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By Kathy McCabe, Globe Staff
A year ago, developers John Judge and Tom Truong arrived at the edges of a still solid real estate market with a lofty goal to go along with their plan to make money.
The pair would buy seven properties in Chelsea from the Catholic Church, convert them into as many as 85 stylish loft condos, and sell them at reasonable prices to first-time home buyers -- families and professionals pushed out of Boston's pricier real estate.
Now, 13 months later Judge and Truong have built just four condos, with only two
of those units under agreement. They are unloading four other stately red-brick
buildings in separate sales to private investors and to a nonprofit.
The sales are expected to be finalized next month, said Truong, who did not disclose
terms. The pair bought all seven buildings for $3.3 million from the Archdiocese
of Boston. The last of the seven properties, the old St. Rose of Lima convent on
Tudor Street, is also for sale.
The pair's Chelsea retreat isn't unusual. Developers who snapped up properties in
better times now face long odds trying to sell them in a stagnant real estate market.
"It's not a good time to be building condos," said Patrick Newport , an economist
at Global Insight , a Lexington-based forecasting firm. "If they started out when
prices were appreciating, they assumed they would keep going up, and they would
make a profit. That just didn't happen."
When times are good for real estate, long overlooked places such as Chelsea often
benefit from the surge of investment that searches out cheaper properties. The local
housing stock is upgraded, and new homeowners -- and taxpayers -- becomes stakeholders
in the community's success.
But when the real estate market turns, the Chelseas of the world often are hit earliest
and hardest. Condo sales in this city, for example, plunged by two-thirds through
the first 11 months of 2006, compared to a 13 percent decline statewide.
"There's a period of uncertainty here," said Ned Keefe, the planning director for
Chelsea. "Many people that look to buy in Chelsea are coming from rental situations.
Before they jump into home ownership, they need the confidence that the market isn't
going to fall out from under them."
Elsewhere in Chelsea, another pair of developers that planned 54 condos at the former
Chelsea Armory, priced about $350,000 per unit, has since sold the property to Chelsea
Neighborhood Housing Services, a nonprofit that plans affordable housing there.
The reversal of fortune has been especially tough on small developers. They often
lack the financial mettle to wait out a downturn. "They just don't have deep pockets,"
Keefe said. "They just can't take the risk of having their properties sit idle for
long."
If Truong and Judge are ruing their venture, they aren't saying so. Indeed, they
offer little introspection or explanation about what went awry, other than bad timing.
"The market did not hold up, " said Truong. "We're being prudent businessmen."
In Chelsea, though, the rebirth of beloved church properties was closely watched.
The seven buildings are located on three parcels downtown. In addition to the St.
Rose convent, they include the former Our Lady of the Assumption church on Broadway,
its school, convent, and rectory on Clark Avenue, and St. Stanislaus school and
convent on Chestnut Street. Most had sat idle, having been closed prior to the wave
of dozens of parish closings over the last two years.
Chelsea is one of the state's poorest cities, with a low home ownership rate of
around 30 percent, compared to nearly 62 percent statewide. The city wants to add
1,200 housing units, and the new condos for first-time home buyers at the former
church properties were seen as a good fit.
"They're all in key locations," Keefe said. "There seemed to be a good opportunity
there."
And Judge and Truong seemed to have a combination of experiences that would help
fulfill th e goals. Judge is a former executive director of Habitat for Humanity
Greater Boston, while Truong owns RealtyDirect , a Quincy-based real estate firm.
With big windows, 12-foot ceilings, and hardwood floors, the buildings seemed ideal
for condo conversion. Judge and Truong said they originally planned to invest $8
million to $10 million to redevelop the buildings, some of which are more than 100
years old. They planned to finance the project with a mix of mortgages and capital
from private investors, they said.
"We have more money than we need," said Truong, who handles financing for the pair.
"We give people a decent return on their money, better than Wall Street."
But not too far along they showed signs of buyers' remorse -- and got a taste of
the difficulties ahead. Last August, with permits in hand for three buildings, they
put all seven properties up for auction. While the listings and an open house at
the St. Rose convent attracted much interest, the pair ultimately decided not to
accept any of the offers because they were too low, Truong said.
"We tested the market," he said. "There was a lot of interest, particularly for
the schools . . . but we weren't going to give them away."
With the market still plunging, Truong and Judge hung "For Sale or Lease" banners
on the outside of the church and schools. Construction on four condos at the former
Assumption convent and rectory continued. They also have permits to turn the St.
Rose convent into 16 condos, but construction has yet to start. They have not applied
for permits for any of the other properties, city officials said.
The Assumption units are large, from three to five bedrooms, and have fresh paint
and new carpeting. Pre construction prices were listed at $239,000 to $299,000.
Two have since been put under agreement for $260,000 each, but deals for the other
two fell apart when the buyers could not get financing, Judge said.
"We'll just keep marketing them," said Judge, who left Habitat in 2004 to start
a career as a private developer. "Our price point is unheard of in this market."
The two men may yet recoup their $3.3-plus million investment. Assumption church
is under agreement for $695,000 and its adjacent school for $765,000. The St. Stanislaus
convent and school fetched close to the $1.6 million asking price, Truong said.
The St. Rose convent, permitted for 16 condo units, is for sale. Truong isn't saying
how much he's asking , but he says the old convent, with a big courtyard at its
center, could be right for someone willing to bet on Chelsea long term.
"I really believe that, in 10 years, Chelsea is going to be the place to live,"
said Truong, who is 39. "There is opportunity there."
Indeed, Chelsea is not bereft of activity. Local and national developers have hundreds
of new apartments, condos, and townhouses in the works . By spring, the city expects
to issue building permits for the three largest projects: 500 apartments at the
swank Admiral's Hill marina ; 230 apartments at Parkside Commons downtown; 150 "eco-condos"
at Forbes Park , an environmentally friendly project on the city's scrappy waterfront.
"Without any doubt, there is still a lot going on here," said Michael Albano , chairman
of the Chelsea Planning Board and a Boston realtor. "Developers recognize that Chelsea
still is a very affordable alternative to Somerville, Cambridge, and Brookline."
Recent activity shows developers are more confident with apartment rather than condo
development in Chelsea. Two of the city's big three developments are for luxury
rentals, with more apartment developments in the pipeline. When home sales fall,
demand for rental property usually rises.
"Construction of [rental] units has been pretty steady," said Newport, the Global
Insight economist. "That market was not affected much by the housing boom. It probably
could be affected by the downturn, because more people will be looking to rent."
Meanwhile, Judge and Truong are trying to sell the last property -- the St. Rose
convent -- and Truong implied if it doesn't sell by next month, they will have to
rethink their options.
"Everything depends on the economy," Truong said. "Who knows what will happen? I
wish I had a crystal ball."
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