Hartford, Conn.— Hartford’s tallest apartment tower is now half full, and new residents are signing leases for the rest of the 262 units at Hartford 21 at a rate of 15 a month. Rents start at a sky-high $1,400 a month for a one-bedroom and average $2.10 per square foot.
That’s much higher than the project’s pro forma estimates of $1.60 per square foot, according to Mark Consoli, chief operating officer for Northland Investment Corp., a development company based in Newton, Mass.
The rents at Hartford 21 are also much higher than the average effective apartment rents in the Hartford area of just $900 in the second quarter, according to Reis, Inc., a New York City-based real estate research company.
Several properties are leasing new apartments downtown with little fear of future competition. Generous subsidies from the city and state that helped fund new construction downtown have been spent. The disappearance of that funding source, combined with the rising cost of construction, is making it impossible to develop more luxury rental apartment towers like Hartford 21, Consoli said.
That’s a big change from just 10 years ago, when no institution would even consider lending to a downtown apartment development because few people seemed to want to live downtown, according to Consoli. “Everyone thought Hartford was going to fall off the map,” he said. No new multifamily projects had been finished in the city since Bushnell Tower, a 27-story high-rise designed by I.M. Pei, was built in 1969.
The city and state worked hard to make downtown attractive again. A 550,000-square-foot convention center opened in 2005. A new Science Center at Adriaen’s Landing is under construction.
Today the downtown area has more than 1,000 apartments. Roughly 700 opened within the last two years, mostly within a few blocks bounded by freeways to the north and Hartford’s Bushnell Park and the Connecticut River to the south and east.
This January, local developers Marc Levine and Philip Schonberger opened 78 luxury apartments in the old Sage-Allen department store building downtown. Hundreds more have recently opened overlooking Bushnell Park.
In 2005 and 2006, developers brought about twice as many apartments to the Hartford area as in any other year since at least 1999. Reis counted 787 new apartments in 2005 and another 618 in 2006. Developments downtown account for nearly half the total.
All of this new construction has driven the percentage of vacant apartments in the area up from 1.5 percent in 2000 to 4.9 percent in the second quarter of 2007. Reis expects the vacancy rate to swell further to 5.5 percent by the end of 2007 before dropping back to 5 percent by 2011. Meanwhile, average effective rents will grow by more than 3 percent a year through 2011.
Rising construction costs
The pace of construction slowed in 2007, with just 289 apartments scheduled to be delivered. Over the next four years, developers will open an average of about 480 annually, according to Reis’ projections.
The pullback is due in part to rising construction costs, especially for materials like steel and concrete. Even growing rents downtown can’t support the hard cost of high-rise or mid-rise construction without extensive subsidies that are no longer available, Consoli said.
For example, Hartford 21, a 1 million- square-foot, mixed-use project, cost about $160 million to develop. The city of Hartford’s Capital City Economic Development Authority awarded the project $30.5 million in grant money as part of its effort to spur development downtown. The Connecticut Development Authority and Aetna Life Insurance Co. also provided the project’s remaining $59.5 million in equity investment.
But now that construction costs have risen and the city has used up the grant money it had planned to spend on downtown development, Hartford’s multifamily developers have turned to condominiums, and few new rental apartments are planned for downtown, said Consoli.
Northland is just one of the developers making that shift. The company intends to break ground next year on 250 condos in a 12-story tower overlooking Bushnell Park, located on the site of an old YMCA. Another developer, New Haven-based College Street Management, is building 50 new condos at The Metropolitan Condominiums in the old Hartford Electric Light Co. building.
Even with the squeeze on apartment development, these projects will help the new residential neighborhood downtown keep growing.