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Despite lousy market, some developers are preaching patience with projects

As everyone knows, the once-feverish condo market has gone cold.

You don’t have to look far to find condo plans that have either been scrapped or fallen into foreclosure.

But not every developer is headed for the hills. Some are patiently sticking with their plans, resolved to wait out the doldrums until the residential market rebounds.

Tom Lohmann of Minneapolis-based Pinehurst Properties has big plans for a former Werness Brothers funeral home site in an affluent area of southwest Minneapolis at 3500 50th St. W.

Lohmann has been pitching the site as the future home of The Bancroft Condominiums, a very high-end project just a few blocks from Edina.

The project has already had a long gestation period: Lohmann’s development group first got the site under contract in the summer of 2005.

Bancroft LLC paid $3.5 million for the 1.6-acre site in December 2005. Lohmann’s group demolished the former funeral home in 2006.

But in today’s slow market for residential real estate, Lohmann isn’t expecting to get much traction until next year at the earliest. Meanwhile, the site sits vacant, ringed by a chain-link fence.

“We don’t want to make the mistake of going ahead with a project in a market that’s just limping along,” Lohmann said. “We’re just biding time and hoping for a resurgence in the market.”

“We’re not all that encouraged by the current state of the market. We think it will probably be ’09 before the market is ready and accepting of a product of this nature,” Lohmann said.

He has sold just 8 of the planned 52 units in the development. In some cases, Lohmann and his partners have refunded deposits to buyers who couldn’t wait for an uncertain delivery date.

Even with plans to develop the project in two phases, there aren’t enough sales yet to secure construction financing.

Prices in the Bancroft are at the upper tier of the condo market: $510 per square foot. Unit prices range from $583,000 to more than $2 million for a penthouse.

Lohmann has two silent partners in the deal, and he said they have no intention of changing their plans or selling the site to another developer.

“I get calls about twice a month from people that want to buy the site,” Lohmann said. “I’m just giving them a polite ‘No thanks.’”

And there’s actually an upside to sitting on a vacant site that generates no income: low taxes.

“Our holding costs are so minimal compared to projects that have the building built. It stings, but it’s not terribly painful,” Lohmann said. “In fact, the taxes have gone down nicely. The assessor seems to recognize that the condo market is tough.”

Bob Lux, principal with Minneapolis-based Alatus Partners, is part of the development team pitching The Penfield, originally conceived as a 313-unit condo tower in downtown St. Paul. Plans date back to 2005, but the project remains on the drawing board.

Lux was part of the development team that built Grant Park and The Carlyle, two iconic condo towers in downtown Minneapolis.

Lux said that so far, they have sold 100 units at The Penfield.

He declined to comment directly on reports that developers are weighing adding retail or a hotel to the project.

“We continue to sell units. We are reviewing whether or not we want to make some changes as to what is included in the development. I can’t be specific on any of it,” Lux said. “We’re very committed to the deal.”

But the market is uncertain enough that developers no longer make predictions about the future of the residential market.

Asked when the condo market would bounce back, Lux joked, “It’s sometime in the future.”

One of the most-watched sites is the corner of 10th Street and Nicollet Avenue in downtown Minneapolis, long-touted as the site of The Nicollet, a luxury condo tower. Plans for the project, once billed as a 350-unit deal, first surfaced in 2004. Today, small vacant commercial buildings remain on the site.

More info: http://www.finance-commerce.com/article.cfm/2008/03/18/Sticking-with-condos-Despite-lousy-market-some-developers-are-preaching-patience-with-projects