How Todd Palcic weathered the Downtown Pittsburgh condo storm
December 27, 2013 9:34 PM
Todd Palcic in the lobby of one of his real estate projects at Fifth and Penn avenues.
By Mark Belko / Pittsburgh Post-Gazette
Todd Palcic started building condominiums Downtown during the Great Recession and lived to tell about it.
In 2010, Mr. Palcic, 39, left a lucrative job as a vice president at Waters Corp., a high-tech instrumentation company, to try his hand at developing condos.
His timing couldn't have been worse.
Developers were ditching condo projects for apartments. Condo loans were virtually impossible to get unless your name was Warren Buffett. And in Pittsburgh, new condo sales plummeted from 90 in 2009 to 65 in 2010.
The condo market was the "worst hit" of any market during the recession, said Helen Hanna Casey, president of Howard Hanna Real Estate Services.
A tough environment for the most savvy of developers, let alone Mr. Palcic, who had no experience in the field. In fact, his sole credential for the job was that he owned a condo.
"Everybody said, don't do it. Everywhere around the country condos were going bankrupt," he said.
But Mr. Palcic plowed ahead based on the simple belief that there was a demand for affordable condos in the Golden Triangle.
"I felt like I really understood the condo market and I knew there was a crying need for affordable condos Downtown. And if there isn't a crying need, you shouldn't get into business," he said.
His first purchase came in March 2011 when his company, Penn Renaissance LP, paid $515,000 for a six-story building at 806 Penn Ave. now known as L'Enfant Lofts, where he developed six units ranging in price from $200,000 to $415,000.
Two months later, Mr. Palcic bought his second property at the corner of Fifth and Penn for $500,000. Now known as One Fifth Avenue, the eight-story building houses 17 condos and a pizza shop on the first floor. Some units were listed at less than $200,000; others from $200,000 to $400,000.
The asking prices in both buildings were lower overall than those at some of Downtown's larger condo projects, such as Piatt Place, where condos were listed at $300,000 to $1.5 million, and the Carlyle, where prices ranged from $190,000 to $1.2 million.
Nearly two years later, Mr. Palcic is breathing a little easier. And he still has a shirt on his back.
At L'Enfant Lofts, all six units have been purchased, with buyers paying anywhere from $200,000 to $425,000. At One Fifth, 16 of the 17 units have sold, 14 in advance and two during construction. Prices ranged from $150,000 to $550,000.
Mr. Palcic said he ended up selling a couple of the units at One Fifth at a loss. But that, in a way, was part of the plan.
"The way to get everyone to buy in advance is to offer really competitive [prices] -- in our case, some units clearly below market prices, where we were just taking what I would call loss leaders," he said.
"We were trying to learn the business, understand construction, understand what is called adaptive reuse."
The game plan was not for the fainthearted. With virtually no money available for construction loans, Mr. Palcic invested most of his own money -- and then had to wait to recoup it.
"Until you can get an occupancy permit and the building is considered safe, your cash is just sitting there in that building, which is scary. You're hoping to pass the next inspection. You're hoping the contractors show up to finish the things they need to do," he said.
It made for some sleepless nights. But by selling units and taking reservations in advance, it gave Mr. Palcic the assurance that a market not only existed but was strong. He said he sacrificed profit "for restful nights."
"People would always say, why did you sell those condos so cheaply at $200,000 and under and so forth? And I say, so that I could sleep that whole year while I waited for the building to be done," he explained.
In the end, Mr. Palcic said he made a "small amount" of money on both buildings, no small feat given the economic climate. The experience, he added, was invaluable.
George Hackett, president of Coldwell Banker Real Estate Services, said Mr. Palcic was one of the few to take a chance on condos during the recession. From 2006 to 2011, virtually no one was building new condos and sales slowed down.
"He bucked the trend," he said of Mr. Palcic.
In his first venture into real estate development, Mr. Palcic said his biggest mistake was in underestimating the cost of converting the buildings. He spent $4.5 million to develop One Fifth. That, he said, was probably $700,000 more than he had anticipated.
Old buildings, Mr. Palcic said, are "really mysteries until you dig into them. There are no blueprints for a building built in 1890." Adding to the challenge are safety regulations that can drive up the cost, particularly in the city.
Now that he's a veteran condo builder, what's next for Mr. Palcic?
Having survived his high-stakes condo gamble, Mr. Palcic is looking to make a safer bet, at least for now. While loans are hard to come by for condos, financing is more readily available for apartments, he said. There also are tax advantages to doing apartments rather than condos.
"We think we can be more profitable in the longer term with apartments," he said.
Mr. Palcic's first apartment project, Lando Lofts at 909 Penn, is expected to start renting this summer. There will be 27 one- and two-bedroom apartments -- "unique, hip, lofty spaces" renting for $1,700 to $2,400. The first 15 should be done by June.
He also is redeveloping the Graphic Arts building on First Avenue into 35 apartments, mostly one-bedrooms, with rents ranging from $1,400 to $2,400. That project should be finished in two years.
Longer range, Mr. Palcic is looking to develop for-sale townhouses and apartments -- or maybe a hotel -- at an old grocery store lot at Brighton Road and North Avenue on the North Side.
Through the struggles and triumphs of the past few years, Mr. Palcic not only earned a little money and much invaluable experience in the real estate business, he gained something else: A healthy respect for entrepreneurs.
"In an entrepreneurial business, you can't make a series of mistakes and survive," he said. "I have a tremendous amount of respect for all entrepreneurs, including the people selling the Vietnamese hoagies in the Strip to the guy who opens any kind of [business]. I respect them a lot more even now than I did before."
Mark Belko: email@example.com or 412-263-1262.
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