Movin' On Up?
In late July, I received a call from the owner of the building I had been living in for five years. Her fourplex in south Minneapolis's Kingfield neighborhood, she told me hesitantly, would be sold in the next couple of days to a company planning on a condo conversion. I'd probably have to be out by the end of August. She had first rented to me in 1999--when I had no money, no job, and no references--because she liked what she'd seen after running my astrological chart.
Eventually I became the building caretaker and developed a kinship with her and her father, a brusque but good-hearted Jewish émigré from Belarus whose command of conversational English lay mostly in words like "motherfuck" and "pussy bull." He managed to accidentally offend most tenants. He called me "Boy," and I jokingly referred to him as the father I never needed.
I took small comfort in the fact that I wasn't the only one being tossed out. Around the same time, my girlfriend and two other friends received their own eviction notices. After checking the state attorney general's office to see if the new owners could boot me on 30 days' notice (they could), I realized it was time to buy a place to live. At age 34, and after six apartments in the past twelve years, I made a vow: No more renting.
Though it seemed to be the twilight of soaring property values in Minneapolis--conventional wisdom said things were turning from a seller's to a buyer's market--goofy things were afoot. Condomania had finally hit home.
The last time Minneapolis's housing stock went through such a stark and swift transformation, it was the 1950s, and city planners were leveling block after block of tenements. Forty percent of downtown fell in just four years. It's hard not to wonder what those old three- and four-story brick buildings would be worth to today's developers. These days, construction equipment litters lots all over the city, scaffolding indicates warehouses that are undergoing extreme makeovers, and, on weekends, open-house signs pop up on random sidewalks. Look at a map of building projects around the city, and there's a startling cluster in the heart of the city, and not much of anything going up anywhere else.
Skyway News, the downtown community newspaper, has taken to running a "condo pipeline" feature every month. The column stretches out over two half-pages, updating the status and completion dates of projects called the Phoenix, Calumet Lofts, and the Sexton. For November, the paper tallied 49 development projects in various stages of completion, with at least 5,800 units still slated to be built in the next few years. A headline in that recent issue trumpeted, "Read Our Lips: No New Condos." Apparently, there aren't any fresh deals to be added to the pipeline. As editor David Brauer wrote, "In these project-crazed days, that's news."
This could be very good news or very bad news, depending on how you look at downtown Minneapolis's transformation from a business center to an entertainment district to an expensive residential enclave. It could mean that the rapid redevelopment--as crass and high-end as it has been--has naturally mellowed into a sustainable market. Or it could mean that the market has been saturated, and for all of the meticulous design that's gone into some of the finer units downtown, they may end up sitting empty.
Two decades ago, the first few signs of a downtown housing trend cropped up. The loft conversion of the Itasca building, an old warehouse near the river on North First Street, surprised many by selling quickly. By the mid-1990s, three separate loft projects were underway nearby in the North Loop neighborhood. Five years ago, developers broke ground for River Station in the same area, and the first of some 360 new condos sold at prices twice as high as had been predicted.
Since then, new loft-style townhomes and condos have proliferated like rodents. Hard figures are tough to come by--the city itself does not keep track of the numbers--but some estimates give a glimpse of the rapid expansion. In April, Maxfield Research Inc., which does feasibility studies for realtors, estimated that there were as many as 11,000 housing units downtown--a number that has easily grown by as much as 500 since then. From 1994 to 1997, a total of 80 new units were built; by last year, that number had grown to more than 700. (And this doesn't account for rentals that have been sold as new condos.) In 1995, according to the Downtown Council, 19,000 people lived in the urban core. Now the council believes that by 2005 some 30,000 people will be living downtown, more than in Denver, Dallas, Houston, and Indianapolis combined.
Recently, however, the market has softened. In October, the Multiple Listing Service--a real estate listings clearinghouse--estimated that more than 360 new units had failed to sell so far this year. That's compared to roughly 200 in the same timeframe last year. Many units up for resale have been on the market for months, whereas a year ago sellers had offers within hours of listing a home. Interest rates, after a run at historic lows, are sure to rise again. Of late, developers have started adding incentives, like free hardwood-floor upgrades, to potential buyers.
Truth is, no one knows what will come of Minneapolis's real estate gold rush. Last month, a dispute erupted between two developers who share ownership of the property on Hennepin Avenue known as the Skyway Theater site. One of the owners wants to keep a nightclub situated in the old Skyway. The other wants to put up 50 stories of high-end condos.
Is madness contagious? And if not for mass psychosis, how else should I explain my decision to move downtown? This was before I realized that the kind of loan I'd be offered would barely qualify me to purchase a bathroom in most of the available units. After I fruitlessly looked at about 20 houses on the North Side, my parents got involved. It struck me as pathetic that I'd be leaning on my folks at this point in my life, but my father was convinced it would be a good investment. Pride and mortgages, it turns out, don't mix.
The market had been driven early on by speculators. As a result, most prices were inflated. This hadn't been a problem a year earlier, when people were bidding on units. But the rush of buyers had declined steeply over the previous year, and there was no reason to be hoodwinked on a place. The speculators--or "flippers," people who bought a unit to hold it for a year and sell it for $50,000 to $100,000 more--were getting stuck with mortgage payments on places they weren't occupying. More and more, the market was turning toward folks who actually wanted to live in the loft or condo they had purchased.
I soon jettisoned my first realtor for another who seemed to know how this game worked. For instance, he warned me away from several places advertising a view, the theory being that most places with views would soon have other buildings going up around them. He also understood the pitfalls of getting mid-priced units--anywhere from $260,000 to $500,000--in some of the higher-priced areas. These, he believed, would not appreciate at the rate of the very high-end or low-end units, and resale would be tough.
All of this talk made me nervous, since I was increasingly convinced that the market would plummet. This would not be a good investment for my father or me. I had been naive going into the whole process, barely understanding the interest rates on different loans. But I was getting a crash course on the absurd world of downtown real estate.
Just about every unit was the nicest place I had ever seen. There was an emphasis on big kitchens with marble countertops, stainless steel appliances, and "media rooms" that were bigger than any bedroom I'd slept in for the last decade or so. Every place came with a glossy brochure boasting any number of amenities: a river view, a "fitness center," a "social lounge," dry cleaning and car wash services.
It helped if you could imagine these things. In many places, hard hats were required to look at...well, what, exactly? After one particularly harrowing visit to a loft existing only on paper, my shoes were covered in spackle and I had acquired a six-inch tear in the seat of my pants.
In some cases, property tour guides put on the hard sell with smiles that caused me great anxiety. In the ornate lobby of one especially ritzy complex, the sales agent looked at me and said, "This is where you'll be picking up your Domino's pizza every night."
At times, I felt like I was auditioning to join a country club. Nobody here was going to run my astrological chart to see if I'd be a suitable tenant.
My realtor told me that inevitably--like so many others in my income bracket--I would come back to River Station. This complex was conceived as "affordable housing" five years ago, and still is, relatively speaking. Developments that aim a little higher than River Station, particularly those on the east side of the river near St. Anthony Main, have units that start at $350,000 and go as high as $3 million. River Station, quaintly enough, had some units hovering around $200,000.
I swear I visited nearly every possible condo and loft project downtown: Grant Park, Bookmen Lofts, Metropolitan, American Trio, the Lenox, the Tower, Village at St. Anthony. Every meaningless name became shorthand for a certain class status. I never managed to figure out what caste was represented by $500,000 homes and nightly deliveries of doublemelt pizza. I did learn, however, that the stretch of riverfront by the Milwaukee Depot is earnestly referred to as "the Gold Coast."
At moments like these, I found myself wondering: Who are the people living here, and where the hell did they get all their money? Could all of us have shaken down our parents? My father began to appear ashen-faced. Outside on the sidewalks, he could be heard muttering about how 25 years ago he'd bought a home in Orono for a quarter of what we'd be paying for a one-bedroom.
Buying a condo, though, was its own game with its own rules. The bloated asking prices in one place tipped you off that it had been overrun by flippers. Other developments maintained purposely inflated prices, based on how many units had been pre-sold. There were buildings overlooking a highway, and buildings perched precariously over railroad tracks. Some places didn't have parking. Some things simply couldn't be explained. Historic preservation guidelines meant that balconies could only be built on one face of a structure and not another. Irregular floor plans were to be avoided, as were cookie-cutter complexes. Association fees and condo dues could run an owner $700 a month.
After two months of viewing as many as 10 to 20 units a week, I finally felt comfortable enough to make a bid on a place. It was a condo that had been on the market for five months, it belonged to a couple, and one spouse had been transferred to a job in northern Minnesota. My father and I took a gamble and made a lowball offer--tens of thousands less than the original asking price--with the idea that I could afford monthly payments myself. The sellers accepted without so much as a counteroffer. My realtor was right; I was back at River Station, the first place I had looked.
I hope to close on the place on November 30, but for the most part I can't get rid of a nagging anxiety. At some point in any market boom, the greater fool theory comes into effect. The price has little more than a nodding acquaintance with the actual value; the only thing that matters is what the next sucker in line is willing to pay.
Is the condo market slated to go bust? I have no idea. I can tell you this, though: The past three weekends, developers have hosted a downtown-centered parade of homes called the Loft Living Tour. So far, turnout has been heavier than expected.
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