Last night, PRG Investments executives put Louisville’s two highest profile real estate entrepreneurs in a room at The Green Building, then turned them loose to talk about Louisville’s frisky, risky real estate market.
The result was an evening of tantalizing teases by Kevin Cogan, and a dissection of the luxury home market by John Lenihan, both the consumer psychologies and the financial factors driving real estate, including the urban/suburban structure of the market.
Cogan is chairman and CEO of Jefferson Development Group, which has developed residential and retail projects in Louisville and in other markets, including the Park Grande luxury residential tower on the edge of Cherokee Park.
Lenihan began his career as a developer of warehouses and distribution/logistics facilities near the UPS WorldPort hub. In 2010, he became a franchisee of New York-based Sotheby International, creating Lenihan Sotheby’s International Realty in Louisville.
PRG’s third Louisville Real Estate Investment Series forum, which drew about 100 developers, brokers and investors, including Gill Holland, Bill Weyland and Jim Patterson, was a frank evaluation of where Louisville is in terms of attracting talent and business, because after all, quality of life comes down to real estate.
But the big question of the night was, “What’s Kevin Cogan up to?”
Cogan referenced at least two projects, including Willow Grande being a go.
“We expect to take reservations in the next 90 days.”
Willow Grande, a proposed 17-story, 24-unit ultra-luxury tower on the site of the existing Bordeaux Apartments at Willow Avenue and Eastern Parkway, would be next to 1412 Willow, The Dartmouth and 1400 Willow residential towers.
The project – stalled by the recession and years of zoning and legal challenges – could end up on the market just as demand for condos is returning, Cogan said.
Cogan noted Park Grande took seven years and five lawsuits to get built. “We’re in our fifth year, going on sixth year with Willow Grande, and we have won all our zoning cases. We’ve won architectural review. We’ve won landmarks review.
“They appealed everyone of those. Now they’re appealing in the court of appeals and have already told us they’re going to appeal to the Kentucky Supreme Court.”
Ultimately, Cogan said, he expects the project to survive all challenges.
Louisville’s barrier to entry “in a sense makes the product we deliver more special. Because if it were cheap and easy, everybody would be popping up buildings in the Highlands,” Cogan said.
He’s working on another project that could be “absolutely spectacular, though I’m not announcing anything yet.”
The mystery project is an in-fill multi-family complex – possibly condominiums – that would be developed in two or three phases. “It’s going to be recycling something from existing (housing),” Cogan said, declining to elaborate in a post-forum interview. “I have to keep some of the details in my pocket.”
Cogan referred to a Brookings Institute study that showed a need to bring more density into Louisville’s urban edges. “We really do think the Cherokee area could see some additional density.” He also said it’s likely some of the larger estates in posh neighborhoods such as Glenview could be broken up and developed.
Downtown will also see development and redevelopment, Cogan predicted, but he anticipates opposition to just about any development proposals.
“There are 100 people in the Cherokee Triangle who don’t like me,” Cogan said. “They’d like for me to get on the bus with Todd Blue and go to Houston,” referring to Blue’s recent observations in Insider Louisville.
Both Cogan and Lenihan agreed that while Louisville market activity is increasing, neither sees a real estate bubble. “We are not in a bubble,” Lenihan said. “Not even close,” with the market driven by post-recession replacement demand.
Emcee Reed Weinberg, PRG Investments president, asked why there are so few new high-end condos and developments in Louisville compared to nearby Nashville and Cincinnati.
Lenihan had a simple explanation: “Balance sheets. Plain and simple. Who’s going to fund them?” Lenihan noted his wife Elizabeth is from Nashville, and they go there often. Nashville has a thriving professional class of executives, entertainers and professional athletes that sustains high-end development, a client segment missing in Louisville.
“We need the Kevin Cogans, the Bill Weylands and the Jim Pattersons to put their balance sheets behind the projects,” Lenihan said. “I don’t know if the financing comes first, or the people come first.”
The only place where it’s practical and affordable to build new enclaves of luxury homes is the “growth corridor,” Brownsboro Road/U.S. 22, U.S. 42 and Shelbyville Road, he said.
Lenihan also delved into the phenomenon of aspirational neighborhoods. He noted that prices post-recession are dramatically lower for certain subdivisions, such as Sutherland in Prospect, than in hot neighborhoods such as Norton Commons and Mockingbird Gardens.
A home in Sutherland goes for about $100 per foot, he said. “You take that same home, that same design by probably the same builder, move it to Mockingbird Gardens and you’re at $200 to $245 per square foot.
“That’s a pretty big trade off for 3 miles in my mind. But the market has spoken ….”
Both Lenihan and Cogan said Louisville is at a juncture during which the economy is improving and demand for housing is growing while the housing supply is stuck at 2007 levels. In Cincinnati, that phenomenon has caused a shortage of single-family residential lots, Cogan said.
“We’ve never seen in our recent economic cycle where we had a complete freeze for five years in the creation of (housing) supply,” he said, a situation not likely to change quickly.
“If I went to a banker today and said, ‘I want to do a subdivision off Covered Bridge (Road) of 200-something units, he’d look at you like, “No, no. Don’t bring that here.'”
Lenders remain reluctant to re-enter residential real estate, Cogan said. If it’s two year before banks are ready, “those lots are still five years away from production. I think we are going to have a shortage. ”
Both developers talked in depth about their careers.
Lenihan discussed his switch to residential real estate with Sotheby’s in 2010 from developing warehouses and logistics. Sales for the concierge firm since then have risen from $36 million the first year to a projected $225 million for 2014. Lenihan said Sotheby’s will likely “tap out” at over $300 million because of the company’s “wedge” of upscale neighborhoods, which runs along the Ohio River from downtown to Eastern Jefferson County.
Cogan talked about his start helping developer Gil Whittenberg sell a stalled 1400 Willow, which is just west of the proposed Willow Grande. Being a developer takes thick skin, he said. When he developed the Shops of Audubon in the mid-2000s, neighbors vilified him personally, Cogan said, then turned around and patronized the stores.
He said he wants to bring a “sense of pride” to each project. “In 25 years, I want my children to go past a project and say, ‘My family was involved in that project.'”
The event was sponsored by Merrill Lynch Wealth Management and Bridge Trust Title Group of Louisville, with the food catered by La Coop restaurant.
You can read the posts from the previous PRG summits here: