mountain house so she could enjoy both the nearness to downtown and the quiet of her new home.

"We liked the location, and we liked the price," Cleghon said.

Three years later, there still aren't too many neighbors around her in One North Shore, located on the Tennessee River across from the Tennessee Aquarium. That can be a good thing, even a selling point, she said.

"No one has ever kept us up late," she said.

But her solitude is bad news for the developers of One North Shore and other complexes in North Chattanooga.

Only one-third of the residential condominiums built in the past three years on the trendy North Shore have found buyers, according to Hamilton County tax records. While developers have sold nearly $34 million worth of condos along Frazier Avenue and Manufacturers Road, nearly $100 million of other available condos sit empty.

Prices for the condos range from $170,000 for a one-bedroom at One North Shore to a $1.6 million complex atop Bridgeview at the corner of Frazier Avenue and Market Street.

The 203-unit One North Shore, the largest residential project in North Chattanooga, lost nearly half of its early sales commitments when the market soured and many prospective buyers were unable to sell other homes or get financing.

Cornerstone Community Bank recently foreclosed on four unsold units in The Four Seventeen on Frazier building, which was developed and formerly owned by Whitehall Properties.

"It's happened with single-family homes, and it's certainly going to happen with condos," said Darlene Brown, sales agent for the building.

The owners of Whitehall Properties declined to comment on the foreclosure of the $7 million complex. But George Kangles, whose firm, Walldorf Property Management, oversees the Four Seventeen building, blamed the economy.

"Unfortunately, the market is tough, and the price point of $500,000 to $600,000 wasn't selling," Kangles said. "The market caught up with the developer, and the bank had to have the money or the condos."

So far, that's the only North Chattanooga condo project in which lenders have foreclosed. But other condo projects conceived during the real estate boom five years ago also have been caught in the subsequent slump.

Next door to the Four Seventeen building, the $14 million Terrace at Frazier complex stands mostly unoccupied after a year and a half of marketing efforts. Only two of 16 units are sold, said developer Jimmy Hudson.

Hudson also has 11,000 feet of unsold commercial space in the complex, and most of the 375 parking spaces in the CARTA North Shore parking garage, located behind the Terrace, are usually empty.

"It's certainly been slower than we had hoped, but this is a hot area for future growth and I think this area and these spaces will eventually fill up," CARTA General Manager Ron Sweeney said.

Hudson said that many potential buyers have expressed interest in his project, but they're trapped in their old houses.

"Nothing's selling; people can't sell their homes," he said.


Hudson said he's still in it for the long haul, but he's had to adjust his expectations to account for the glacial pace of condo sales.

"We never envisioned just selling this thing overnight, but what you do is you change your focus from a five-year sellout to a 10-year sellout," Hudson said.

One North Shore, which sits on Manufacturers Road across from Greenlife Grocery, has sold 70 condo units so far to 68 buyers and has closed one- or two-year leases with 21 Volkswagen employees, even as developers try to sell more units.

"This came on the market at the worst possible time for real estate, and probably half of our pre-sales didn't go forward" even after down payments of $6,000 to $10,000, said Margaret Thompson, a Realtor for Fletcher Bright Realty, which helped develop the project.

Thompson said 10 more condo sales are pending.

"We're about 50 percent occupied, including the leases," Thompson said. "It's a great location, and it's affordable for young people, for empty nesters and for people with second homes - all different kinds of buyers."

Unlike many of the mixed-use downtown condos, One North Shore is eligible for government-backed Federal Housing Authority loans and includes more community facilities, including two club rooms, a swimming pool and a fitness center.


Kim White, president of the nonprofit RiverCity Co. development agency, said many downtown condo projects with retail and residential spaces were hurt because FHA loans aren't available for projects with more than 25 percent commercial use. FHA tightened lending rules last year on multiuse condominium projects to limit its losses.

"That really puts a damper on many of our condo projects," White said. "We've promoted mixed-use development, but getting financing for those projects is more difficult."

RiverCity estimates more than 1,000 condo units have been built downtown, on the North Shore and in the Southside in the last decade, bringing the total to more than 1,300. There are plans for at least two more downtown apartment complexes.

"A lot of people would love to be in a downtown condo, but they have to sell their house elsewhere to make that happen," White said. "We need those sales to start the dominoes falling."

The Chattanooga-area real estate market peaked in 2006, when 8,176 housing units sold for a combined $1.4 billion. The average number of days on the market was lowest in 2003 at 73 days, according to the Chattanooga Association of Realtors.

At of July, 3,670 homes have been sold this year after an average of 115 days on the market, the association reports.

Sales are on track to top last year's 5,678 but, at the current pace, likely will be more than 25 percent below the 2006 peak, even with near-record low mortgage rates.

Hudson believes that the very nature of condos as a second or third home adds to the difficulty of lining up buyers.

"Our condos aren't for first-time buyers; they've got a home somewhere else that's not selling, and the market doesn't dictate multiple homes or mortgages," Hudson said.


Despite low sales, condo developers don't appear to be reducing prices, according to sales records filed with the Hamilton County Register of Deeds.

"We are pretty firm on our prices," said Rebecca Potts, sales manager at The Terrace at Frazier. "We're trying to do all we can, but we're not going to give away the farm."

Brown agreed, saying that only mild incentives have been offered at The Four Seventeen Building.

"There will always be some incentives, possibly a refrigerator here or there, but we've held pretty firm to our prices," Brown said. "We're within $5,000 to $10,000" of the original asking price.

Two units on the top floor of the Bridgeview project overlooking Renaissance Park sold for more than $1 million each and the owners are spending even more to have them outfitted before they move in.

Merv and Helen Pregulman, who are planning to move into Bridgeview this fall, said they are eager to live downtown, even though they still have to sell their current and bigger home on Missionary Ridge.

"We'll have a great view of some of our favorite places - the Tennessee Aquarium, the river and Lookout Mountain," Merv Pregulman said.


Downtown supporters insist that Chattanooga is poised for more growth. The city recently was named by Business Facilities magazine as the top metro area in the country for economic growth potential.

"We are fortunate because our market wasn't as overbuilt as many and, with investments from Volkswagen and others, we should recover quicker," White said.

The solid foundation of economic activity in Chattanooga, Hudson said, means the current stagnation won't last forever.

"We've got a lot of pride in the project, and we're going to see it to the end," Hudson said. "You work at it like you build it, one brick at a time."