COMMERCIAL REAL ESTATE - June 2000 Feature Article
by Adam Bruns, Bob Carter and Claude Hammond

Luxury Reaches New Heights
The stage is set for upscale multifamily development to make a grand entrance in Kentucky

IN Kentucky, developers are following a national trend in building multifamily units that have lots of amenities. Some of these are downright luxurious. According to Building Design & Construction’s February issue, while overall multifamily housing starts were down in 1999, their dollar value was up -- by an impressive 13.1 percent. "As the recently divergent trends in starts and spending suggest," wrote Daryl Delano, "multifamily residential construction during the next decade is likely to become increasingly upscale."

A look around the Golden Triangle bears this out, as growing numbers of professionals choose to live among plenty of luxuries and few of the maintenance headaches associated with a house. High-tech wiring and ease of commute are contributing factors as well.

"The trend will be that as the boomers move toward retirement and their children get out of college, you’ll see more homes being built, of a smaller size," says Bob Weiss, director of the Kentucky Association of Homebuilders. Indeed, the growth of new homes in general continues, with sales increasing 4.5 percent in March, when analysts had looked for a two percent dropoff. It’s only natural that the trends toward small houses and downtown or community living would meet in the middle to create some new kinds of multifamily developments. (One single-family unit developer, The Erpenbeck Company in Northern Kentucky, refers to its houses as "landominiums.")

Ron Witten, president of M/PF Research, recently said in the Journal of Property Management, "For the last decade, multifamily has been swimming upstream against the demographic current, as population in the traditional renting years (under 30) has actually been declining. But in the next five years, the number of first-time renters will grow for the first time in two decades." W. Alan Huffman, 2000 president of the Institute of Real Estate Management in Chicago, remarked in February’s National Real Estate Investor, "These children of baby boomers will give developers the opportunity to create products that combine affordability, high technology and a return to the clubhouse/social center amenities popular in the 1970s."

Baby boomers tired of the lawn and garden routine are expected to begin moving into patio homes and condos in higher numbers too, and perhaps own multiple homes rather than one big estate. Such is the nature of a society that is as increasingly mobile as it is affluent. All of these trends point to premium-priced multi-family development as an enticing prospect, whether in the condo, patio home or apartment arenas.

Louisville a leader in redevelopment

As Kentucky’s sole first class city, Louisville is setting the pace for multifamily projects, and in the process sprucing up both dilapidated zones and its increasingly attractive waterfront. Total multifamily permits were up 10 percent in 1999, when several notable projects gained momentum.

One of the most ambitious multi-unit residential projects in Louisville is Park Duvalle, a $180 million West End project that replaces a public housing slum with a new, mixed-income neighborhood.

When completed, four years from now, Park Duvalle will contain 1, 200 units, three community centers, a health center, police and fire stations, two remodeled schools and a commercial center within walking distance. All are being developed on the site of the notorious Lane and Cotter housing projects along Algonquin Parkway.

But Park Duvalle will not be redevelopment by gentrification. Its units, a mixture if single-family homes, apartments and townhouses disguised as single-family homes, are allocated for a mix of incomes, with one-third being occupied by tenants of the housing authority of Louisville, one-third rent subsidized and one-third market rate units, with no discernible external differences. Designed to resemble Louisville’s popular Crescent Hill and original Highlands neighborhoods, Park Duvalle is scattering its residents so that no section can be identified as "low income."

The first phase-The Oaks-is complete, with 100 percent occupancy of its 100 rental units and a long waiting list. The Villages -- containing 213 rentals and 125 new houses -- is at 95 percent occupancy for the rental units and has about one-third of the homes built and another one-third under construction. Market rate rents range from $400 to $700 a month. Housing prices range from $80,000 to $250,000.

The entire project is being developed by a public-private partnership led by the Housing Authority and two not-for-profit development groups, the Community Development Bank, two commercial banks, and a group of approved homebuilders.

Bravura is developing a 23-story condominium, apartment and retail complex overlooking Waterfront Park. The firm’s successful concept was selected from five submitted in a contest conducted by the city of Louisville. The only one to combine condos and apartments, the Bravura project will contain 78 condominiums, ranging from 1,000 to 5,400 square feet and 44 apartments in two "pods" ranging from 800 to 1,350 square feet. Also included will be a 17,000-s.f. retail space, a pool and fitness center and an adjacent parking garage for 160 cars. Monthly rentals will average 90 cents per square foot per month with condominiums selling from $200,000 to more than $500,000, according to Bravura’s CEO, James J Walters, AIA. The firm already has assembled a register of 100 potential buyers and renters.

The projected $34.5 million funding the project will come from partnership equity, conventional mortgage financing and a $2.5 million low-interest loan from the city to build the garage. Bravura, in partnership with developer Rowland Miller, is paying $1 million for the one-acre site to the Waterfront Development Corp. The irregular site, bordered by the Waterfront Park and Brook Floyd and Witherspoon Streets, is one block from Slugger Field and the Humana Waterside buildings. It will be the largest downtown housing project since Crescent Centre’s construction in 1988. It will also be the first such project to be financed in part by the $6 million low-interest loan pool established by Mayor David Armstrong earlier this year.

Bravura, a 16-person firm started by Walters nine years ago, is the architect of the structures at Waterfront Park and of the dramatic home for the Louisville Ballet, adjacent to the new project. The group also designed recent renovations of the Brown Theater, the Kentucky Center for the Arts and the Speed Museum.

The much-discussed Norton Commons development, on the far eastern edge of Jefferson County, is in planning limbo. The latest planning commission decision was to table the issue until its May meeting. It’s a mixed-use village concept development, popular with proponents of the "New Urbanism," designed by Andres Duany, creator of the famous Seaside community featured in the movie "The Truman Show" as well as Kentlands in Maryland.

A survey conducted by New Urban News in 1999 reported that there were more than 125 new neighborhoods and 150 new infill projects under development based on the principles of the New Urbanism.

One key Bob Weiss points to as crucial is legislation to limit the liability of developers willing to rehab "brownfields" in urban areas. A recent effort died after state senate approval. Prominent sites for such projects include former tobacco operations: The Philip Morris property in Louisville and the currently changing landscape of Reynolds Road in Lexington.

Posh condos in Covington

In the Northern Kentucky area, most multifamily projects occur on the Ohio side of the river, with the communities south of the river embracing full home sites like those at the Triple Crown development in Richwood, anchored by Triple Crown Country Club. But one project that stands out is just the latest in a series of prominent buildings to grace Covington’s waterfront, developed by Corporex, which got its start 35 years ago downriver in Louisville.

Corporex founder Bill Butler, 57, was the 1996 National Entrepreneur of the Year. Since 1965, his design-build firm has spawned four other divisions, dealing with hotel and country club development and operation as well as property management and leasing. He is best known for his involvement with RiverCenter, RiverCenter II and Embassy Suites on Covington’s waterfront. He’s also known for his progressive thinking, at one point flying some key officials to South Carolina with him to observe what he thought was an ideal monorail system to serve the Greater Cincinnati area.

His latest hatching dream is a luxury riverfront development called Domaine de la Rive. Featuring four floors of penthouses (12 units in all) ranging from 4,000 to 6,000 s.f., the edifice will also house 300,000 s.f. of office space, a three-story greenhouse, restaurants, and a private health club. It will also offer full concierge, catering and personal trainer services, and even a lifetime membership to the Metropolitan Club, perched atop Butler’s first success, RiverCenter. The whole idea, say the promotional materials, is to "uncomplicate your life" -- that is, if you are one of those fortunate 12 people who can afford to pay a million or two.

"These are penthouses of unprecedented caliber in this region," says Rebecca A. Rettenmaier, vice president for asset management with Corporex. "We have a 12-foot ceiling clearance, which is unheard-of in condominiums. Our intent there was to allow for a very grand wide-open space. We couldn’t find it anywhere, with the exceptions of Chicago or New York."

Rettenmaier and her colleagues have taken pains to assure that no part of this grand living experience feels commercial, so that the moment you step off the elevator feels like stepping into your home. But you’re also attached to the Marriott next door, so if you want a chocolate soufflé immediately, your will can be done.

The views of the Cincinnati skyline are tremendous, and will soon feature the added luxury of being able to see right down into the new Paul Brown Stadium, home of the Cincinnati Bengals. And the Domaine project is the only Cincinnati area luxury project that can currently claim to be within walking distance of downtown, albeit from across a bridge.

Office space is expected to be available by early next year, with the penthouses ready for occupancy by the second quarter. As a sign of the healthy area economy, Rettenmaier claims to have already shown the properties to more than a dozen prospects, with five of the units already spoken for. But why this step into the residential sector from a company not traditionally associated with homebuilding? It goes back to the man with the vision.

"I think from growing up in Covington, and having a vision, as a very young man he decided he wanted something big-time on this river front," says Rettenmaier of Bill Butler, who will occupy a Domaine unit with a wrap-around covered balcony. "One of the reasons for building such a grand residence is because he and Sue Butler wanted to live on the river, surrounded by everything that they’ve created here."

Lexington: Single family still dominates

In an area where real estate is at a premium and high-paying jobs are growing, you’d think that some new upscale multi-family development would be right on schedule, but most of the development in central Kentucky is still strictly single-family. Even with the addition of more than 5,000 acres to the urban service boundary in 1996, the appropriate sewer service and road development is lagging, and the demand for the kind of transplanted, richly multi-faceted neighborhoods that city utopians dream of just doesn’t seem to be there.

"I see maybe it as a wish rather than a trend," says architect and planner Helm Roberts, a resident of the city’s downtown Gratz Park neighborhood. "There seems to be a trend toward downtown property, more upscale -- if we had more spaces to rent, there wouldn't be any problem getting people to buy or rent properties in Gratz Park. And there are a lot of soft properties downtown that aren’t doing much commercially since all the retail moved out 10 years ago."

Roberts, whose resumé includes city planning in Los Angeles and Cincinnati, just finished work on a 150-unit apartment/townhouse project in Nashville, where rents are $1,200-1,300 and interest is high. In more than 30 years of multifamily design, his work has resulted in over 2,500 units around the country. He sees real potential for downtown Lexington, despite current signs to the contrary.

"I think a lot of it is younger couples without kids, working downtown, the yuppies, who want a nice place to live in the middle of things. About the only salvation for downtown is for people to come there and live."

Lexington Mayor Pam Miller has encouraged the idea as well, recently speaking of "dotcom hotels" and "funky spaces" as the wave of the future in downtown revitalization. At the same time, she has spoken out in favor of minimum lot sizes to curtail further sprawl on the city’s rapidly expanding outskirts.

"There's a growing interest in computer-oriented dotcoms," says says Bob Joice, LFUCG long-range planning manager. "Young people in those businesses are starting to do more of those downtown, and people want to live downtown -- that's a specific market that is developing.

"Our overall plan encourages multifamily housing, a variety of housing types in the urban area," says Joice. "Because we're trying so much to preserve farmland, more dense housing would complement that objective. Short term, we're working on infill and redevelopment standards. We expect to have a consultant help us with that project, to address concerns about compatibility, design and uses around existing neighborhoods."

Joice has seen some fluctuations in his nearly 20 years with the city.

"There were times in the early to mid eighties when multifamily construction was close to 50 percent of total construction, and it was over 50 percent in the 1970s," he says. "In the 1990s, it was usually below 20 percent, but the last couple of years it's been over 30 percent again. You do see some nice new projects, like Grand Reserve, the expansion of Park Place and a few others."

Grand Reserve, a gated community of luxury apartments well out of downtown on Tates Creek Road, features concierge services, 9-ft. ceilings and rents from $750 to $1,325 per month. Among the amenities designed to lure new residents: Direct access garages, complementary tanning, fitness and sauna; tennis courts and putting green; a car wash; and a complimentary business center. Some units include jetted garden tubs.

"Our units are are high-speed Internet access ready, with double phone lines already built in," says leasing manager Lori Penn. "We have 15 unique floor plans to choose from, and 370 apartments will be available by August; We're about 42 percent occupied and 50 percent leased right now."

Beaumont Farms Apartments offer similar "Extraordinary Concierge Services" like pet sitting and plant watering, as well as woodburning fireplaces, the ubiquitous vaulted ceiling, and rents from $599 to $1,029 a month.

At Park Place, an NTS development where new units have just been added, rents range from $725 for a one-bedroom to $1,439 for a two-bedroom townhouse. Distinctive amenities include hospitality suites for visitors, dry cleaning service from the clubhouse and a 24-hour fitness center that accommodates all manner of busy schedules.

Such developments, even upscale, remain traditional apartment-style communities. As for the new urbanism, Bob Joice sees a role for such development in Lexington, but only in certain areas.

"Norton Commons will be good in Louisville," he says, "but the idea of having hamlets in the rural area doesn’t complement our desire to preserve farmland in Fayette County. Inside the urban service area however, it’s very much part of our desire for the community. We want to see more neighborhood character, where neighborhoods have a focus and a design, where they’re walkable, they’re interesting and have a good community atmosphere. We want more of that than just subdivision after subdivision -- which is good housing, but it’s not creating good community character."

In fact, Joice sees a demand among young workers and recent university graduates for the growing "urban vibrancy" of Lexington, and perhaps a shift of the demand for family-oriented suburban lots to surrounding counties and towns.

"Land prices dictate the higher costs for housing, because of the urban growth boundary in effect in Lexington," says Bob Weiss. "As you get further away from Lexington, the lot prices are going down. It depends a lot on the builders -- they try to find a niche in the marketplace.

"The other thing we battle with development is people really don't want high density around where they live. It’s human nature -- "take care of sprawl but not in my neighborhood. I want space for kids to play." The national homebuilders did a survey of 5,000 people across the county, and by far the people did not like sprawl, but they also didn't like high density. The LFUCG is attempting to control growth with a 40-acre minimum lot size, so people are moving to the adjacent counties around Lexington now, because of that combined with the urban service boundary. They may have controlled growth, but they need to start thinking regionally."

Adam Bruns (adambruns@lanereport.com) and Robert Carter (robertcarter@lanereport.com) are associate editors of The Lane Report. Claude Hammond (claudehammond@lanereport.com) is editorial director of The Lane Report.

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