Robert Freedman is the former director of multimedia communications at NAR.
Prescient About Petroleum
A brokerage riding the surge in urban homeownership enjoys solid sales while the credit crunch and high gas prices hammer suburban markets.
December 1, 2008
Eight years ago, Dennis Donahue and his two business partners made a prediction: Downtown living would become huge, and real estate companies that focused specifically on the niche would prosper.
Today, with $4 gas prices still fresh in people’s minds and a new rapid transit system making his Charlotte, N.C., market accessible from the suburbs, Donahue’s Center City Realty is riding high despite the larger downturn in housing across the country.
"We saw the possibility of gas being very expensive," says Donahue. "We thought people would want to come back to the center city."
It was a gamble. The city had tried to spur urban living in the early 1980s, with little success. Back then, city incentives prompted developers to build some 500 units downtown. But the properties never caught on with home buyers, and the downtown area remained largely unoccupied after 5 o’clock every night.
Interest in downtown living picked up in Charlotte in the mid-1990s, as it did in other metropolitan areas, and developers returned and ramped up condo development. That’s when Donahue, a sales associate at other brokerages since the mid-1970s, and his partners—Brenda Brantley, another broker, and Bernadette Delgado, a business manager—began shaping plans for their company. It officially launched in 2000.
"We were very methodical about what we did," he says. "We looked at comparable cities like Orlando and saw the interest in urban living—people wanting to live in walkable communities and to be near a transit line for lifestyle reasons—and moved in a very thorough way."
This year, with roughly 35 sales associates working in two downtown offices, Donahue expects to close $80 million in sales volume this year, up from $65 million in 2007.
But despite the growth, his business isn’t immune to the shaky mortgage market.
"My personal business is down 11 percent this year," he says. "Our inventory has tripled" since the peak of the boom in 2006, and new condos planned years ago are coming on line, deepening the glut. Even so, annual price appreciation in his downtown market remains a respectable 4 percent to 9 percent and his associates continue to close deals every month.
"We haven’t been as affected by the downturn as they have in the suburbs," he says. There, inventories have more than tripled and appreciation has either flat-lined or fallen.
It’s too soon after the takeover of banking giant Wachovia, which is headquartered in Charlotte, to know what the effect will be on Donahue’s downtown market, but the other megabank based in his city, Bank of America, remains financially strong and is even growing with the takeover of Merrill Lynch and other financial institutions.
Walking the Walk
Other brokerages are trying to position themselves as urban specialists, but Donahue says you have to live downtown and walk the streets every day to be successful in this niche.
"When a buyer comes up to you and asks, ‘Where can I get a meal at two o’clock in the morning, where can I get a key made, or where’s a taxi stand,’ you need to know that," he says. "You can’t get away with not knowing it because people are buying a lifestyle." Young couples and singles are his biggest downtown buyers.
Donahue requires all new associates to go with him on downtown "field trips" during which he expounds in encyclopedic detail about the city’s 33 condominium buildings—when they were built, their square footage, what their unit floor plans are like. He expects salespeople to strive for a comparable mastery of detail.
"If they’re selling someone a condo that’s $500 a square foot, they’d better know what they’re talking about and make sure their customers understand what a wonderful lifestyle they get here," he says.
The brokerage starts new sales associates at a 60 percent commission split and raises that for every $1 million in sales they close. At $5 million they keep 100 percent of their commissions.
Because of the increasing popularity of downtown living, Donahue thinks his company is poised for strong growth as the credit crunch eases. In addition to the rapid transit line, which began operations about two years ago, developers are getting savvier with their condo designs, making units bigger, so more households will find them appealing. "Nobody selling a 4,000-square-foot home in the suburbs will move to a 1,100-square-foot condo," he says. "But they will to a 2,100-square-foot condo."
And as the specialists who know the square footage of all the units downtown—not to mention the best place for a late-night snack—it’ll be his sales associates who’ll be working those deals, he says.
For more on Center City Realty, visit www.centercityrealty.com.