2 Major Condo Projects Canceled

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Citing slow sales and a cooling real estate market, two major developers are abandoning plans for two condominium projects in the Washington region.

The decisions, by District-based Monument Realty LLC and Wood Partners LLC of Atlanta, are among the strongest signs yet of how much -- and how quickly -- the market for new condos has softened here.

Monument said it would not go forward with its plan to convert the three-building, 574-unit Park Center apartment complex in Alexandria to condos. Wood Partners said that it would continue building its 300-unit 1901 West building in Annapolis but that the apartments would be rentals, not condos as planned.

Together the two projects would have cost $226 million, according to the developers.

The local housing market has slowed as interest rates rise. More houses and condos are remaining on the market for longer than they have for several years.

What happened at the two projects could be just the beginning as developers who had counted on continued rising prices realize that their numbers no longer work, said Gregory H. Leisch, chief executive of Delta Associates, a real estate consulting firm in Alexandria. "It's a precursor of more to come."

Leisch estimated that developers would take 1,200 more units out of the pipeline by year-end. About 25,000 condo units are being marketed now, 16,000 of which are under construction, according to Delta. "The development community is seeing the handwriting on the wall," Leisch said.

F. Russell Hines, executive vice president of Monument Realty, said financing for the $170 million Park Center project required that buyers be in place for 25 percent of the units before settlements could take place. But by the time the company started selling the units in September, the market had started to slow, and the size of the project made it difficult to continue, Hines said. Ultimately, only 50 units were sold before Monument notified its buyers last month that it would not convert the complex, he said. Apartments in the buildings at 2601, 2701 and 2801 Park Center Dr. will remain rentals.

Both companies said deposits, with interest, had been returned to those who had signed contracts. Both also said they would continue with other condo projects in the region.

"We're still pretty bullish about the residential market in the long run," Hines said. "It's just that right now, there are some markets where we probably got a little bit ahead of ourselves."

Wood Partners, a national developer of multifamily housing, said its project had generated buzz, with 4,000 potential buyers signing up over the Web and more than 1,000 showing up at its sales opening party at a restaurant in Annapolis on March 9. But only 27 contracts were signed over the next 30 days, said Dean Wilson, director for the Mid-Atlantic region for Wood.

"That's not where we needed to be," he said. "We're opening the leasing doors this week as we speak."

The developers said their decisions make economic sense as the apartment market tightens. Leisch, of Delta Associates, estimated that rents would rise 5 to 8 percent this year.

Leisch said condos being marketed instead as rental apartments is a "healthy thing" for the condo market and noted that such moves were not unusual in a transitioning real estate market, one he said is returning to normal after a superheated period.

Wilson, of Wood Partners, said: "We have some patient capital that can ride the ups and downs. We have to be more sensitive to market swings and . . . make sure that when the music stops, we always have a chair to sit in."