The number of residential options in downtown Albany has been steadily growing over the last few years. And as mayor Kathy Sheehan at an Impact Downtown Albany event Tuesday at 60 State: "We really are gifted with a lot of the great bones that we need to fulfill the promise of downtown living."
So, how does the city move from promise to actual development? What are the challenges? What's the potential?
The Tuesday event focused on some of those questions. Here are a few bits from the discussion...
The current state
Ben Carlson -- from Goody Clancy, the consultancy heading up the Impact Downtown Albany study for Capitalize Albany -- said the downtown area has added 200 residential units during the last decade and another 200 are currently in the pipeline. "It's been clear that the market has been there," he said.
And Georgette Steffens, the executive director of the Downtown Albany BID, said residential units in downtown Albany have a 97 percent occupancy rate.
A more few numbers presented by Laurie Volk, one of the consultants involved with the project:
+ The downtown residential population is now about 1,250 people.
+ Residential rents downtown currently range from about $500 (for about 500 square feet) to $2,400 (for about 2,000 square feet).
+ Prices for condos range from about $200,000 (1,250 square feet) to $540,000 (2,400 square feet).
Part of the reason to be optimistic about expanding downtown residential, according to the consultants, is that the nation's demographic trends are pointing in that direction. The two biggest generational groups -- the Baby Boomers, many of whom are becoming empty nesters, and the Millenials, now looking for housing of their own -- are said to be looking for walkable, urban living options. Millenials, especially, are said to not be big fans of driving. (The "Millenials don't like to drive" bit is one of those things that's apparently now conventional wisdom. It seems to pop up in every discussion of this type.)
Carlson said those two groups are driving a "sea change" from the suburban-style development of the last 50 years.
Another demographic trend pointing toward urban living, according to Laurie Volk: households are smaller. A big chunk of the households in the city of Albany are either 1 or 2-person households, which tend to be more open to something other than the 3-4 bedroom house with a yard. And single women, especially, are becoming a bigger part of the house buying market -- and that group also seems to be leaning toward more urban-style options.
In recent years, there have been about 3,750 households moving to/within the Capital Region that fit the profile of being potential urban buyers/renters, according to Volk. About 3/4 of those people are young singles or couples. Another 20 percent are empty nesters and retirees. About 5 percent are families -- though the number of families open to downtown-style housing is also said to be growing.
So, the thinking goes, if downtown Albany can capture some slice of the local market of people who'd be open to living there -- say, 5 percent of the rental market and 2 percent of home-buying market -- it could be in line to more than double its population over the next decade. That would give it more than 3,000 residents.
What would that mean for downtown Albany? Well, it's said to take about 1,000 households to support a block of retail. So another 1,000 or so households could widen the range of retail options there. People who live there are already hoping to eventually see some sort of grocery store -- maybe that becomes more feasible with double the population.
There's also hope that a rising residential population has feedback effects for downtown. Here's how the thinking goes, according to officials: More residents could mean more and different retail options, including something beyond bars or restaurants. As the retail options multiply, more people are drawn to the downtown -- either as residents or visitors. As the neighborhood gains amenities, maybe it also becomes more attractive to employers -- say, tech companies perhaps -- that want to locate in areas that will be attractive to their employees. The new/relocated employers bring new residents and amenities, and the cycle continues to run, with development spreading outward.
The challenge is getting up that first hill, developing that critical mass of residential units. It's a big push in the beginning.
The most interesting part of the Tuesday presentation was something that might sound really dry: the financial math behind residential development projects downtown. Sarah Woodworth, one of the consultants, laid out the numbers behind two hypothetical projects -- one a conversion of office space, the other new construction -- both about $6 million. She ran through the costs of acquiring the property, construction, operation, taxes, and potential revenue from rents. All that funneled to the most important number (from a developer's perspective): the potential investment yield of the projects.
Developers are looking for yields in the 7-8 percent range, according to Woodworth. The problem is that because of some of the costs involved with doing projects in downtown Albany -- especially the taxes -- the projected yield without any incentives is somewhere in the 4 percent range. Yep, way short of the target.
So Woodworth ran the numbers again, folding in various tax incentives, like PILOT agreements and tax breaks on construction materials. Even with those incentives, the projected yield still fell a bit short of the target, but it was a lot closer: somewhere in the 6 percent range.
The numbers presentation was really interesting because it highlighted how much of a speed bump the city's relatively high taxes can be to development, and why developers are always pushing so hard for incentives.
It also provided some insight into why so much of the development downtown has been on the high end of price so far. The higher the rents, the closer the investment yield is to the target. Marc Paquin, the developer whose company converted a former printing company building into The Monroe apartments, said they've seen very strong demand for downtown residential, with a waiting list and multiple inquiries per day. But the rents are a bit higher than what a chunk of the people interested can afford.
"The real challenge for our community is the math equation, and how to make the math work," said Paquin, of how to development more units, and at a price more people can afford.
Of course, any projection is based on a number of assumptions. We hope Impact Downtown Albany will eventually post these projections online so people can study them, critique them, and get a better handle on them. Because they did illustrate some of the challenges well.
The talk of tax breaks and incentives for downtown development touched on a simmering issue in the city: Who should be getting these incentives, and how much? It's an issue that's also recently popped up as part of the Park South redevelopment.
Imagine you're a smaller-scale landlord in the city, with maybe five or six apartments. You're watching the city give breaks and incentives to big developers to build new units -- which you'll be competing against for tenants. So, you know, where's your tax break?
That was a point made by Bob McRae, the president of the Capital District Association of Rental Property Owners, during a question-and-answer session at Tuesday's event. As he summed it up to us in a follow-up email:
The bottom line is I appreciate the concept of a vibrant downtown improving the quality of life for the surrounding neighborhoods, maybe even the whole City, but the model we're using to "kickstart" this process is unfair to everyone but the lucky investor with money to begin with. The rest of us must continue to compete in the climate of high taxes. That's just not right. I do not support my money guaranteeing someone else an unrealistic profit. Someone else told me tonight that "the government is now picking who wins and who loses in the private sector." He's absolutely correct in that observation, and that's a very bad thing.
We've heard other landlords make a similar argument at meetings for the Park South redevelopment plan. And as McRae told us last night, small landlords make up the bulk of the city's rental market. So it's an issue worth more focus from the city. Are there ways to get smaller property owners on board with something that people feel is more fair?
Capitalize Albany has two more events of this type coming up, about commercial/office space in April, and retail in May (the specific dates haven't been announced yet). Based on this first event, they'll be worth checking out if you're interested in the topic.
Earlier on AOA:
+ Six short takeaways from six short talks about downtown Albany
+ Impact Downtown Albany
+ Real Estate Week 2012: Living in downtown Albany
The Downtown Albany BID advertises on AOA.
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