I know this is kind of old news around here and we've definietly come to the right conclusions many times but here is a Steve Lackmeyer article from today's paper.

Why downtown condos cost $250,000

By Steve Lackmeyer
The Oklahoman

For the past two years, the question has lingered among those watching the emergence of housing in downtown Oklahoma City: “Why are so many of the new units priced at $250,000 and up?
Such pricing left a lot of young urban professionals who rent downtown frustrated. They could afford to jump from a $750 a month rental payment to a $1,000 condominium payment. But $1,000 a month doesn’t get you past $200,000 without a hefty down payment.

It’s not as if downtown developers haven’t known all along about this pent-up demand. While they might make more money on a half-million-dollar condo, they would be assured a quick sale with units averaging $150,000. Yet in almost every major downtown development announced to date, the prices continue to hover at $350,000. The Oklahoma City Urban Renewal Authority, recently given a choice between a mixed-use development of lower-price condos and apartments versus highprice residential towers for MidTown, went with the upscale product.

Credit Brett Hamm, president of Downtown Oklahoma City Inc., for offering an explanation that sheds light on the question of high-price housing.

The slant toward higher-price housing isn’t by coincidence — it is a grand conspiracy. Well, that’s not exactly how Hamm worded it. But here’s his take: you have to start somewhere. You can start with expensive housing in an area and then eventually add lower-price choices to the mix. But you can’t start developing an area by building a lot of lower-price housing and then hope to add more expensive units later.

Downtown housing really was a blank slate as late as 2000. It was then that a study by Houston-based CDS Market Research reported 6,000 people desired to live in downtown Oklahoma City but their interests were thwarted by a lack of available housing. That was the match that lit the fuse.

Much of the development involves land controlled by the Urban Renewal Authority. The Hill, Block 42, The Centennial and now Overholser Greens all are Urban Renewal projects, all involving products generally priced north of $200,000. Also priced higher than $200,000, but developed privately, are the Brownstones at Maywood Park. On the other side of this equation are the Central Avenue Villas, the Harvey Lofts and the just announced Lofts at Maywood Park as developments offering at least half of their units below $200,000. But the number of higher-price units far out-number the ones that will be sought after by all those aspiring homeowners living in the Deep Deuce apartments.

And that’s just fine with Hamm. One of the oftentold rules of buying a home is to avoid the highestprice house on the block. Take that wisdom downtown and you can see why it’s so important to get the high-end housing under way. You don’t want to buy a $400,000 house surrounded by $150,000 homes. But who doesn’t want to buy a $150,000 house surrounded by $400,000 homes?

Of course, the next question is whether all of this expensive housing downtown will sell. The results aren’t quite in yet, but with The Centennial a virtual sell-out and half the units sold at Block 42, the grand conspiracy is far from a failure.

Yes, a grand conspiracy and one generally perpepuated by OCURA.

And the question isn't why they cost $250K and up, by why so many of them cost $400-700K.

We'll see about The Centennial... Many developers make inflated pre-sales claims as a marketing ploy. And of the legitimate sales, I wonder how many are going to be owner-occupied versus corporate housing and/or investment properties?

We've already seen that The Classen couldn't sell at prices most thought were too high.

Why are so many priced above $400K? This is an easy one to answer. The downtown housing report cited that there was demand for 6,000 downtown residents. Obviously not all 6000 of these people are in the same income bracket. So lets say that there are 500 people that can afford $400K+ that want to move downtown. Doesn't it just make sense that you would build these first? Why make a little money when you can make a lot of money. You then use your high margin property to finance your low margin property.

Yeah, it makes too much sense to do it this way. The only question will be if they can't sell them, will they move on to lower priced developments or just move on. The reality is that many cities had this "problem" during the 90s when urban living became favorable again. I really think by this time next year we will either have a busted dowtown housing market or several more affordable projets will be announced.

It will probably be little of both. There will be some high end units that don't sell and will be on the market for a long time. This is probably why no one has proposed any high rise towers. However, there is a market to be served on the mid to low end and you will start to see the units coming online probably next year. As mid priced units get built it will help stablize the area and you will see some more upscale units come on line.

Kerry, you make good points but OCURA is a government agency choosing developers for sweetheart land deals made possible by public incentives, i.e. our tax dollars. They also are supposed to be working for the greater good of the city.

Developers are business people and should charge as much as people want to pay.

But OCURA is purposely selecting high-end proposals over more moderately priced ones, which is not only not in the best interest of most citizens, it's also risky because there is no proven market at these price points.

Sycamore Square is a great example of this... Too expensive and not unique enough to ever be successful. And their failure pretty much ended downtown housing development for quite some time.

It also defies common sense to build a bunch of $600K condos when you can go a few blocks into Heritage Hills and buy a mansion for that.


I can understand wanting to start with some up-scale units, but most of these seem priced way too high and OCURA just approved Overholser Green which is more expensive yet.


If developers want to go do these projects completely on their own, without government assistance, then I say go for it as they are the ones bearing all the risk.

That is a good point, Malibu. You can't say much when the market dictates that the developments be high end properties and if they can sustain themselves, then good for them. However, it becomes an issue when the government, through OCURA, is using public land to dictate a high end market, one that is obviously less accessible to a larger part of the population. In effect, the developer is afforded lower risk on a potentially higher grossing product while the public gains less. If there were no competition for these properties, then I would say that OCURA would be doing good by just having them developed, but they seem to be actually making a conscious choice towards more exclusivity.

It's hard to say whether there is a real margin gain for the developer in the higher end properties, as I do not have actual cost figures, but it would be nice to see OCURA either demand that the projects have certain real value to the public or that any compromises in design and amenities come with a price point that is lower in relation to those compromises. Instead it seems like the projects they select have both public compromises and higher price points. The irony is that, to date, it seems the projects that weren't hand picked by OCURA are the ones with more consideration for the public and more attainable price points.

which is not only not in the best interest of most citizens, it's also risky because there is no proven market at these price points.

Sycamore Square is a great example of this... Too expensive and not unique enough to ever be successful. And their failure pretty much ended downtown housing development for quite some time.

It also defies common sense to build a bunch of $600K condos when you can go a few blocks into Heritage Hills and buy a mansion for that.

I agree completely.

Not to mention the market has shifted and we've lost a lot of speculative investors ( a good majority being condo investors).

I'm hoping I'm wrong but I just don't see people paying 300K-600K to live in a condo to be downtown. I know in places such as San Francisco or New York, people pay to go vertical.. but they are limited by lack of land and space.. which we have an abundance of here. Not to mention, our traffic is nothing compared to those places. People there pay a premium to live close to their jobs so they can walk/bike or take public transit.... I just don't see the issue in OKC yet.

Trust me, I would love to see nothing more than a vibrant downtown area but I think the developers might be a tad high on some of their projections.

About a year ago, I looked at a beautifully restored home in Heritage Hills: huge new master bath with travertine, renovated kitchen with granite, gorgeous wood floors and tons of character. It was even featured in a historical living magazine, was about 2,200 square feet, had a very nice backyard and brand new 2-car garage. The street was extremely nice with tons of huge trees and lots of big, covered porches.

That house was $270K.


Yes, some people want low-maintenance homes but most condo projects come with hefty home owners dues, usually several hundred dollars a month at the higher end. If you put that same amount into a sinking fund for maintenance on an older home and also paid a gardener and a gym membership, you'd still come out way ahead.


BTW, besides the Classen not fairing well in it's attempt to sell condos (and they were all in the $200-300K range I believe) Tannenbaum also found that trying to take the Montgomery condo didn't work and didn't even consider it for Park Harvey.


I don't think it's coincidence that of the 4 high-end condo projects under construction in the central core, 3 were OCURA land deals and thus subsidized (The Hill, The Centennial and now Overholser Green) and only one was started on it's own steam: Brownstones at Maywood Park. And even that was just one smaller phase of a much larger project which is already starting construction on much lower-priced units.

Good points Malibu. Just FYI, the Classen units originally started around $140-$150K if you bought early enough. Eventually they realized they estimated too low and raise the starting point between $160-$180K and average was like $240k I believe, of course you could go with the penthouses for like a mil, but most units were still far less than most of the developments coming online downtown. Surely OCURA would have used common sense and look at what is already happening with the high end market.

I don't think it's coincidence that of the 4 high-end condo projects under construction in the central core, 3 were OCURA land deals and thus subsidized (The Hill, The Centennial and now Overholser Green) and only one was started on it's own steam: Brownstones at Maywood Park. And even that was just one smaller phase of a much larger project which is already starting construction on much lower-priced units.
The Maywood project (Triangle development)includes free Urban Renewal land. Triangle will get by far the most nominal TIF subsidy, $6.5 million, when the Triangle project is completed. But; Overholser Green is asking for about $32m per unit , which is more than twice the nearest per unit subsidy which was Block 42.
:numchucks

I think the Classen is a little bit different. It's not in downtown, so the location is not as desirable, and also some may think the building is ugly. You also have to remember that the 360 is selling really well. It's hard to say what will happen with all these downtown projects.