Apartment boom continues in Downtown Pittsburgh
Share with others:
These days, it seems, just about everybody wants to build apartments Downtown.
Whether it's 101 new units planned at the former Saks site on Smithfield Street or 241 at the old Alcoa Building on Sixth Avenue or 100 at the John P. Robin Civic Building on Ross Street, developers seem to be buying and building like crazed Monopoly players.
In all, the Pittsburgh Downtown Partnership estimates about 200 apartment units are under construction and another 750 are in the conceptual or planning stages in the Golden Triangle. That's on top of 2,262 existing units in Downtown, the lower Hill District, the Strip District and the North Shore -- or 412 more than four years ago.
PMC Property Group, the Philadelphia developer that two years ago did not own a single apartment Downtown, now hopes to have 1,000 in the next three to five years. It already has completed 158 units at 201 Stanwix St., the former Verizon Building, with another 33 at the Penn Garrison apartment complex on Penn Avenue.
Such aggressive plans didn't stop local developers Millcraft Industries and McKnight Realty Partners from proposing earlier this month 101 apartment units at the site of the closed Saks department store as part of a parking garage and retail development.
All of this building raises a question: Just how many apartment units can Downtown support?
After all, only five years ago luxury condominiums were all the rage, with developments like 151 First Side, Piatt Place, the Carlyle and the Residences at Three PNC Plaza.
Those projects have produced mixed results, in part because of the recession, the collapse of the national housing market and tight mortgage requirements. All but seven of 82 units at 151 First Side have sold, but only 33 or 34 of the 60 at the Carlyle have done so. Twenty-three of 28 have sold at Three PNC Plaza, while 52 of 65 have done so at Piatt Place.
Apartments are a different story, developers and real estate experts say. Downtown, at least, units are filling up faster than the Steelers' injury list. The Downtown Partnership estimates a 95 percent occupancy rate for apartments Downtown and at the fringes.
"They're renting as fast as they can get them built," said Carole Clifford, an associate broker for Stonebridge Realty, who follows the market closely.
Ms. Clifford sees a "rental economy" Downtown and elsewhere in the region for the next five to 10 years. Factors driving that include the difficulty in getting mortgage money, the high down payments required for home buying and a transient population more comfortable with renting than buying.
"We're not even at the top of the curve yet in the rental market," she said. "I think rental is the new normal. I really do."
Ms. Clifford doesn't believe the number of units under construction or in the planning stages is out of line with market realities. "I don't think it's a glut at all. I think Downtown certainly can support that," she said.
PMC has been on a buying and apartment building binge in the city's core since entering the market. The purchases of the Verizon building in 2010 and the 117-unit Penn Garrison in 2011 proved to be just a start. (The Penn Garrison opened in 2001, a joint venture of Oxford Development Co. and the nonprofit Regional Industrial Development Corp.)
PMC, which has built more than 3,000 apartments in its hometown of Philadelphia, also has gobbled up the Regional Enterprise Tower on Sixth Avenue, where it is planning 241 units; the adjacent James Reed Building, where an estimated 175 units will be built; and is negotiating with the city to buy the John P. Robin Civic Building on Ross Street, where another 100 units are on tap. It also has a bought a couple of smaller buildings Downtown with plans for more apartments.
In all, PMC hopes eventually to have as many as 1,000 units Downtown, said Joe Rostan, assistant property manager for the company.
So far, the demand has been exceptional, he said. Only four units are available at 201 Stanwix. PMC already has leased 15 out of the 33 new units at the Penn Garrison in the month after the first move-in.
"I don't know if we can build enough apartments for people who want to live Downtown," he said.
He said the majority of those renting are coming from outside the city. Many are young professionals. PMC also leases to corporations that need temporary space for employees coming into town.
It is hoping that its rental rates will be attractive to people of moderate incomes. At 201 Stanwix, for example, rentals range from $1,200 a month for a one-bedroom unit to $1,950 for a two-bedroom unit. At the Penn Garrison, one bedrooms start at $1,135 a month.
Mr. Rostan sees no reason to pull back on the PMC's proposed building campaign. He has had situations where someone has called one morning to inquire about renting an apartment only to call back the next day and find it taken.
"The demand right now, I have no trouble renting these apartments," he said. "I hope it doesn't slow down. There's definitely a need. There's a lot going on in Pittsburgh. There really is."
Jerold Novick, PMC executive vice president, said the firm hasn't done any studies to gauge demand. "We kind of go by feel and the demand of the market. The demand so far has been good," he said. "People are very gung ho about the market."
Millcraft is finishing up the 218 units at River Vue, the former State Office Building, where it already has leased 68 percent and expects to be at 80 percent when construction ends next month. It has fully leased all 46 units at Market Square Place, the old G.C. Murphy store.
Rents at River Vue run from about $1,050 for a one-bedroom to $5,500 a month for a large penthouse. Rents at Market Square Place go for $900 to $3,000 a month.
Lucas Piatt, Millcraft's chief operating officer, said the developer decided to build more apartments at the Saks site because "we think the absorption of another 100 units is feasible" Downtown.
"We're still seeing strong absorption and we're cautiously optimistic that it will continue," he said.
Millcraft rents to a lot of young professionals and empty nesters. Mr. Piatt said many of those who come to Pittsburgh from other cities are looking first to rent Downtown as opposed to the suburbs. About half of all those who rent from Millcraft come from outside the city limits, he said.
An International Downtown Association advisory panel report commissioned by the Downtown Partnership in 2010 appears to back the confidence of developers.
The report concluded many developers, lenders and city officials were "misreading" the size of the Downtown market. At the time, one study suggested the market could handle 175 units a year. But the panel noted that similar-sized cities like Memphis, Denver and Minneapolis were able to absorb 300 to 500 units a year.
It stated that the issue in Pittsburgh was a problem of supply, not demand, and urged builders to consider a range of options, from affordable, small apartment units to market-rate condominiums.
"Panelists believe the trend toward rental units being more popular will continue in the next few years, and think smaller, more affordable units are missing from the Pittsburgh marketplace that might broaden Downtown's appeal to potential first-time residents," the report said.
The Pittsburgh market as a whole now has one of the lower apartment vacancy rates in the country, at 3 percent -- much lower than the national average of 4.6 percent, according to REIS, a commercial real estate data and research firm. The low rate is helping to fuel the construction of more units, said Ryan Severino, REIS senior economist.
But all that building could have a negative effect. REIS is projecting that the vacancy rate will increase to 3.5 percent within the next three to five years and that some apartments may sit empty for a time.
"I don't think it will be dramatic. It will be marginal," Mr. Severino said.
Some think factors like parking and price could spoil the party.
William J. Gatti Jr., president of Trek Development Group, owner of the 60-unit, fully leased Century Building on Seventh Street, said he doesn't see a softening of demand for apartments "that have the right amenities and are priced right."
But lack of affordable parking could be a deterrent. "What's limiting people is access to parking. You need to have a good parking solution," he said. "I think that anybody that is planning any residential development of any size Downtown needs to be thinking hard about how to solve that problem."
The best option, he said, is to have integral parking, although that can be expensive. Second best is to have a public parking garage nearby. Century Building residents are able to park at the privately owned Theater Square garage.
Millcraft has on-site parking for residents at River Vue and Market Square Place. On-site parking also will be available at the former Saks site. There's no integral parking currently available at 201 Stanwix or the Penn Garrison, although residents are able to park at nearby garages.
Mayor Luke Ravenstahl said the city is acknowledging the need for more parking with the proposed 400- to 500-space garage at the Saks site. But he added that the city typically works with residential developers Downtown on a project-by-project basis.
Developer Ralph Falbo said the bigger impediment to residential growth Downtown may be price. One-bedroom apartments leasing for more than $1,000 a month may not be affordable for some people, particularly younger adults who have an interest in living in the city.
"There are a lot of people who want to live Downtown but who can't afford to," he said. "That's a bigger challenge than demand."
Mr. Ravenstahl shared that concern. He said he wants to make sure there's a good mix of rental options available so that anyone who wants to live Downtown can afford to do so.
"The price point is always an issue," he said.
As more units are built in the Golden Triangle, it could help to lower rental rates as developers bid to fill the space, the mayor said. He believes the majority of units right now are reasonably priced.
"Anything that we can do to maintain that low end is something we want to achieve," he said.
Price wasn't a deterrent for Nisha Srinivasan, who moved into a one-bedroom apartment at 201 Stanwix last Sunday. The rent is the same she paid for a studio in Philadelphia and a shared unit in Manhattan about a quarter of the size of the one she has now. Plus, she has much better amenities, such as a washer and dryer in her apartment, a gym in the building and a 24-hour doorman.
Ms. Srinivasan moved Downtown to be close to her job at the H.J. Heinz Co. and to take advantage of what she called a rejuvenated cultural scene, with the new restaurants and places to hang out.
She has found that anything she could do in New York, she can do in Pittsburgh -- perhaps on a smaller scale and in "kind of a less pretentious way."
"I feel like the scene is picking up Downtown," she said.
While her apartment offers much more bang for the buck than those she has had elsewhere, she still had concerns about rates, noting that rents are cheaper in other trendy areas like Lawrenceville and Shadyside.
"I just think the price point is very sensitive because there are alternate options," she said.
Right now it doesn't appear to be affecting the demand. Mr. Ravenstahl, for one, doesn't see that letting up any time soon.
"From working with developers and folks from the Urban Redevelopment Authority, there's a clear demand and need for more housing Downtown," he said.
"At this point, we can't build it fast enough."
First Published October 21, 2012 12:00 am