Evicted, The High Cost of Condo-ization

Wednesday, December 19, 2007

By Jake Nichols

Jackson Hole, Wyo.-Another day, another development.

Is growth in Jackson moving forward at a dizzying pace? Ask city council members. They spent all day and night Monday plowing through a blizzard of proposals, the kind that pour in like the chain of taillights snaking out of the valley every day at quittin’ time. When the council threatened to revamp their Land Development Regulations, they merely added wind to the avalanche of applications that developers sought to push through while gross ambiguities and grey area still remained via antiquated tools like the oft-criticized Planned Mixed-Use Development (PMD).

A town that once pulled back the curtains to catch a reassuring glimpse of the Tetons or Snow King is greeted now with an eyeful of omnipresent construction cranes. The question is no longer, “Will Jackson Hole retain its western charm?” but “Will it remain habitable?”

“We are living in an urban environment with prices higher than Manhattan,” said local developer Greg Prugh. “Less than 15 years after the Comp Plan of 1994 we are experiencing exponential change. A thousand square feet in town goes for $600,000. At the new Hotel Terra it’s $2,000 a square foot. The Wagon Wheel just went for $20 million - $3 million an acre. It’s changing faster than anybody knows. No one could have thought it back then. No one saw it coming.”

Well, it’s not quite true that no one saw it coming. David Viehman, owner and associate broker of Jackson Hole Real Estate & Appraisal is the author of “The Hole Report.” Whenever valley land bankers need a pick-me-up or jealous outsiders simply want to be wowed by outrageous figures, they read a copy of the bi-annual report of the state of real estate in Jackson Hole.

“Many have long predicted Jackson Hole would one day run out of developable real estate because of the limited privately held lands in JH [as] 97 percent of Teton County is protected from future development,” Viehman’s latest report states. “Well, the prediction has become the reality. Current available inventory is at a 20-year low, yet we just experienced the second highest number of sales ever for the first six months of any given year.”

The lack of inventory means real estate sales are driven mainly by “land flipping.” With the value of land in Jackson Hole skyrocketing, anything on it more than three years old looks dumpy on the company ledger. And to maintain the balance sheet, revenue-generating properties on the lower end of the scale – like apartment complexes and trailer parks – just beg for gentrification.

Condo mondo
“It all starts with condominiumization,” Prugh said. “Land is so expensive this is the only way to make the numbers work. Land is the only thing appreciating in the valley. Buildings are actually depreciating. That’s the scary thing.” Prugh said razing apartment buildings to put up condos might look good at first glance but in Jackson’s elitist market, the community should be careful what they wish for.

Fellow developer Erik Bedford is not alone in recognizing the potential pitfall. “It’s a difficult issue,” he says. “If rental apartments are turned into condos then renters become buyers, and isn’t that good? Well not if investors get a hold of condos and raise the prices.” Bedford’s lastest project, a condo flip of the 56-unit Virginian Apartments was given the go-ahead by the city council Monday, leaving Jackson with only two remaining apartment complexes.

“Condos get gobbled up by investors,” Prugh said flatly.
Viehman believes that this is a given. “Investors will snatch these [condos] right up,” he said. “Trailer parks are getting snatched up as soon as someone is willing to sell them. Some are young kids that got savvy. They save everything they own and they go in and clean them up and flip them.”

Former planning commissioner Ray Elser has watched Jackson’s land grab play out in his manila folders on a case-by-case basis. “There will be some argument that the bulk of the units will go to investors versus homeowners and they will run up the rents and the prices will appreciate at unfettered rates,” he said. “Low-end apartments are disappearing and as these are converted the monthly rents will go up.”

Social stratification
Even if former renters can buy into the condo craze, or rent into it, the escalation of rent causes hyper-inflation in Teton County, according to Prugh. “Dishwashers need to be paid $25 an hour to make rent,” he said.  “Every developing community needs trailer parks. Roofers and painters, even teachers can’t find housing. The average person can’t buy here now. And now they can’t rent.”

Bedford agreed. “This community needs entry-level units. There is a social stratification going on. The uber-wealthy are served at one end and the affordable housing folks at the other and the resulting polarization leaves no middle market.”

Affordable housing groups like Teton County Affordable Housing have made some headway in relieving Jackson’s housing crunch. Mitigation rates have just been green lighted to 25 percent from 15 percent but a recent independent assessment of the county’s housing situation found current affordable housing numbers would have to be doubled to be adequate. And the free market simply hasn’t lifted a finger.

The latest Hole Report shows that 13 of 160 homes for sale today are listed at less than $1 million. All of these are a 40-minute drive from downtown Jackson. Only three of 180 available condo units are listed at less than $500,000. “This means only someone with an annual income of $150,000 to $200,000 can afford a condo,” Viehman said. And that’s if they can find one. Even with the report indicating that available condo/townhouse units are up 44 percent over this time last year, average sale price of a condo unit rose 43 percent along with the rising supply. The average asking price of a condo or townhome in Teton County is $1,353,000.

So outside of (some) doctors, lawyers and investment tycoons, who can afford to live here? “There’s a new paradigm and it’s what feeds this community,” said Prugh. “You have affordable housing and super-high end. Low-end rental for the workforce is down to Blair and the Timbers. They have to come from tax grants or Section 42 Housing. Otherwise, no one will build them.”

“Nobody’s building apartments when they need to get a return on their land costs,” Viehman concurred.

Elser also saw no help from the private sector. “Apartment owners are trying to maximize their investment by the conversion to condos because it will generate a sales price much higher than selling the property based on cash flow,” he said.
Prugh admitted that he would be somewhat hypocritical if he didn’t confess to being a part of the gentrification of town with his latest project in East Jackson, but he is quick to point out that he built 810 West at 70 percent affordable housing and truly cares about what will happen to Jackson’s workforce. Bedford said it doesn’t always come down to money. He’s enjoyed building entry-level houses on the private side for 12 years but now nobody is building them because it’s a pain, he said.

Score one for Roope
Perhaps the only developer to successfully build a low-end rental property in Jackson recently is The Pacific Companies’ Caleb Roope. Through assistance from the Wyoming Community Development Authority, Section 42 tax credits, grants and a low interest loan secured with the support of Housing Authority, Roope built Snow King Apartments on 1.7 acres for $4.2 million.

The 24-unit complex is 100 percent occupied with a waiting list of hundreds. There is virtually no turnover. The Blair Apartments – rumored to be next up for condo-ization – currently shows a 90 percent occupancy rate for 224 units. “There is sorely a need for workforce housing in Jackson; rentals in particular,” Roope said.

But when Roope tried to duplicate Snow King Apartments in the county he was met with resistance. “We haven’t pursued any more of these projects in Teton County because they are not ready to support doing housing,” he said. Roope attempted to build a 48-unit rental project on five acres off the Moose-Wilson Road back in March 2006.
“We didn’t get a warm reception and concluded that the county wasn’t going to support our project so we let it go because we weren’t in for a fight,” he said.

Roope said he doesn’t need the hassle. Other communities where his firm builds, like Truckee or Mammoth, Calif., bend over backward to make Roope’s life easier. “It’s a challenge in Jackson,” he noted. “What makes it more difficult is that the political leaders aren’t ready to make the choices yet to commit to housing like this. So why beat yourself up in Teton County when there are other communities in the U.S. that will [facilitate rental housing]. It’s unfortunate because there really is a great need there.”

The haves and the have-nots
Some of the biggest opponents of affordable, entry-level rental units are not absentee second home owners but longtime valley residents. Happily banking absurd equity hikes through refinances and mortgage restructures, local homeowners rally for affordable housing in letters to the editor, but develop sudden cases of NIMBYism when a project is slated to break ground in the neighborhood. Prugh said he’s looked into apartment projects but neighbors did not want them next door.

“Those who have their homes and resorts and properties don’t seem to be people who push for affordable housing,” Roope adds. “The ‘haves’ have more power than the ‘have-nots.’” And the “have-nots” are more than Mexican workers and seasonal coeds, population segments that the “haves” assume can stack themselves up, eight to a room in various town barrios.

“A lot of people are against affordable housing because it saddles the land,”
Prugh said. “Well, Bill Wiley lives in affordable housing. Without him you could argue we would not have a high school football championship.” Prugh also pointed out that escalating prices and spiraling inventory can quickly turn “haves” into “hads.”
“Connie Owen had to sell her house to retire, but now she has to leave the valley. That’s what’s happening.”

Owen, 62, recently retired as the Senior Center’s director after 27 years. She built her house in 1979. “I had so much equity built up in it I had to sell it,” she said. Despite the realized gain, Owen couldn’t afford to buy back in to the hyper-inflated market. “I don’t want to leave the valley. It breaks my heart to leave here.”

Can it be fixed?
Viehman claims there are two options: throwing in the towel and high-density infill. The former is the scenario-in-progress, the latter would require some tough decisions from city and county planners.

“More density is the only way to make it work but that means more rules,” Prugh said. “Housing is a resource. It is depletable. We preserve parks, open space, water, non-smoking areas, but we don’t seem to care to preserve a crucial segment of the housing market.”

Roope has seen “condo prohibit” ordinances work in places like Mammoth Lakes, Calif., where rentals cannot be converted to condos unless a survey shows that vacancy in the apartment complex is at more than 5 percent.

Viehman points to Teton Meadows Ranch as a key litmus test for whether the public and elected officials are ready to trade open agriculture space for smart growth. Jim Reinert’s proposed subdivision on the Seherr-Thoss property in South Park is sure to challenge notions like its predecessor – the failed Porter annexation of 2002.

Reinert, a Chicagoan, plans to build 500 deed-controlled homes on 288 acres that he says would create a much-needed, locally unprecedented micro-housing market independent of Jackson Hole’s exorbitant free-market real estate. The development would be a first-of-its-kind compromise between affordable housing and free-market, deed-restricted homes.

Through a “Homestead Ownership” covenant, Reinert intends to create a sovereign housing niche, insulated from the free market by exclusionary buy-in restrictions that include criteria such as allowing only full-time, working county residents to live there and excluding members from owning a second home in Teton County. Teton Meadows has already received strong opposition from Save Historic Jackson Hole.

In a few years, will a property investor studying the staggered graphs in Viehman’s Hole Report kick himself for not buying that 1,100 sq. ft. condominium unit at $512,500 with no garage or yard? When he crumples the report in disgust and throws it away will a kid living in a $350,000 duplex in Victor, making $45 an hour, empty the wastebasket for him?

“Teton County needs to take a hard look at stuff right now,” Prugh said. “There is a butterfly effect. Every decision made today will cause a ripple five to 10 years from now.”
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