Lofty Living quarters
Downtown projects could boost condo-buying market
By Josh Verges
jverges@argusleader.com
Comment Print Email PUBLISHED: October 6, 2007
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When Cyndi Johnson bought a small downtown condominium in March, she wasn't concerned with what she'd get for it when it's time to sell.
The 60-year-old retired teacher lives in Lake Poinsett but drives to Sioux Falls often for classes at University Center or shows at the Washington Pavilion. She was sufficiently excited about the growing downtown area to jump into an untested condo market.
"It's always a gamble, but we'll see what happens," she said.
The aptly named Carnegie, just north of the town hall with the same name, is a pioneer in the downtown condo market. Its relative success could determine how developers shape downtown housing and mark Sioux Falls' maturation from a town to a city.
New condos have had some success on the city's south side, but so far, developers of trendy downtown lofts have stuck almost exclusively to rental units.
Johnson paid $89,000 for 695 square feet at the Carnegie, which she now rents out but someday plans to use as a sort of vacation home. She was one of only two people to buy before the building went unlisted for the slow real estate season, property manager Jennifer Fleming said.
Craig Lloyd, one of a handful of developers intent on bringing another 9,000 residents to downtown by 2015, has limited his offerings to apartments, which generally are safer for investors and lenders. He said he's glad the Carnegie has gone from lease to sell because it will establish comparable prices for future condos.
Condos take off slowly
Downtown Sioux Falls isn't yet ripe for condos, Lloyd said, but the development of more entertainment choices and perhaps an events center could change that.
Lloyd will break ground on an 88-unit apartment building next year as part of the Uptown at Falls Park project's first phase, which should bring 500 new units to the area. He said he expects that, eventually, about half of those 500 will become condos.
"Sales of condos in Sioux Falls, like around the Midwest, haven't been that popular," he said. "I think it's gonna take some time."
Fleming said condos are a natural progression from downtown improvements along Phillips Avenue and south of Falls Park.
Costly rehabilitation projects that make living spaces out of old industrial buildings typically start out as rentals and move to condos once corporate investors get their tax benefits. Fleming expects to offer space in the Crane and Security buildings as condos in a few years.
The trend could solidify Sioux Falls' place on the big-city map.
"If you look at other metropolitan areas, Omaha and Minneapolis, that's definitely the direction we see Sioux Falls going," Fleming said.
Both larger cities have seen a boom in downtown condos in recent years.
Market correction
A Minneapolis real estate agent, however, has seen first-hand that the loft trend in particular can be too much of a good thing.
Jeff Lundquist said the proliferation of high ceilings and exposed ducts has driven down property values. Those who bought new units on speculation, hoping to sell them for a steep profit without even moving in, are losing big.
"There's a huge trend, and now the market's corrected itself," he said. "If there's too much, the value of the properties drops drastically."
Lundquist suggested prospective condo buyers in Sioux Falls choose a unit that offers something special, be it a view or proximity to entertainment.
"If you're investing in a condo, make sure that other than buying air space, that you're next to something that makes it valuable," he said.
Steve Metli, a 62-year-old banker and retired city planner, is reaping the benefits of a career spent improving downtown. For the past two years, he has rented a 1,300-square-foot Gourley building loft that looks onto the old courthouse to the west and his mother's childhood apartment to the south.
He said he'd buy downtown if the situation were right, but renting suits him for now.
"I like being able to pick up and travel and not have to worry about maintenance," he said.
A wise investment
Metli said a Sioux Falls condo buyer need not worry about returns on investment. Downtown will continue to be an attractive place to invest and an increasingly interesting place to live, he predicts.
As for a housing slump, he said lenders here always have been too conservative to oversaturate the market, and a retiring generation of empty-nest baby boomers ensures a steady demand for lofts during the next 20 years.
"Property values in the downtown are not going to go down," Metli said.
Despite selling only two of the Carnegie's 19 units, Fleming said the interest in buying downtown has been strong. Judging by the doubling and tripling property values in other downtown buildings, she said a condo investment would be a wise one.
Property values aside, Johnson, the retired teacher, hopes downtown Sioux Falls will have fulfilled its promise by the time she's ready for it. Among the amenities on her wish list is an operational State Theater.
In only seven months, her modest second home already has fallen victim to downtown development. The condo didn't offer much of a view when she bought it, but a new parking ramp east of Minnesota Avenue now stands between her window and St. Joseph Cathedral.
"I guess that's progress," she said.