Condos going up at a frenzie
Most developers are aiming at high-dollar buyers seeking luxury
Staff Writer | November 25, 2005
The condo craze that's sweeping through the coastal markets is taking hold in Dallas. Developers have kicked off construction of more than 20 projects that will add 2,600 new units in Uptown and the urban core.
Another 1,100 units are poised to break ground, including a 21-story, 70-unit addition to the historic Stoneleigh Hotel and a 300-unit conversion of Maple Terrace, a Turtle Creek landmark.
Most are luxury developments, targeting buyers who don't mind paying $400,000 or more for a 1,000-square-foot high-rise home. The priciest offerings are found at the W Dallas Victory Hotel & Residence, Residences at the Ritz-Carlton, Cresta Bella and One Arts Plaza, where units are going for an average of $400 to $650 per square foot.
So far, early sales success has stunned the experts.
Hillwood, which is developing about 500 condominiums in four projects at Victory, its massive mixed-use development surrounding American Airlines Center, has contracts out on 75% to 85% of its units in the W Hotel and The Terrace. About half of the units in its newest tower, The House, have been put on reserve.
According to local real estate sources, strong condo sales at the Residences at Ritz-Carlton, under construction on McKinney Avenue, is leading developer Crescent Real Estate Equities Co. to add a second tower on the site.
"It's baffling to me," said Cassie Gibson, managing director of market research at Dallas-based Residential Strategies Inc. "Developments under construction are all selling well, and every day more people are announcing new projects. They don't seem to be worried that there's no historical data to support this amount of supply in the market.
"More than anything else, I think early successes in other real estate markets is creating confidence," Gibson said. "Developers think Dallas is going to be the next Miami or the next Las Vegas."
Until recently, condo development in Dallas was concentrated in the Turtle Creek area, with luxury high-rise projects targeting Preston Hollow and Park Cities empty-nesters, who wanted a maintenance-free lifestyle with a prestigious address. Then Hillwood announced its W Hotel Victory project in mid-2003, and things snowballed from there.
Besides the W, four other new urban condo projects are tied to hotels: The Residences at the Ritz Carlton, Cresta Bella, adjacent to The Mansion on Turtle Creek, ZaZa Metropolitan Club, which adjoins Hotel ZaZa, and the condo tower addition planned for the Stoneleigh Hotel.
Some developers are looking at using condos to kick off office projects, including Craig Hall, who is planning a 47-story tower in downtown Dallas. One Arts Plaza, a 24-story, $100 million office tower under construction in the Arts District, will be topped by seven floors of condo space.
David Griffin of David Griffin & Co., who is marketing the One Arts Plaza condos for developer Billingsley Co., said the office component has not been a turn-off for potential buyers.
"The spirit of the urban environment is very appealing to them," he said.
Because 7-Eleven Inc. has signed on to lease about 250,000 square feet of office space at One Arts Plaza, the project isn't dependent on condo presales, Griffin said.
"A lot of other developers have to have a certain number of units under contract before construction can begin," he said. "Because of the commitment from 7-Eleven, we know we'll be able to begin delivering condos in May of 2007."
According to early statistics, about 25% to 30% of Dallas urban condo-buyers are out-of-town investors. So far, though, this hasn't created the hyper-inflation of pricing that's occurring in some other markets, said Mike Puls, president of Dallas-based Foley & Puls Inc.
"Those are monopolistic economies," he said. "The economics in Dallas are different; they're real. Condos are still being sold at the prices they were selling at a year ago. For the hyper price-appreciation to happen here, you'd need a limited supply."
Puls called Dallas an "unsophisticated, emerging condo market." He said the initial outlook is good, provided job-growth predictions are on the mark. Still, one challenge to overcome is the lack of diversity among product offerings.
"We have too much of the same thing," Puls said. "Developers are all designing their products for the same reason; unfortunately, it's the wrong reason. They're doing small units at high prices with the goal of making the most money. But the higher you get, the more narrow the market gets. And if you create an oversupply in a product line, you'll have diminishing returns. It's pure economics."
Developers who design their projects around maximizing dirt costs could falter, Puls said.
"They need to tie their products to the customer base," he said. "The target market is paying for the products. I think that's a better idea."