Thursday, November 15, 2007

Developers Dump Condos

If you build it, they will come. But they will most likely not buy. That appears to be the maxim for many developers, as buyers - searching for deep discounts, or the dream home at a bargain price - sit out the chance to own, preferring the relative stability, if predictable negative return, of the rental market, to the less predictable vagaries of the condo market. Most buyers are unabashed about their abstinence, musing that time is in their favor in the short run, surmising that additional days on the market equals greater desperation of the seller, which in its turn leads to further price drops.

But then that's presuming developers continue selling their condos. While the majority of developers within DC have held out (though Arlington developers have fared worse), the switch from condos to apartments has become increasingly common, owing either to poor sales, more profitable returns of the rising rental market, or both. Enter the most recent cases in point: Highland Park, Senate Square, McGill Row, and Lincoln Park Terrace, all condo projects that recently converted to apartments after slow sales.

Together the projects have 759 units under development, now withdrawn from the market, accounting for nearly 10% of the 7944 new condominium units projected to be completed in Washington DC over the next 24 months. 240 of those units were under contract, for a net reduction of 519 condominiums from the market, with 240 erstwhile condo purchasers now presumably back on the condominium search.

"Buyers will be too smart by half" says a developer not wishing to be identified. "Developers may have [negotiating] room. If [buyers] try to wait out the market until that last possible moment, they may find that there just aren't that many choices left. At that point, we won't have to negotiate anymore." Time will tell.


Jesse Kaye on Nov 16, 2007, 12:10:00 AM said...

You couldnt be more right, Ken. Just yesterday I did a post on Highland Park and their conversion back to rentals. With all of the conversion to rentals, its going to dramatically increase the supply of available units...and with a consistent demand, rental prices will fall. I had the privilege of attending todays Marcus & Millichap's Investor Symposium and it seems as though companies, including myself, feel that DC is one of the best markets across the country for investments and equity growth despite the short-term downturn. What does seem promising is the cities job growth next year, at a predicted 35,000 plus another 17,000 or so in the surrounding areas. It should help stabilize the market...and with so many larger buildings reverting to condos, the developers that are left should have it easy. At least lets hope so for you and I.

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