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The South Rises

Developers are building hundreds of condos and town homes south of downtown, turning a former warehouse district into a trendy residential hotspot. Will it work?



on the southwest corner of South Main and Carolina, near the downtown Amtrak station, is a wooden wall trying hard to hold back a hillside littered with leaves and soft-drink bottles. Most days, the wall is a bulletin board of faded graffiti and billpostings. But on weekends, a neon yellow sign adds an unexpected enticement with four simple words: "New condos for sale."

Follow the sign's arrow and turn right, and the exploration down Carolina gets a little tricky. There's the dank railroad underpass, still standing thanks to the sheer will of dirty concrete arches. There are potholes too, and cobblestones, and construction equipment, parked alongside the road, and warehouses all the way to Kansas Street.

So where are the new condos? Not at the first stoplight (at least not yet) where Loflin Safe and Lock still operates and where a stray dog wanders, a mixed-breed, like his neighborhood. But turn right again and head north on Florida, away from the train whistles, and persistence pays off. Nestled near Merchants Warehouse is a row of contemporary town homes linked by 10-foot sidewalks to a block of like-styled condominiums. Some units are finished but still empty. A few are furnished and occupied by new owners. Hundreds more wait to be pre-sold and built by a dozen different developers from local and national firms.

"Memphis has never seen anything like this," says Terry Lynch, whose vision and tenacity is shaping the neighborhood. He couldn't be more correct. Almost overnight, design principles called new urbanism are transforming an L-shape warehouse district about the size of South Bluffs into a downtown hotspot called South End. Guided by a master plan from Looney Ricks Kiss, developers are mixing $400 million worth of homes and businesses in dense but pedestrian-friendly ways.

Eventually, about 3,000 people will live on the 30-acre site bordered by G.E. Patterson, Front Street, the railroad tracks, and the Mississippi River. At least eight projects are already under construction, offering open houses and sales pitches to couples like Kiley and Rachel Butler, downtown renters looking to buy.

"Everything is modern and updated," says Rachel, standing on the front porch of a town home called The Rooftops at South End. "And wait until you go upstairs. The view of the city is beautiful."

The Butlers, who direct a nonprofit youth ministry called Area One, are accustomed to spectacular views. They rent an apartment in the Rivermark, where they appreciate sunsets on the Mississippi along with the diversity and convenience of downtown. But their high-rise is being converted into condominiums, and they eventually will have to move.

"We are looking at South End and all over downtown," Kiley says. "We would love a condo that is affordable and generous in square footage with reasonable maintenance fees."

So far, they say they aren't having much luck. The least expensive Rooftop home is $371,000. Other South End projects are less expensive but too small for their needs. Even rentals, Kiley says, are getting harder to find as buildings like the Shrine, The Lofts at South Bluffs, and the Claridge House also convert from apartments to condominiums.

"We are excited about South End developing into a distinct and unique community and thrilled to see downtown grow," Kiley says. "We just hope we will be able to stay and be part of it."

At first glance, accommodating middle-income families seems easy enough for a neighborhood with varied price points and residential designs. Consider the scope of South End as originally conceived three or four years ago: stores, offices, parks, a new fire station, and more than 1,200 apartments, condominiums, and town homes, many with popular upgrades such as hardwood floors, granite countertops, whirlpool tubs, and stainless-steel appliances.

Built over the next five years, typical residences will range in size from about 600 to 3,500 square feet and range in price from about $110,000 to more than $500,000. But translate those numbers into price-per-square-foot, a common tool for evaluating real estate, and comparisons with suburban prices are a little surprising: $130 to $300 per square foot in South End versus $80 to $100 per square foot for homes in Cordova or Germantown.

Even Lynch, managing partner of Southland Capital Corp., admits high condo prices can be a creative sell.

"We're asking people to come downtown and spend a lot of money on a block that these days looks a little like Afghanistan," says Lynch, whose company owns about 17 acres within the South End boundaries. "That's why we have to sell something more than concrete buildings. We have to sell downtown amenities and the downtown lifestyle."

To help buyers understand the South End package, developers have jointly hired the marketing firm of Carpenter Sullivan to design signage, billboards, and a common Web site, called The firm's initial budget is $150,000. "We are collectively marketing the entire South End as one product," says Doug Carpenter. "We are confident that it will add prospects to everyone's project."

Developers and realtors are busy as well, budgeting up to $1.5 million for other selling strategies, according to Lynch. For instance, at The Lofts, a condo conversion in a historic building near G.E. Patterson and Tennessee Street, four decorators designed loft interiors to reflect specific owner profiles, such as "fast track professional" or "urban start-up couple." Visitors attending an evening open house voted for their favorite design, toured the building's rooftop, and snacked on wine and cheese. (The "empty-nester" loft designed by Rachael Turri won the contest and later sold for $436,000.)

Down the street, a high-profile sales office in a historic building on South Main helped developer Berry Jones sell 27 of the 36 condos at City House, located two blocks away on G.E. Patterson. The sales office took advantage of the evening gallery openings and free trolley rides that attract hundreds of people to the arts district the last Friday of every month.

"We distributed marketing materials, had a lot of parties, and drank too much wine," says Jones, who will finally close units in December and January after 18 months of sales and construction. "Everybody thought it couldn't be done, but at the time, City House was the most successful pre-sale project in the area."

These days, pre-selling techniques for condos in the South End are even more ambitious. The Horizon is a 350-unit complex of luxury condos planned for Riverside Drive that promises twin 16-story towers, a cyber café, a putting green, and a private movie theater. Print advertising and mailed invitations trumpeted the opening of the sales office for weeks. On the night of the party, prospective buyers drank cocktails and watched virtual tours of Horizon condos on a giant plasma screen.

So will all the marketing work? It could be tough, according to an article last month in The Wall Street Journal rating condominium markets nationwide. The article described Memphis, along with Dayton, Cleveland, and Oklahoma City, as "not-so-hot" condo markets, citing flat appreciation and over-supply.

Andy Kitsinger, director of planning and development for the Center City Commission, says the article was too simplistic and didn't consider the demographics and development trends of downtown Memphis. The medical district, for instance, is adding 2,200 new jobs, he says, driving demand for more downtown housing.

"You've got the desire and draw of downtown as the hip, cool place to be, plus the economic engine of new jobs," Kitsinger says. "Downtown keeps getting more popular, even without retail amenities like a department store or a full-scale grocery."

In fact, a study conducted by the Center City Commission last year says the high-growth area of downtown, which includes Mud Island, the central business core, and the South Main Arts District, grew an average of 10.3 percent annually, compared to 1.1 percent growth for the seven counties comprising metropolitan Memphis. "We thought the downtown demographic would be the young single professional," Kitsinger says. "What we found instead was a wide variety of people, and 33 percent of them are moving downtown from out of state."

Downtowners also are educated, affluent, and older than you think. "We have a truly wide range of owners, from FedEx pilots to a 29-year-old single woman to a 78-year-old couple who sold their house to move downtown," Jones says of the City House project. "We even have people who are buying condos for weekend getaway homes."

In some ways, Germantown chiropractor Terry Hanson fits the downtown weekender profile. In practice since 1984, he and his wife, Kim, raised six children in Collierville. Now they can't wait to get downtown where they've reserved a spacious corner unit on the 12th floor of the Rivermark, now called RiverTower.

"We'll buy a small home in Germantown to park all my 'toys,' but our main residence will be downtown," Hanson says. "Everything we like to do is associated with downtown -- sports, entertainment, kayaking, the good restaurants, the river view. We are super-excited."

Developers report similar enthusiasm for other projects, as well. At City Commons, almost two-thirds of the 30 units released have been sold, and condo prices have jumped $10,000 with each new building, according to sales agents.

While few new condos in South End are showing up on market data because only a handful of units have closed, downtown condo sales in 2005 already have passed totals for the previous year, according to Chandler Reports, a company that tracks real estate transitions. Last year, 118 condos sold in the downtown zip code. Condo sales through Thanksgiving of this year total 171, an impressive increase, according to general manager Jennifer Burda.

"There's been a noticeable jump in condo sales from conversions, but the condos are a little smaller and a little pricier per square foot," Burda says.

In November, agents wrote about eight contracts a week for downtown condos, according to developer Henry Turley's informal tracking of sales. "Add up the numbers and that's about 400 units a year," Turley says. "I'm not concerned about condo sales over the long term, but I don't think all of us will be here in the end for the prize."

Short-term sales could be impacted, as in other condo markets, by speculative buying by investors, rising interest rates, competitive lowering of prices, and a weakening economy overall. For now, South End developers insist they aren't selling to outside investors, although one agent admits keeping "a backup list of investors just in case."

None of these potential problems even slows down Lynch, who would rather talk about his streetscape plan or how South End's smart growth is good for the city.

"We've prepared a budget for the streets, curbing, sidewalks, landscaping, and lighting," Lynch says. "It will take about $6 million to pull it all together, and we are asking the city to pay about half that amount."

The return in city taxes is more than equitable, he says: "At the end of the day, taxpayers in South End will deliver $10 million a year."

Even the ongoing train whistles don't bother Lynch because he's helped to broker a "no-blow" zone for the Kentucky Street railroad crossing. The crossing is already closed the traffic, and train engineers will stop blowing whistles after final City Council approval, expected this month, according to Lynch.

Next on the agenda is continued office and retail development, already showing signs of jump-starting on nearby South Main. American Apparel, a California retailer, is opening a store in February across the street from The Arcade restaurant. Colorful banners were hung in store windows last week.

Down the street on G.E. Patterson near Third Street, business is brisk at a new Porter Paints store, the newest location for the regional chain. "We expect to be doing between $1.2 and $1.5 million in annual sales within the next five years," says Marty Nacrelli, district manager. "We anticipate a lot of growth for this store," he continues. "That's why we're here."

Q&A with Andy Kitsinger

As the director of planning and development for the Center City Commission, Andy Kitsinger has a front-row seat for downtown projects. He discusses downtown's growing condo market and the push for more retail.

How do you think the new condo construction in South End will play within the context of loft conversions in existing buildings?

I think the new condominiums are the best of both worlds. There is such a desire to live in a historic neighborhood but with the modern amenities of a new home. We are seeing that in Uptown, where the small houses are being constructed within the historic fabric of the neighborhood, creating a nice mix of income levels and a diverse population.

Do you think there will be an over-supply of condominiums in South End?

The condos will definitely be absorbed. It's just a matter of how quickly they will be absorbed. We did a study that projected 4,000 to 5,000 residents living in South End. That means South End could be as large as the north end of downtown, which includes Harbor Town.

Are there enough people in Memphis who can afford to spend $300,000 for a condo?

Price is all relative. Compare our market with cities like Denver and Boston, where condos sell for $700 a square foot. We get calls every day from East Coast and West Coast developers who want to come into Memphis to do mixed-use and residential development.

Is there any word yet on a downtown grocery store?

The regional chains like what they see, but their margins are so low that the land has to be economical. It's also tough for large-scale groceries to think out of the box, to consider anything that isn't in a green field with a big parking lot.

Have you targeted any particular sites for a downtown grocery?

Ideally, a big-box grocery will locate somewhere on the edge of the downtown core, such as on Danny Thomas Boulevard where the traffic counts will draw from neighborhoods to the north and south. With all the growth in South End, Crump Boulevard also is becoming a more active thoroughfare, bringing back I-55 and the old bridge as a viable gateway to the city.

Do you have any time frame for a new grocery?

Within the next 18 to 24 months there will have to be a grocery store built. In the meantime, a community-based group is starting a seasonal farmer's market. Initially, it will operate on Saturday mornings from April through November. Two sites have been short-listed: Beale Street at Handy Park and Central Station under the canopy.

I know the zoning has been changed to facilitate mixed-use development in South End. Will the industries still there be forced to relocate?

No, but I think the industries will eventually find there are better locations for their businesses. It will be similar to farmers in the suburbs. Their property values will increase so much that it will make sense to sell their land and relocate.

What else will help downtown

communities continue to grow?

The demographics downtown are at the tipping point for supporting more retail, so we are interviewing people for a full-time retail recruitment position. We hope to hire someone by the end of the year. -- PD

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