Waiting Game: How Atlanta’s building boom can make homebuying a high-stakes wager

In early 2017, John Lewis accepted a position with Emory University as an emergency medicine physician and began preparations to move his family of five from just south of Washington, D.C., to metro Atlanta. They sold their sprawling home of 4,200 square feet, set on a coastal acre, and stowed the bulk of their belongings in pricey storage units. They were under the impression they would have another permanent home soon. The urban-style home of their dreams, no less, in a hip Atlanta neighborhood—a walkable new frontier for the next phase of life. It just wasn’t quite ready yet.

In the meantime, the Lewis roost—John and his wife, Jennifer Mathew, a family physician, their toddler and two preteens—crammed into a two-bedroom apartment at the Arlo building in downtown Decatur. It was the best unit available for a short-term lease, Lewis says, but it faced railroad tracks with a fire department nearby: sleep disruptions hardly ideal for late-shift hospital work. Still, the whole family was excited. In scouting the region, they’d adored Decatur’s schools, shops, and diversity. They’d picked a townhome in May near downtown that felt like a steal compared to East Coast properties, or even comps around Atlanta’s eastside. The keys, they were told, would be in their hands by October.

But nearly two years later, their Moda Decatur townhome still wasn’t finished.

The Lewises had gone under contract for $789,000—the initial deposit was a nonrefundable $20,000—with promises of four bedrooms, 3,200 square feet, and upgrades as they desired. The Moda project markets itself today as “the peak of urban living,” designed to please “the most discerning buyer.” The plans, as Lewis recalls, were “gorgeous.” The soaring exteriors impressed with sharp modern lines, dramatic cantilevers, and rooftop decks with fireplaces. Inside would be top-flight interiors with Thermador appliance packages and elevators. A communal saltwater pool was planned down the lane.

Waiting, however, complicated things. Lewis’s son had grown large enough to prison-break his Pack ’n Play and escape into the apartment building breezeway. His parents decided to uproot to Atlanta, too; they found a homesite under construction, waited until the house was finished, and resettled themselves as their son watched from his apartment. All the while, the family paid premium short-term rent and storage fees, and looked on in frustration as the hot local housing market—other options—became substantially more expensive. It was a time, as Lewis explains, of being in the dark and knowing very little. And it’s a sort of limbo, a gamble in disguise, that’s not uncommon around Atlanta right now.

“We were trying to move on with our careers in this little cramped space,” says Lewis, 48. “We’ve lived in a lot of major cities before, from New York to D.C. to Chicago. We’ve never experienced anything like this in our lives.”

Like two other townhome projects under the Moda flag in Reynoldstown and Lavista (the latter has since been renamed Emory Row), Moda Decatur is being developed by St. Clair Holdings, a company founded by industry vets as Atlanta began noticeably pulling out of the Great Recession in 2012. Ultimately, it’s expected to consist of 33 townhomes, built across four phases. Principals insist issues that have plagued potential Moda buyers are par for the course in Atlanta and markets across the country right now—and that concessions have been made to keep customers happy.

But Lewis isn’t buying that; he felt he was ensnared in a scheme. In his frustrations, and suspicions, he isn’t alone. Other homebuyers who’ve signed contracts with Moda properties spoke with Curbed Atlanta about feeling bullied, or being appalled by the development team’s lack of communication, to the point that one person claims it made her physically sick.

Atlanta is famous, if not infamous, for its propensity to build and keep building. It’s an industry immortalized in literature by Scarlett O’Hara’s gangbusters lumber company and Tom Wolfe’s insatiable Charlie Croker, symbolized by the city’s very seal, in which the mythological phoenix might as well be wearing a hard hat. Yet the past two years have each seen more construction than any other points in the history of Atlanta, according to the tabulations of Tim Keane, the city’s planning commissioner.

Construction, by nature, is a gauntlet of ifs. Unforeseeable things happen. Schedules falter. But Atlanta’s exploding townhome market—in some cases—is the epicenter of an industry riddled with issues borne of the region’s success. These include labor shortages, cost overruns, unregulated promises on the part of builders, strategic delays, compromised build quality, litigation, budget-busting tariffs, a dearth of available land, and shady practices such as laborer poaching. These complications aren’t exclusive to Moda properties, but Moda is a name that continually pops up in these discussions.

The repercussions might not be life or death, or the difference between homeownership and homelessness, but the impact on livelihoods is real.

“I think the most tragic thing is the delay,” says Todd J. Poole, a Tucker attorney who specializes in real estate law and eventually stepped in to help Lewis recover his deposit. “Whether it’s fraud or incompetence, it really does have an effect on every buyer’s life, so people should know about that.”

Boomtimes

Maybe the phrase “urban infill development” smacks of disingenuous industry-speak, but when Mike Bednarski, a partner with Icon Residential, talks of his company’s focus, he says it with conviction. The Tampa-based developer has made a name for itself (and mounting profits) building townhomes in sunny, smaller markets like Sarasota, Orlando, and St. Petersburg, all in Florida. In 2016, though, Bednarski branched north, to what he perceived as green pastures in the Southeast’s capital city.

“Atlanta just has a great economic and demographic story, with a lot of positive factors such as major employment growth, population growth, [and] the younger, college-educated demographic, that’s been growing rapidly,” says Bednarski, who’s building townhome communities in Reynoldstown and on the formerly industrial Westside. His sales manager, Pam Ahern, says buyers have run the gamut from young newlyweds to empty-nesters, along with waves of transplants, all seeking a lock-and-leave lifestyle. She mimics a typical reaction when East and West Coast expats tour her Atlanta townhomes: “‘Are you kidding me, this is all it costs?’” says Ahern. “We complain about the taxes, but they say, ‘Oh, my God, this is so much better than what we could get in Brooklyn, or San Francisco.’”

The sheer bulk of options for townhome buyers in Atlanta these days, however, can make competition fierce, as Bednarski has found.

In 2015, the city of Atlanta issued 42 building permits for townhomes. In the first eight and a half months of 2019 alone, that number had skyrocketed by more than 1,800 percent—nearly 800 townhomes permitted. (Just beyond city limits, even more options abound; Decatur, as one example, has issued 173 townhome permits in the past five years, adding to the competition for buyers.)

Still, those numbers pale in comparison to Atlanta’s post-recession apartment tsunami—rental options geared toward younger professionals, or anyone who scoffs at being tied to (or who can’t afford) a mortgage.

Between 2011 and this past September, from Buckhead Village and West End to downtown Kirkwood and myriad points between, the city issued permits for nearly 33,000 multifamily units, according to the Department of City Planning. Couple that with thousands of single-family homes built since 2011 and more than 50 million square feet of permitted commercial space—equivalent to 25 Mercedes-Benz Stadiums—and it’s easy to see why general construction laborers are in extremely high demand.

Noticeably lagging in that mix is the for-sale condo, as only a handful of large projects have materialized. Keane, the planning czar, has a theory as to why: “The Atlanta condo market in particular, during the Great Recession, it was overbuilt, and there were complexities in ownership arrangements, [plus] enough disputes over construction related to condominiums that ended up in litigation and big insurance claims that, I think, it really scared people,” he says. “I’ve had developers tell me they’ll never do condos, ever again—and they were doing a lot of condos back then.”

So lines of Atlantans awaiting new condos to finish construction, with contracts in hand, aren’t exactly wrapped around the block. And as Poole, the real estate attorney, explains, for-sale, single-family homes are often built by contractors themselves—small, tight teams—to expedite that process.

Which leaves townhome communities.

They’re an anomaly in terms of complexity and scale. They’re a denser housing type that, as developers and planners agree, is integral for a metro region expected to pack in 3 million more people by 2050—and a city where competition for land is more heated by the year. They’re also unique in that buyers are required to put significant skin in the game, unlike with apartments and rental houses, and to vest their trust in whatever expectations a townhome builder gives them. Beyond prohibitively expensive lawsuits, there’s no mechanism in place to hold any Atlanta builder accountable. But maybe there should be, say buyers caught in quandaries.

The molten housing market of the past few years “is bringing a lot of people into the development business, but not everybody can be a developer and builder,” says Keane. “People are selling these things faster than they actually have the capacity to deliver.”

Poole, the attorney, is careful to draw a line between “great builders, who’ve built really wonderful reputations” and the “struggling fly-by-nights.”

“We have a number of cases against builders who shockingly are not making money in this economy,” Poole says. “Utter incompetence is not unusual.”

Communities, fractured

The turbulence started in Reynoldstown, around the corner from the Atlanta Beltline’s Eastside Trail corridor. The sort of land referred to in real estate circles as Atlanta’s beachfront property.

That’s where St. Clair Holdings unveiled plans in late 2014 for its initial townhomes (with a flank of condos) under the Moda marquee. The Moda name is meant to reflect cool, modern sensibilities, and Moda R-Town was pitched as a Beltline-adjacent urban utopia at a reasonable price. Think: a solar-heated saltwater pool, three community gardens and dog park areas, wide-plank flooring, smart wiring, and quartz countertops across three stories. Prices started at less than $265,000.

“We expect a very strong interest,” Colin Cavill, one of two St. Clair Holdings’ managing principals, told Curbed Atlanta at the time. An Australian expat who’d developed a couple of Atlanta residential complexes, Cavill had founded St. Clair in 2012 with real estate investor David Lang, a Michigan native (thus the company name). Together they count more than 50 years’ experience in real estate and development, and as partners, they say St. Clair has developed or acquired nearly a half-billion dollars’ worth of student housing, apartment buildings, and single-family residential properties in six states—before selling more than half of those properties in the past couple of years. “We’re doing a lot of things that most people don’t think about,” Cavill continued, in 2014, “which is creating a community.”

At least part of that community, however, was up in arms by early 2016.

Prospective buyers who’d put down earnest money and signed early contracts complained to Curbed Atlanta that a site where townhomes were supposed to have opened the previous spring remained a mud pit—and that developers and sales agents were ignoring their pleas for information. “The only communication ... is notices to extend close dates,” wrote one person. “There is clearly something going on.”

Cavill and company have blamed delays in Reynoldstown, which finished construction in 2018, on rainy weather and labor shortages in early construction phases, along with additional site work costs of $1 million. St. Clair heads declined repeated requests for phone interviews for this story but agreed to answer emailed questions via a joint statement. As part of those responses, they noted that, once vertical construction had started in Reynoldstown, the “timing was more predictable and therefore easier to communicate to the buyer” and that most Moda R-town homeowners “recognized an immediate appreciation in value, having bought their home prior to the price increases caused by delays and rising construction costs.”

But one of those buyers, veteran Atlanta real estate agent Tonya Marlatt, now an associate broker with Engel & Völkers Atlanta, says many of the project’s initial three dozen contracts at lower prices were canceled, as desperate buyers were allowed to walk. Marlatt’s contract for her personal townhome was nearly two years old by the time she moved in. (At least the build quality, as she stresses, was excellent.) But the protracted waiting game, and the frustrations of failing to get simple updates from the developer and their sales brokers, as Marlatt tells it, exacted what she describes as another sort of cost.

“This is legitimately the truth: The day of closing [on a Reynoldstown townhome], my blood pressure was high, because it had been the most aggravating process in my entire life,” she says. “I went to get food at Chick-fil-A, and was eating breakfast, [and] my body couldn’t even process food. I threw up and burst every blood vessel in my right eye. That’s how high my blood pressure was, because of the way they were handling things.”

A dramatic outlier of an example? Maybe. But Marlatt’s tone was echoed in interviews with others, including the Lewis family, who thought they’d secured their dream homes at the next Moda endeavor, in Decatur.

“We are terribly frustrated”

Michael, 32, who didn’t want his real name to be used, works in corporate strategy and analytics. He moved from New York City with his wife, an attorney, three years ago and lived in a high-rise apartment in Midtown Atlanta for a while. Obliging an itch to settle down, the couple searched intown neighborhoods for roomy houses but ended up falling for the chic designs and floor-to-ceiling windows at Moda Decatur. They stretched their budget a little and signed a contract for $750,000 in the fall of 2017, with a nonrefundable $20,000 down.

Tentatively, plans called for closing the following March, but according to Michael, red flags started early, when St. Clair’s development and sales teams asked for an additional $25,000 for “upgrades,” such as top-shelf hardwood floors and quartz countertops that were supposed to have been standard. (Lewis also says he was asked to pay more: an additional $3,000 for showerheads, and $2,000 each for basic bathroom mirrors and a garbage disposal.) March came and went, and progress on Michael’s home was minimal, with few explanations, he says.

“We were like, this feels like an absolute bait-and-switch. What’s going on?” says Michael. “They continued to harp on the fact that there’s people out there who want this home: ‘We could sell it for $50,000 more—if you want to walk away, feel free.’ Almost as a scare tactic, you know.

“Emotionally, it was terrible,” he adds. “We had an awful experience.”

A private Facebook page was formed for Moda Decatur that read like a therapy session, largely with complaints from buyers of the community’s second phase, which is still under construction. “We are terribly frustrated with the ongoing lack of communication and failure to move forward to meet deadlines,” posted one woman a year ago. “My wife is irate at this point about progress,” a man posted in October 2018. Elsewhere, an online reviewer ranted that her Moda Decatur townhome was five months behind schedule this spring and decried St. Clair’s business dealings as “fake promises one after the other” and “such a big scam.” But venting online may have been their only recourse. Poole, the attorney who helped Lewis recoup his earnest money, says suspicions that developers are intentionally delaying or illegally using down payments to fund further construction—issues beyond “extreme delays,” as he puts it—cannot be proven without filing a lawsuit. “It is a difficult proposition to try to prove it, and it’s an expensive one,” says Poole. “It would essentially require all of the townhome potential purchasers to band together in order to justify the legal fees.”

In the joint statement, St. Clair principals pointed to culprits behind Moda Decatur’s delays as record rainfall in 2018, Atlanta’s labor shortage, a prolonged permitting process, tariffs on construction materials that have impacted budgets, and one high-end window supplier’s four-month delay in production, which gummed up schedules. Anecdotally, they mentioned two cases of buyers negatively impacted by delays whom they offered discounted townhomes as compensation. A retired couple who’d sold their former home and were bouncing around apartments were also offered per diem reimbursements, according to St. Clair’s statement.

“We are fortunate to have had understanding, albeit frustrated, customers who have stayed with us throughout the prolonged construction schedules,” the principals wrote. “We understand their hardship is real.”

Developers large and small are complaining of similar hurdles and buyers at wit’s end.

Saba Loghman, director of acquisitions for Empire (formerly EA Homes), a relative titan that sells up to 400 units annually in metro Atlanta, says building at attainable prices is increasingly difficult, as buyers’ incomes haven’t inflated as much as construction expenses. “Many don’t realize,” says Loghman, “but a lot of our ‘price appreciation’ and home price increases to the customers are just keeping up with hard costs.”

Bednarski, of Florida-based Icon Residential, says the cost of masonry labor, for example, has doubled in about a year. And regarding permitting timeframes: “We’ve gotten to the point,” says Bednarski, “that whatever the city tells us about however long it takes to process something or turn around a permit, we just double it, at a minimum.” (Keane counters that a reform of Atlanta’s permitting operations launched in 2016, which now includes an “express lane” for smaller jobs, is streamlining the process.) On the topic of labor shortages, Bednarski offers this startling observation: “All builders are essentially poaching each other’s workers,” he says. “We see that in front of our eyes. They’ll walk on a competitor’s job site and offer 20 percent more pay.”

It’s because of these snags and others—a pending lawsuit against a bankrupt general contractor, the sheer complexity of building atypical dwellings with rooftop terraces and such—that Reynolds Square, the 23 townhomes Bednarski’s company began building nearly four years ago along Moreland Avenue, is still not finished. Meanwhile, for buyers, entry-level prices had climbed from the $300,000s initially to $457,000 by this past summer. “We definitely planned on wrapping this up a while ago,” he says.

An even longer timeline—almost seven years—came with the Highland Park community’s 50 townhomes in Old Fourth Ward, among the vanguard of post-recession Beltline builds. Famed metro Atlanta builder John Wieland, now chairman of JW Collection, is candid when asked what took his company so long.

When construction began in 2012, the same year the Eastside Trail opened, “I would say that we did not fully appreciate the power of the Beltline [as a property-value enhancer], and I don’t think our buyers did either,” says Wieland. “I guess what I’d say is that we didn’t hurry.”

Moving on

For Lewis, a third tour of his unfinished Moda Decatur townhome in December was the final straw. It convinced him to find a lawyer to help him get his deposit back, which had swelled to $60,000 with upgrade costs.

The unit had been exposed to the elements for so long, Lewis says, water dripped through ceilings, floors were beginning to warp, and animal feces dotted an upstairs bathroom. The staircase between the third and fourth floors, he says, was missing a top step, unconnected and floating. (It’s not uncommon, per Keane, that overwhelmed contractors will make mistakes these days, resulting in certificates of occupancy being denied and further delays.)

Lewis likened his dealings with St. Clair to “a cheap loan” he extended to the developer with 5 percent interest coming back to him, included in the refund, followed by the townhome he wanted going back on the market at a steeply inflated cost.

St. Clair refutes the idea that it has misled buyers. And it maintains that it has employed third-party inspectors and engineers to review all construction in Decatur, where the majority of roughly a dozen built units are occupied, as an added layer of protection atop demanding standards enforced by city building officials. “We don’t shy away from any additional scrutiny,” the principals wrote. “We embrace it as a part of our commitment to delivering a quality home.”

A simple solution, it seems, would be to avoid listing uncompleted townhomes for sale. But as part of the Great Recession’s overdevelopment hangover and tighter lending restrictions, according to St. Clair officials, lenders commonly require that 50 percent of homes are under contract before bankrolling construction.

For his part, Wieland, a veteran builder heading a large company with a long track record, says he’s changed his M.O. to take reservations from prospective buyers but not ink contracts until permits are in hand. (His lenders don’t require 50 percent presales.) “People are frustrated, and I don’t blame them,” says Wieland. “I’m frustrated.” Loghman says Empire takes it a step further: not starting sales until homes are built—one advantage of a deeply capitalized company moving huge volumes of housing.

In terms of advice, Bednarski tells customers to always have a backup plan and to be flexible. “The one thing you have to know about anyone giving you a [completion] date is that there’s no way in heck it’s going to get hit,” he says. “There’s just too many unknown factors to manage that deadline.” Poole instructs townhome buyers to do their due diligence and call references. “Not just references that the contractor gives,” he says, “but references they can find on their own.”

Marlatt, the real estate agent, has since sold her Moda home in Reynoldstown, earning a nice return, and reentered the townhome market for another investment property to call home. But she and other prospective buyers are experiencing similar frustrations at a delayed, unrelated project in Cabbagetown, 764 Memorial, which was supposed to have been move-in ready in February. (ITP Development and sales leaders with that project didn’t respond to requests for comment.) It’s enough that Marlatt has canceled the contract for where she planned to live next, recouping her earnest money but not the thousands she paid for upgrades, she says. She becomes particularly livid in describing her dealings with that project’s sales team, Ansley Developer Services, which also represents Moda properties.

After six months in limbo, Michael severed his Moda Decatur deal in May 2018, got his $20,000 back, and rebuffed what he says were sudden promises for free upgrades from sellers. He and his wife are settled into a new house in the Oak Grove area.

“We literally built a home and closed before they have [finished building],” he says of Moda Decatur’s second phase.

Lewis and his family, meanwhile, didn’t stray far. They bought a five-bedroom house with a large fenced yard—“No more toddler escapes,” he laughs—in Decatur’s College Heights. But he bristles when thinking about the money he burned while waiting for the dream home that didn’t happen; between short-term rent, storage fees, and the appreciating housing market, Lewis estimates he lost $70,000.

On occasion, Lewis will drive by the townhome—Unit No. 12—he tried to buy for his family two and a half years ago. He scoffs in saying it listed this past summer for $60,000 more than his contract (prior to a $45,000 discount in October). He looks up to the fireside rooftop, shaded by a pergola, and a modernistic screened porch. But off the living room, the balcony is missing its railings—evidence, as he points out, that it still isn’t finished.