Those looking for downtown living options in Buffalo are about to get a new option when a new loft apartment building converts to condominium sales.
Developer C. Jake Schneider is starting a three-year process to convert the 30 rental apartments at his Historic Warehouse Lofts at 210 Ellicott St. into condos.
That would make it only the third big condo project in the city, after Ellicott Development Co.’s Waterfront Place and Uniland Development Co.’s Avant. And neither of those were conversions, but were built as condos from the beginning.
Prices for Schneider’s units – 13 one-bedroom apartments and 17 two-bedroom apartments – will range from $215,000 to $365,000, depending on size and location in the building. Currently, rents range from about $1,050 per month to just over $2,000.
“These things are going to sell,” Schneider said. “I don’t believe there’s any product like it anywhere.”
An offering circular was recently approved by the state Attorney General’s Office, and is now being circulated to current tenants, who will have the right of first refusal to purchase their own unit or another one in the building. They will have 90 days to make a decision, before the offering is marketed broadly.
“We’ll find out if people are looking forward to living in the downtown and owning their own property,” Schneider said. “We’ve received feedback from some of our existing tenants that they want to buy their units.”
Others are more skeptical that it can work, citing the high costs of condo projects that developers need to recoup, with only one opportunity to do so.
“If Jake has figured out a way to build them cost-effectively, allowing him to sell them at a low sale price and still make a return, I give him a lot of credit,” said William Paladino, CEO of Ellicott Development.
Wildly popular in places like New York City and Florida, condos typically have not been very successful in Buffalo in the past. That’s because consumer demand for the often high-priced units has been weak in a market where single-family homes are so affordable.
But demographics are changing, with a recent surge in interest among many consumers for living in the city, particularly in historic buildings that have been remodeled as apartments. Many are drawn by the resurgence of activity downtown, the proximity to new entertainment and cultural attractions, the loft-style living, and the appeal of features such as exposed brick and duct work.
But the purchase prices have been a problem because developers say they have to set them high enough to cover the expenses of building condos, plus a profit margin. That often puts the final sale price of the individual units out of reach of most people in Western New York.
Even conversions of existing apartment buildings can be costly, and not all such buildings will qualify or win the necessary approval from the state.
“The problem has always been that to build condos that are nice, it is costly, and you need to get the higher prices because you have a one-time income stream when you sell to cover costs and make a reasonable return,” Paladino said. “And then if you do sell them all, you have a large tax hit to calculate into your return. You can be under water before you even finish the units.”
That’s been the problem with Waterfront Place, where units sell for between $275 and $300 per square foot, leading potential buyers to question why Ellicott is seeking such a high return, when “we are not,” he said.
“We are simply trying to recoup our costs and realize reasonable returns,” Paladino said. “I would not say, given the total risk and financial investment, that Waterfront Place will be worth the limited return it will hopefully yield.”
Prices at the Avant are even higher.
By contrast, Schneider is seeking $220 to $225 per square foot. “Once you push prices above $250 a square foot, you are getting into more difficult territory to sell,” Paladino said.
Schneider said what makes his project workable are the federal historic tax credits that he obtained, which covered 20 percent of his original redevelopment costs. It meant he had to wait five years before doing the conversion, but it enabled him to lower the prices. “We believe there is a market for condos, at the right price point,” Schneider said.
In fact, that’s the same model Paladino said they are now using. “What we have made a conscious decision to do is construct apartments and complexes in a manner which in the future could easily be converted into condos if we saw the market turn in that direction,” he said.
Located at 210 Ellicott St., between Eagle and Clinton streets, the Historic Warehouse Lofts is a 65,000-square-foot former warehouse originally built in 1913 for Seneca Paper Co., and later used by AM&A’s Department Store. Schneider bought it in 2007 for $650,000 from developer David Sweet, and spent $7.5 million on the renovation.
The seven-story building re-opened with a mixture of residential and 8,800 square feet of commercial space. The first floor includes the lobby and common area spaces, as well as parking. The second floor is home to Campus Labs, the Buffalo technology startup that founders Eric Reich and Michael Weisman sold to Higher One Inc. for $40 million in 2012.
The 30 apartments are on the third through seventh floors. The units range in size from the smallest one-bedroom unit at 950 square feet to the largest two-bedroom apartment, with 1,650 square feet. “This building’s been full since the day we opened it, and it’s been very well-received by the public,” Schneider said.
Schneider said he decided to do the condo conversion now because the tax credits are expiring and “the new tax structure will take a big bite out of our cash flow.” The sales also will generate cash for upcoming redevelopment projects, such as on Niagara Street, and “if we’re ever going to do it, you want to do it when the units are new.”
If it works, Schneider said this effort could lead to more conversions in the future. “We have other properties with the same model potential, so we’re going to see how successful this is,” he said. “We’re all going to learn a lot from this testing of the marketplace.”