Innovation Ecosystem

What is the demand for luxury apartments in Providence?

ConvergenceRI talks with a real estate broker to better understand the dimensions of the current market and how the proposed Fane Tower may fit within it

Photo by Richard Asinof

Nelson Taylor, a broker associate with Taylor & Associates, Mott & Chace, Sotheby's International Reality in Providence.

By Richard Asinof
Posted 12/3/18
A real estate broker discusses the potential market for luxury apartments and the economic forces that may be driving the market, in light of the proposed Fane Tower.
Can the research conducted by the R.I. Housing Network quantify the absorption rate for rental apartments in Providence and Rhode Island, including luxury apartments? What is the best way to measure quality of life? Would it be advantageous to create a quality of life index for Rhode Island as both a public health and economic development tool? How can assets such as cultural diversity and walkability be measured as part of Providence’s strengths?
Over and over again, from different age groups and demographics, the question for many in Rhode Island is: where do I belong in a disrupted world where traditional definitions of workplace, community, neighborhood and connective tissue keep changing? As interactions on social media consume more and more of our “conversation” time, actual face-to-face conversations become fewer, and our capability to be heard, and to listen, are diminished. As a result, we travel more and more in silos that are comfortable, even if they represent patterns of behavior that diminish our interactions with other people.
Not surprisingly, the place that still serves as a hub of innovation and conversation is Olga’s on Point Street, where last week, there were separate conversations occurring at the same time involving Neil Steinberg, president and CEO of the Rhode Island Foundation, Angela Ankoma, executive vice president at United Way of Rhode Island, and Kelly Nevins, director of the Women’s Fund of RI. It is a small world, after all.

PROVIDENCE – With the decision on Friday, Nov. 30, by Providence Mayor Jorge Elorza to veto the decision by the lame duck Providence City Council to approve the spot zoning for the proposed Fane Tower and its 600-foot height, the controversial project is, for the moment, stalled.

What kind of political intrigue happens next still remains unclear. The fundamental political issue is this: who controls the final decision-making around the design process for the proposed tower – the mayor of Providence, the city council, the state’s legislative leaders, the commission overseeing the development of the former Route 195 land, or the developer?

Judging from the angry, vituperative reactions to the mayor’s veto by state legislator leaders, members of the commission, and the spokesman for the developer, Elorza’s reasons to insist on protecting the city’s role in the design process about the future cityscape seem astute.

Supply and demand
Also unclear are some answers around the basic questions around supply and demand in the current real estate market for luxury apartments in Providence: How many are on the market? What are the price points? How many are rental units versus condo units for sale? Who is the target audience to rent or buy a luxury apartment in the proposed Fane Tower? Will the Fane Tower create a potential glut in the current market for luxury apartments? What are the demographics for who might become residents there? What are the tax advantages or disadvantages to renting a unit in the proposed Fane Tower?

In order to get a more comprehensive view of the current real estate market for luxury apartments in Providence, ConvergenceRI sat down and spoke with Nelson Taylor, a broker associate with Taylor & Associates at Mott & Chace, Sotheby’s International Realty, whose office is located at 100 Exchange St. in Providence, on the first floor of the residential Waterplace tower featuring “sophisticated city living in a Providence luxury high rise,” with a price point of approximately $4,200 a month for rent.

Taylor, who is in favor of the Fane Tower project moving forward, wanted to make clear that his reasons for favoring the project had nothing to do with any potential personal or financial investment: in his job, Taylor said, he deals with the sale of properties, not rentals.

Further, Taylor believes that there is a substantial market for the luxury apartments to be offered as part of the Fane Tower proposal, although he was curious to learn if there was more data available about the absorption rate for rental apartments at different price points in Rhode Island.

Both he and his wife moved to Providence from New York City and fell in love with the city, for its quality of life, for its scale, for its proximity to the ocean and to the mountains, and as a great place to raise a family.

Here is the ConvergenceRI interview with Nelson Taylor, a real estate broker associate in Providence, talking about what he sees as the potential market and the potential value of the proposed Fane Tower.

ConvergenceRI: Is there a market for luxury apartments in Providence?
TAYLOR:
Yes. I’m a data guy. I printed out some stuff for you, answering what you asked in your email: what’s out there, what’s renting, what’s not renting, and what’s the price point?

ConvergenceRI: And, whether the proposed Fane Tower will swamp the market and create a glut?
TAYLOR:
The monkey in the room is what happens to the market. I don’t think this time around we’re going to see the correction like we saw the last time.

ConvergenceRI: The last time being 2008?
TAYLOR:
Yes, with the mortgage swap [scandal], which really killed the entire economy. So, I’m not sure we’re going to see anything like that again, but certainly, things cycle.

Harvard has a study that [was just published], saying that they believe the [real estate] market is going to stay strong until 2022. Who knows? If anyone knew, they wouldn’t be in this business.

My feeling is that the market is still strong, the economy is still strong, and that if we get to the point where the market is saturated a little bit more, or interest rates rise to a level that is holding people back a little bit more, that we are not going to see a crash. We may see a little settling of the market, a plateau-ing of the market.

ConvergenceRI: If I had $5,500 a month to spend on rent or mortgage, everything I’ve been told in the past is that $5,500 for a mortgage payment gets you much more than a $5,500 rental payment. Is that still true?
TAYLOR:
That is what I’m going to go through with you. What is active above $4,000 a month is a house on the East Side, a unit in West Exchange, a unit at the Regency. At $5,500, there is a unit at the Omni for $6,250. These are rentals.

As with anything in the marketplace right now, be it for sale or lease, inventory is very low. Things are getting snapped up fairly aggressively.

In these print outs, here are the units in the last year above $4,000 that have been rented – a unit on South Main Street, a unit in the Waterplace building here. Above $5,000, there are units in the Omni that have been rented, and a unit on South Main Street. For [approximately] $12,000 a month, the penthouse at the Omni has been rented.

ConvergenceRI: Nice work, if you can get it.
TAYLOR:
If you can get it, exactly. I think that there is a market for these luxury units. I think that they are going to be a combination of locals: people that are empty nesting, they have raised their kids in Barrington, they sell their house there, they have their beach house, and they want something that is manageable.

They don’t have to pay taxes on [the property], they don’t have to pay [to fix]the roof if it leaks, they don’t have to pay a condo fee, all of these things.

I also think that a high percentage of the market for these, and for a lot of the luxury units, be they rentals, condos for sale or houses for sale, are people from out of state who are moving here.

Be that for business, be that very wealthy Chinese families who are coming in, whose kids are [attending] Brown, they are investing in a lot of the restaurants around town. The amount of Asian investment in Providence, and especially the East Side, is pretty dramatic.

ConvergenceRI: Beyond the empty-nesters, is there a big market of luxury apartments geared toward families?
TAYLOR:
You will not find nary a family in there, I bet.

ConverenceRI: In the proposed Fane Tower?
TAYLOR:
Yes, that’s correct. You may have some sort of intermediate housing, when families are between houses, where there are short-term rentals with kids, but certainly nothing long term.

ConvergenceRI: Can the Rhode Island economy support that luxury apartment market? It’s not like I have seen an enormous growth of the leisure class that is born and bred in Rhode Island, if that is the right way to say that without offending anyone.
TAYLOR:
I see a lot of people coming here from out of state, whether it be from Boston, from New York City, or from other places in the country.

Kelly [his wife] and I moved here from New York City. We moved here without kids, we wanted to start a family, and we didn’t want to do it in a big city. And, we fell in love with Providence’s scale, its history, its proximity to the ocean, to the mountains, its restaurants.

We’ve got great erudition through Brown and great arts through RISD. It’s not a surprise that Providence has been getting so much recognition nationally in a lot of magazines.

I see people moving here just to move here. Jobs are not bringing them. Jobs didn’t bring Kelly and I. People are moving here for quality of life.

ConvergenceRI: So, you are bullish on Rhode Island?
TAYLOR:
Very bullish on Rhode Island, and very bullish on development generally. I’m not happy about every development [pointing to a recent brick building] that just went up. I think it is a tremendously ugly building.

I believe that if you build it, they will come. I have seen the redevelopment of downtown, what Buff Chace has done. In the worlds that I walk in, I am somewhat of a minority [to be in favor of the proposed Fane Tower], in the design, architectural, Providence development community.

ConvergenceRI: I realize that I may be somewhat old-fashioned, because I have always thought that the dream was to be able to own your own home, and to enjoy all the benefits of equity in that that purchase – as well as the idea that first-time buyers drive the housing market, because they keep refreshing the market.
TAYLOR:
I think it is a little bit of an outdated model. I wish it were different, but I think that people are more mobile today then they have ever been.

And, whether it’s a condo that you purchased or were renting, I believe that more and more people at different age groups are choosing differently.

I’m thinking about a guy that we just rented a house to on College Hill. He was looking to buy, he’s from somewhere in California, and his two daughters go to Brown.

He was going to buy but decided he would rent; he’s going to spend, in total, a couple months out of the year at the rented house. But it will be a nice comfortable place for his daughters and his wife to be when he’s here. He has enough money to do that.

It has nothing to do with the Rhode Island economy, it has nothing to do with anything locally, except for what we have to offer as a city, certainly Brown being one of those assets.

ConvergenceRI: I have often thought that one of the key drivers of the Rhode Island economy were the parents of college students, but I don’t know if there is any data to quantify that.
TAYLOR:
I agree entirely. People so often just look at the economy of Providence, and say: what’s supporting all of this?

ConvergenceRI: Getting back to the market of luxury apartment rentals, beyond the quality of life, what are some other factors that are driving the market.
TAYLOR:
One of the things from my perspective, which comes from clients, buyers and sellers, is the tax structure, and property taxes.

At my age, I’m 49 now, I saw a big exodus for families in their early to mid-forties that didn’t want to, couldn’t pay for private school, and they chose to got to East Greenwich or Barrington or down to God’s country in South Kingstown. Why?

Property taxes. They said: I’m paying $10,000 a year for this [property], and I don’t have a yard big enough to throw a ball with my kid in.

I want to make this connection: when you start looking at the taxes for some of the houses that are for sale, or condos, where the monthly payments are in the same price range of the luxury apartments, the level of taxes you are going to be paying is $16,000 to $18,000 a year when you hit the $950,000 price range for a home. That’s about $1,100 a month in taxes alone. People are saying: what am I getting for that $1,100 a month?

That’s a fourth of the projected monthly rental at the Fane Tower.

I would love to see data for the absorption rate of different levels of price ranges for apartments in Rhode Island: how many apartments do we have at $1,200 a month.

Similarly, no one is going to be keeping data on how many $5,000 luxury apartments we need, right?

I certainly know the downtown in Providence has been at a zero percent vacancy rate for a long time.

People say we need more affordable housing. I agree; we do. But it doesn’t mean that this project doesn’t have a place.

Comments

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Chad Raymond

The market for both luxury and medium-tier rentals in Providence would explode with 30-minute commuter rail service to South Station. In this country though, real estate development is not planned around transportation infrastructure. Or around resilience to the effects of climate change.

Monday, December 3
Brian Heller

First of all, the Fane proposal would not be in “downtown”; it would be in the Jewelry District.

If Fane were to propose building this tower in down town, nearly all objections would

evaporate.

Secondly, the tower is an arrogant and brazen attempt to commandeer the park as the tower’s

front lawn. The tower would not be adjacent to the park, it would be in the park.

Ruggerio and our legislators have already sliced off part of the park to make room

for the tower. If the tower then assumes maintenance of the park, then the would essentially

be privatized. Imagine how such a proposal would fly in Boston or NYC – allowing a developer

to build in Boston Common or in Central Park.

Thirdly, with all due respect to Mr. Taylor, asking a real eastate sales person if development is a good

idea is a lot like asking a barber if you could use a haircut. Peter Scotti, one of Providence’s most

experienced and most highly regarded real estate appraisers, has stated that the tower is not financially

feasible without a massive subsidy and huge tax abatements.

Monday, December 3

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