Many markets around the country are still suffering from an oversupply in for-sale housing and condos. But if you’re following a spate of recent business news announcement, Washington, D.C., certainly isn’t in this category.
“There hasn’t been condo product introduced to the market,” says William Rich, a vice president at Alexandria, Va.-based Delta Associates, a research firm that covers the D.C. market. “In the District or Rosslyn-Ballston corridor of Arlington, you have a dwindling amount of supply and a steady amount of demand.”
Last Fall, Delta put out a report saying that Arlington/Alexandria and the District are below the metro average for condo units and are approaching levels considered “product shortage” for condos. Some developers seem to have been reading, judging by a spate of new starts.
In March, Chevy Chase, Md.-based JBG Cos. announced a 120-unit condo project for the bustling 14th street area, according to the Washington Business Journal. Also in March, D.C.-based Donatelli Development announced plans for a 49-unit project in Petworth. In December, Rockville, Md.-based Elisdale Construction and Development broke ground on the 49-unit The Harrison on Wisconsin Avenue.
Later this month, Ellisdale will officially begin marketing the condos and company President Kevin Ash remains cautiously optimistic about how the market will accept the project. Donatelli is beginning to build this month and CEO Chris Donatelli thinks the supply constraints in the D.C. market make this a good time to start building, especially projects near metro stops.
Paula Poskon, a senior research analyst with Milwaukee-based financial services firm Robert W. Baird & Co., can see why these companies are starting to put shovels in the dirt in the District. “If there is any place that development takes hold, it’s going to be here,” she says. “I’d look to D.C. more than any other market, but it may be very submarket specific. If you look at inventory of units, the supply of condos is starting to diminish.”
That same month, an announcement came out that Miami-based Crescent Heights, an accomplished condo converter, bought The Palatine apartment property in the Courthouse section of Arlington, Va. While the property is a rental, industry watchers think Crescent Heights eventually has other plans.
“It would be awhile before Crescent Heights would convert it,” Rich says. “They’re known as a condo converter. They were fairly active in Washington during the conversion boom.”
Search for Product
Others are aggressively seeking out land for new projects. John Chappelear, senior vice president of multifamily/condo operations at Kettler, a McLean, Va.-based builder and apartment manager, says his company is actively seeing sites for smaller 30- or 40-unit condo projects. He says the company has been approached by big builders in the area about its finished lots for townhouse development.
“Our condo sales have been very good,” he says. “There’s definitely demand and very little supply. There used to be short sales and foreclosures in bigger projects. We’re not seeing that anymore.”
Rich at Delta is also seeing builders look for smaller projects as a way to re-enter the market. “Developers are still timid about jumping into the condo market after getting burned,” Rich says. “They’re getting their feet wet. Boutique projects are what you will probably see before the 400-unit condos come back on the market.”
The issue right now is the banks. But D.C.’s good rental situation helps the underwriting as well. Marcus & Millichap named Washington, D.C., its top market for apartment owners in 2010 on its National Apartment Index and projects asking rents to increase 0.4 percent to $1,337 per month and effective rents to move 0.2 percent higher to $1,252 per month. That gives banks and developers a fallback if their condos don’t get traction.
“Banks will also look to see if condo deals pencil out as rentals as well,” Rich says. “If the condo market doesn’t work too well, they can still be apartments.”
And that can help developers justify deals, too. “The rental market is so strong that the value as a rental is as strong as it could be as a condo,” Chappelear says.