Will Parkside's property value hike extend to other hot districts?
Just across from Railroad Park sits a building at 1631 First Ave. S.
It’s a relatively nondescript property that, in 2013, was valued at $209,800.
But things have changed considerably in the neighborhood over the past four years. Regions Field debuted. LIV Parkside, a 228-unit apartment complex, was built and opened. New eateries moved in nearby.
And the value of properties in the surrounding area skyrocketed.
Between 2013 and 2016, the value of 1631 First Ave. S. more than doubled to $464,900. In early 2017, the building and several adjacent properties were sold in a $3.7 million deal to Parkside District Ventures LLC, which is eyeing a development of its own.
The Parkside district is hardly the only Birmingham area to experience a recent surge in construction and demand. Various portions of downtown also have seen a surge in new developments and amenities, not to mention neighborhoods like Avondale and Lakeview.
But a Birmingham Business Journal review of property tax and value data from Jefferson County shows that those areas aren’t yet seeing the surging property values that Parkside has experienced.
The properties surveyed by the BBJ in Parkside showed an average increase of 114 percent between 2013 and 2016. That increase dwarfed the changes in other portions of the city center. Even neighborhoods like Lakeview and Avondale, where development has increased, haven’t seen similar price hikes in the values assessed by the county.
Experts say there are several reasons for the varying increases across different areas of the county, but many believe that the recent uptick in development will eventually lead to larger property value hikes in other areas, albeit not necessarily at the same pace of Parkside.
Before Parkside was a hot area for development, many of the properties were light industrial in nature – with a few scattered offices, retail shops and vacant buildings.
That history is one reason brokers say the district is still experiencing a significant jump in property values compared to other areas of the city. In essence, the market is adjusting to the new reality of the neighborhood.
Other areas with significant recent development, such as the Theatre District, where the Pizitz and Lyric recently came back to life, didn’t have similar histories.
Maria Knight, chairman of the Jefferson County Board of Equalization, said the steady activity in Parkside and near UAB has translated to rising values as new apartment complexes, retailers and construction projects take shape.
“This increased demand and limited supply drives values up,” she said.
The recent increases are bringing Parkside’s values in line with the area’s new economics. The district’s location near Children’s of Alabama and the University of Alabama at Birmingham, which is working to connect its campus to the district, are other factors, according to J.H. Berry & Gilbert’s Philip Currie.
Experts say the continued success of Railroad Park and Regions Field also can’t be discounted when looking at property values in the area, even though they both opened several years ago.
“These type developments are catalysts for rapid development which is why the city of Birmingham and our community at large has seen fit to invest so much in that area,” said Meredith Ray Calhoun of Corporate Realty.
Real estate professionals have said the rising property values – and the rising taxes that follow – have helped spark some landowners to sell or develop their property in Parkside. It’s also encouraged others to hold out for high offers on their sites, often leaving them undeveloped.
But although prices have been steadily climbing in Parkside, experts believe the levels will eventually hit a plateau, even if development continues.
Currie said there are some factors that could limit future property value increases in the neighborhood.
One of them is rising construction costs, which will have an effect on property values across the board.
“The increased construction costs we are experiencing may prevent too much of an increase in values as the total cost of a project drives the rent, which drives the value,” Currie said.
Another factor in Parkside is parking.
Unless parking is addressed, he said that could limit the value for property in the neighborhood.
Calhoun sees a stable overall market in Birmingham moving forward, which will likely extend to Parkside once the market corrects for the district’s history and recent changes.
“I don’t see the Birmingham market taking dramatic turns in any direction. The demand is driven by so many factors, many of which simply don’t change that much,” Calhoun said. “ I believe it will hit a plateau.”
But while many experts believe Parkside’s value increases will eventually flatten out, some say hikes could be on the way for other areas.
The next areas for rising values
While no other area has seen the tremendous increases experienced by Parkside, there are a few specific areas that have outpaced others.
The Second Avenue North corridor on the eastern side of 20th Street is one example. Buoyed by new restaurants and renovations, values for existing properties in the area have risen 16 percent since 2013.
Avondale, which has experienced a significant turnaround over the past decade, has seen values rise by 31 percent in the BBJ’s sample property set.
Knight pointed to Avondale, as well as the area around St. Vincent’s Birmingham and the northern portions of downtown, as places where activity is rising. She said that growth, along with other factors, including recent sales of comparable properties in the area, will factor in to future property value changes. This year’s tax notices with 2017 changes are expected to be mailed in the coming weeks.
REV Birmingham’s Ben Wieseman said there are also sparks of activity and future development concepts that could lead to increases in several neighborhood commercial districts both east and west of downtown.
Those areas have mostly seen smaller-scale projects to this point – although that will change due to developments in the pipeline – but values are steadily rising for many.
With the recent opening of the Pizitz and the recent return of the Lyric Theatre, many believe the Theatre District and surrounding area is one place where values are primed to increase in the coming years.
Values in that area rose just 1 percent between 2013 and 2016. Knight said values will likely rise in the area in 2017, and other real estate watchers also believe increases are on the way.
“We fully expect projects of the scale of Pizitz or Thomas Jefferson Tower, which are just coming online, to have a similar effect in and around the Innovation District in the coming years,” Wieseman said.
Bayer Properties Principal David Silverstein, whose company renovated the Pizitz, said he expects property values in the surrounding area to maintain or increase in the years to come, but he said there is likely a long way to go before the area sees a major increase across the board.
Silverstein said that’s because properties in the Central Business District each have unique challenges and obstacles. Many are taller and larger buildings that you wouldn’t usually find in Parkside or Avondale, and many are historic properties. Parking also limits development prospects – and market values – at several buildings.
“We never would have purchased Pizitz had it not had the parking deck associated with it, because parking is so key,” Silverstein said.
As we noted in a recent Cover Story, the area surrounding the Pizitz is home to a number of vacant or underused properties that have not seen tremendous property value growth in recent years – even with renewed interest from developers and investors downtown.
Calhoun said it will take time for the market to adjust and for the county to review its value assessments in the area.
“I believe every little bit helps, and (the Pizitz and Thomas Jefferson Tower) are examples of very large-scale redevelopments,” she said. “In both cases, it will take time for the market to digest the new product and for the people living in those properties to have a meaningful impact on the retail and office demand.”
The value and deal connection
As property values skyrocketed in Parkside over the years, several property owners have told the BBJ the rising values prompted them to sell or pursue projects.
Rising property tax bills encouraged some owners to sell their sites and move businesses to other locations. Others used the rising values and heightened investor interest to capitalize and sell.
Will that happen in other areas? Experts say it largely depends on the unique situations of individual owners.
“Each owner has their own bias, whether it is a development opportunity, business need, family heritage or other driver,” Wieseman said. “You generally expect that when an area begins to redevelop, many existing property owners will decide that the time is right for them to take advantage of a trend, but as we know, some property owners will still sit on their holdings for reasons that are out of the public control.”
That is evident in Parkside, where a number of buildings sitting on prime corners have sat vacant for years as the district has evolved and development increased.
The same could very well happen downtown near the Pizitz, although the expected return of the historic renovation tax credit could sweeten the pot for potential projects in the area.
Historically, Silverstein said one challenge with downtown properties has been that many buildings are owned by estates or managed by trustees. There are often several owners involved with one property, and it can be difficult to convince all of them when to sell or develop. That being said, he said recent activity and any resulting increases in value could move some to action.
“At some point, those who aren’t in the development business, you would think they would want to make those properties available to get the benefit from the increased property values rather than just holding on to them for extended periods of time,” he said.
Calhoun said perceived value and market activity, while important at times, are often less relevant in the motivations of owners when considering a sale.
“For those property owners who are on the fence with regard to investing in their property to redevelop, I think this activity in the market does at least get them to consider the possibilities and start conversations with stakeholders and tenants,” she said. “It certainly helps with momentum.”
- By BBJ