Detroit's condo market is finally starting to come alive

Detroit's downtown-area real estate market is finally seeing an influx of for-sale condominiums, a change from the recent past when nearly all new apartment developments were rentals.

Many of the newly constructed condo projects that have opened or are getting under way are in high-end buildings aimed at well-heeled buyers, with typical asking prices around $500,000 and up. Some even feature $1-million-plus penthouses for professional athletes and the business elite.

Yet there are also new condos for more middle-income people, including condo-conversions in newly renovated buildings that previously had just rentals. Some of these condos average $275,000 for a two-bedroom unit.

Development experts say this arrival of condo options shows how Detroit's greater downtown residential market — including Midtown, Corktown and the east riverfront — is evolving with more people now interested in owning housing. Crucially, more lenders are willing to support condo projects that once seemed risky.

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Lenders' caution wasn't unfounded. There are still memories of the downtown area's mini boom-and-bust with condos in the mid-2000s, when projects that managed to beat the recession and get built had to turn unsold units into rentals as the market tanked.

Today, many commercial lenders want to see Detroit developers pre-sell 50% of their planned condos — and take in at least 10% down payments from those orders — before giving construction loans.

"For many years, lenders didn't want to do any condos. They took such a hit — nobody was rushing back in," said Sue Mosey, executive director of Midtown Detroit Inc., a nonprofit group. "But now the economy is doing well, and you can see there are more and more people, especially empty nesters, that want to move back."

New condo developments in Detroit still face unique hurdles that could restrain the market's growth.

One of the biggest challenges is Detroit's high property taxes, which make fancier condos less affordable in the city than in popular suburbs such as Birmingham.

"So if you are getting a good price for your property in Detroit, it's not a big deal," Mosey said. "But if you are paying a lot, it is a big deal."

Condo developers' primary tool for tax relief has been Neighborhood Enterprise Zones, or NEZs. These zones offer significant tax breaks for owners of individual condo units and houses.

Nearly all new Detroit condo projects have secured or are attempting to get NEZs, a process that requires city and state sign-offs.

However, most NEZs expire after 15 years — and there are no extensions. Once the expiration date comes, condo owners face Detroit's full millage rates, which can add several thousands of dollars a year to tax bills.

"Even if people know (the expiration) is coming, it can create a big challenge near the end of the NEZ certificate term when an owner has to face upcoming drastically higher property taxes," said attorney Richard Barr of Honigman Miller Schwartz and Cohn in Detroit, a real estate tax expert.

"The expiration is a big problem, especially with increasing property values and assessments," he said. "We don't want existing owners to be shocked when their bills go up so much. And we also don't want them to be moving out two or three years before the NEZ expires because they're afraid a potential purchaser of their home is going to see the upcoming property tax increase and say 'I can't afford it.' "

A buyer of a $625,000 condo in Detroit's trendy Corktown neighborhood recently experienced an NEZ expiration — and a dramatic tax surge.

The buyer, who hailed from New York, bought the 6,000-square-foot unit when the building's NEZ was in effect and the unit's annual taxes were about $2,000. But the NEZ soon expired and the condo's tax bill shot up to $29,000, according to agent Matt O'Laughlin of the Loft Warehouse.

The condo owner is in the process of appealing the tax assessment with the city, O'Laughlin said.

High-end condos

The latest condo project to open is The Selden, 450 Selden Ave. in Midtown, which saw its first residents arrive in late January.

There are 12 condos in the new four-story building, which was built on the site of an abandoned apartment building. All condo units are 1,200 square feet with two bedrooms and two bathrooms.

Sale prices have ranged from $429,000 to $525,000, said Michael Ferlito, president of the Ferlito Group, the project's developer. The building is covered by an NEZ and condo fees run $295 a month, which includes indoor parking.

The Selden will have a restaurant on its ground floor — SheWolf Pastificio & Bar — that is expected to open this spring.

Ferlito said his firm undertook the project because of the strong pent-up demand in Detroit for high-end condos. There have been a few pricier condos on the market in recent years, particularly in downtown's Westin Book Cadillac and at Willys Overland Lofts in Midtown, but selection was limited.

The Selden's new residents have been mostly established professionals, including doctors, attorneys and entrepreneurs, Ferlito said.

They include Susan Peslar, who previously lived in a Royal Oak condo and began considering a move to Detroit as more of her friends starting living in and around downtown.

Peslar said she was impressed by The Selden's all-new building, the patio balconies and citywide views from each condo, and the building's pet-friendly amenities, which include a rooftop dog run.

"I was always coming downtown, and at that time I was one of the only friends in my friends group who did not live downtown yet," said Peslar, who is preparing to open a blow-dry bar in downtown this spring.

Mid-priced condos

Dozens of mid-priced condos are hitting the market at Great Lakes Tower, a 15-story building on the east riverfront in Detroit's Harbortown community. The tower is undergoing renovations and 94 of its roughly 170 apartments — purchased last year by private investors — are being converted to for-sale units as the work proceeds.

The condos range from $175,000 to $225,000 for one-bedroom units and are averaging $275,000 for two-bedroom units, said Abbey MacKool, an agent with Berkshire Hathaway HomeServices/Loft Warehouse. The in-unit renovations included new cabinets, countertops and flooring, she said.

The condo fees run $660 per month and include access to Harbortown swimming pools. Several of the renters opted to stay and buy their units.

"We've done two price increases since August, and the market is still supporting it," she said of the condos' asking prices.

More condos will be up for grabs at Midtown West, a planned development at 901 Selden St., the site of the former Wigle Recreation Center.

Midtown West is to break ground in early 2019 — or sooner — and have about 150 condos, plus 160 or so rental units and 20 for-sale townhouses, according to Mario Procida, a New York developer on the project with Detroit-area partners Roderick Hardamon and Douglass Diggs.

Condo prices for Midtown West have yet to be determined, he said.

Closer to completion is St. Charles Residences, a 25-condo project taking shape in the old St. Charles School, 1454 Townsend St., near Detroit's East Village.

Prices there range from $303,000 for one-bedrooms up to $653,000 for three-bedroom units. The building is on pace for a summer opening; about 18 condos are still available.

Additionally, construction is to begin in March on a new condo building near St. Charles Residences that would have 10 more residences.

Also in March, the Ferlito Group — The Selden's developer — plans to announce two more new Detroit condo projects: one in Midtown, one in Corktown.

Michael Ferlito said both will have less expensive condos than the high-end Selden.

"Our strategy after (The Selden) is to start building units that non-wealthy people can afford, things around $400,000 — that's kind of our target," Ferlito said. "The buyer pool for $500,000 and above is not nearly as large as for $400,000."

Mortgage challenge

Even though property values across greater downtown are rising, getting a condo mortgage in Detroit can still be tricky because not all lenders will finance any condo purchase.

Market experts say a number of condo developments are considered "non-warrantable," which means the mortgage loans won't be backed by Fannie Mae or Freddie Mac. Some lenders are turned off by that restriction.

The new condos in Great Lakes Tower are in this category because the project's developer currently owns more than 10% of the units.

Some lenders will write mortgages for such condos in the city. That list includes Chemical Bank, Independent Bank, First Independence Bank and Lake Michigan Credit Union, among others, listing agents said.

Non-warrantable mortgages are often slightly more expensive than standard mortgages.

More high-end condos

Presales are under way for two other higher-end condo buildings that have yet to break ground: the Ashton Detroit, 659 Howard St. in downtown, and Cass & York in Midtown.

The Ashton will have about 103 condos in its amenity-filled 14-story tower, which will feature a swimming pool, fitness center and floor-to-ceiling windows within the units.

Construction is to begin in April and could finish by the end of 2019, said sales agent Christian Grothe of Max Broock Realtors. The project's earlier plans for a late 2017 ground-breaking were changed because of delays in getting various approvals, he said.

Prices at The Ashton range from $265,000 for studio units to $850,000 for three-bedroom, non-penthouse condos. The building's penthouses, which have yet to hit the market, will begin at $1.2 million and top out around $2 million.

Presales have been very strong, Grothe said.

"We're almost a quarter sold, which is crazy," he said. "We didn't anticipate being where we are until the end of 2018, maybe. I do believe the project will be all sold out by the time it is completed."

The Ashton's early buyers include empty nesters, out-of-town executives who often work in Detroit and professional athletes.

"There is such pent-up demand on the high end in the city of Detroit," Grothe said.

Presales started this month for Cass & York, a planned six-story condo building in Midtown with 53 residences and extensive amenities. The condos will average 1,422 square feet and prices will begin at $430 per square foot. The building is expected to open in spring 2020.

“We are excited that the resurgence of Detroit has reached a point at which a development like Cass & York can be launched successfully," Dietrich Knoer, president and CEO of The Platform, the project's developer, said in a statement.

City Modern

More for-sale opportunities are taking shape at City Modern, an all-new residential development in the Brush Park neighborhood near downtown. A total of 410 residences are planned, including 39 townhouses and modern carriage homes set to open in May.

There have been 73 presales so far, ranging from $250,000 to $800,000, said Dan Mullen, president of Bedrock, the Dan Gilbert real estate firm developing City Modern. There are condo fees based on unit size, and all residences are within an NEZ tax-abatement zone.

"We're selling around five to six each month," Mullen said. "People are absolutely looking to buy. There's not a lot of units to buy just in general, and so when they come to City Modern, they're very surprised and excited."

Contact JC Reindl: 313-222-6631 or jcreindl@freepress.com. Follow him on Twitter @JCReindl.