One Virginia builder even gave away a free condo in a bid to drum up sales. As part of its campaign to convince people to buy before the end of the year, Van Metre Homes in Ashburn held a drawing for a townhome-style condominium worth $415,000 on Dec. 31.
RENT TO OWN Still, incentives aren’t the only way developers are trying to ride out the real estate recession. In Reston, Va., Comstock Homebuilding Cos. is converting two apartment buildings to condos, but sales are slow. So the builder is allowing would-be buyers to rent their units while they decide if they should buy them. The firm will apply half of a resident’s rent toward the purchase price if the person eventually takes ownership. (CEO Christopher Clemente says the program generates revenue for the builder during the conversion.)
That strategy could save the builder from reverting the buildings back to apartments, a back-pocket option that has become reality for scores of condo converters since the beginning of the year.
That trend began in southeast Florida, says housing analyst Jack McCabe of McCabe Research and Consulting in Deerfield Beach, Fla. He estimates that more than 1,700 units have reverted back to apartments just in Palm Beach County, Fla.
“We’ve entered a new market, a very different market,” says McCabe. “Sellers are going to have to adjust their concept of value. Sellers have to readjust their sights for the market to get moving again.”
THE ROAD AHEAD Indeed, as the market for condos continues to crash, the demand for rentals is beginning to boom. Reversions have become rampant in South Florida, Las Vegas, San Diego, and Phoenix, where up to 40 percent of condos being converted could revert to apartments, reports Marcus & Millichap, a real estate investment brokerage company.
Condo conversions peaked in September 2004, when developers changed 28,000 apartments to for-sale units, reports research firm Real Capital Analytics. By contrast, just 3,354 units were converted in June 2005, about the same as a typical month before the boom’s beginning.
For Maryland-based JBG Cos., that back-and-forth comes before the project is built or bought, says Matthew Blocher, senior vice president, who says his firm considers every building a potential rental property first, even if it later converts the place to condos.
John Restrepo, principal of Restrepo Consulting Group in Las Vegas—a city whose failed condos became legendary with a trifecta of terminated projects involving celebrities George Clooney, Ivana Trump, and Michael Jordan—is one who believes in condos. Still, he says the next generation of condos in his market could be attached to hotels and stores. “We still have a market here for high-rise condos,” he says. “It’s probably not as large a market as we thought. The dust has settled in with more realistic expectations of what that market is, and the best bet is mixed use.”
Fred Beck, chief development officer for Gastonia, N.C.-based Centra Properities, agrees that the Las Vegas condo market will resurrect—just not downtown. He points to pent-up demand in Sin City’s suburbs.
That wait-and-see form of optimism might pay off, predicts William Rich, vice president of Alexandria, Va.-based Delta Associates, a real estate research firm. “We’re seeing [developers] delay their decisions, not so much scrapping their plans,” he says. “If it’s a site they’ve been able to hold onto for a while, they’re in no rush to build.”
Sharon O’Malley is a freelance writer in College Park, Md.
