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Builders finding ways to go condo under $200K: There's a ready market for entry-level housing downtown

October 3, 2005

Building bargain housing downtown isn't easy.

Ask Doug Jones, a principal in JLM Development, which is wrapping up its first downtown condominium project, a 26-unit community called Penn Square.

Because they were working with multiple landowners, some out of state, it took Jones and his partners more than a year to acquire the single acre they needed for Penn Square, on the northwest corner of 22nd and Delaware streets.

But once the developers cleared that hurdle, Penn Square went from ground breaking to finish in 13 months. The last of the units will be completed for waiting buyers later this month.

At 900 square feet to 1,700 square feet, the flats and townhomes at Penn Square run on the smaller side of downtown construction. Most units don't have views of the downtown skyline, and Penn Square's layout is carefully structured to focus on the residential area to the east rather than the commercial buildings behind it.

It shows in the prices. Penn Square condos sold for $120,000 to $170,000, far less than units in tony locations near downtown and on par with new starter homes in the suburbs. As far as Jones and his partners are concerned, that's a sweet spot for downtown housing.

"There's a lot of people who want to be downtown and don't want to pay $300,000 for the privilege," Jones said.

Jones' view is shared by other downtown condo developers, but few have managed to convert sometimes-problematic tracts of downtown land into moneymaking entry-level projects.

"It's something I'd like to do," said Jim Thomas, a principal in locally based Hearthview Residential LLC, of condo "starter" homes. "In downtown, it's simply the land costs [that prohibit it]."

Like other condo developers with projects inside the Mile Square, Hearthview typically offers a few units for sale at less than $200,000 and sometimes under $150,000 at its projects, which include Mill No. 9 and Indianapolis Athletic Club. By contrast, units at Hearthview's Towne Meadows suburban complex at 96th Street and Towne Road start at $119,900.

But downtown, units priced from $225,000 to $350,000, with some topping the $1 million mark, are the norm, allowing developers to recoup higher costs of site work, land and parking.

"The trouble with all affordable housing is, the refrigerator costs the same for a lowend unit as for a midpriced unit. ... And a place to store a car costs the same no matter what the price of the unit," Thomas said.

Despite the challenges, a handful of developers have found success with lower-priced condos, which typically sell out quickly.

"I would say it's the healthiest part of the market in the sense that it's the most underserved," said Sycamore Group broker Joe Everhart of the sub-$175,000 condo market.

Buyers of lower-priced downtown condos typically are first-time home buyers-young, single professionals whose incomes fall far short of six figures, developers said. Like their better-paid counterparts, however, they want to live downtown, close to where they work and play.

Some of them work at Indiana University's medical complex, which includes Clarian, Riley and Indiana University hospitals. Other buyers, only a few years removed from college, work for Fortune 500 companies but haven't attained the kinds of salaries that allow them to consider luxury living with skyline views.

Offering downtown or near-downtown condos at lower prices involves some concessions, developers acknowledge.

First, there's the proximity to downtown. Getting to restaurants, downtown shopping and cultural attractions usually involves a short car trip rather than a walk.

At Penn Square, entry-level pricing also means offering an open layout that makes the space seem bigger, Jones said. To help compensate, Bloomington-based JLM made some small, low-cost details standard, such as pendant lights and artsand-crafts-style windows.

The concept worked so well that Jones and his partners plan to replicate it at 16th Street and College Avenue on the site of a former nursing home. The 14 units at Sixteen, as the development will be called, will range from $140,000 to $165,000. Construction is expected to start this month and, like Penn Square, is expected to be finished in about a year.

Plans are also in the works for Peachtree, which will include seven duplexes priced from $170,000 to $185,000, on the block north of Penn Square.

At other developments, size is the primary concession. To offer condos priced from an unheard-of $65,000, locally based Britton Building and Design and other partners plan to squeeze 30 units into the top three floors of Renaissance Tower inn at 230 E. Ninth St. in the historic St. Joseph's neighborhood. The bottom three floors will continue to operate as a hotel.

The smallest condos at Renaissance Tower will be a mere 500 square feet, although buyers will have the option of combining units. Prices for larger units are expected to top out at about $200,000.

The decision to purchase Renaissance Tower from local developer Bob Borns was based partly on Britton's experience with other downtown condo projects, where one-bedroom units sold out quickly, said Britton principal Patrick Heitz. Other developers are using entry-level condos as a way to gain a foothold in the burgeoning downtown market.

"We're not going to make a lot of money on this deal," said Raymond Modglin, owner/broker at Century 21 Preferred Properties and a partner in the Walsingham, a nine-unit condo conversion under way at 16th and Delaware streets.

The one-bedroom, one-bathroom units at the Walsingham are selling for $134,000 to $184,000, with sizes ranging from 800 to 1,000 square feet. The selling prices will help offset about $700,000 in renovation costs for the building, which lies within the historic Herron-Morton neighborhood.

"We knew it was going to be good simply because of the location," Modglin said. "The fact we're taking an eyesore and making it better is good for all of us."
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