Condo Conversions Return as DC Supply Tightens

by Ryan Holeywell

When a blighted building sells at a bankruptcy auction, it’s usually not big news.

But Madison Investments’ $3.2 million purchase of a 28-unit apartment building at 1020 Monroe Street at the end of May was a quiet indication of a trend the region hasn’t seen in years: condo conversions.

image
1020 Monroe Street NW

Madison Investments will turn the building into a 28-unit condo project that is expected to begin sales a year from now. But area real estate leaders are speculating that other developers could pursue similar deals, and an uptick in condo conversions could begin in the fourth quarter or early next year.

Madison Investments Barry Madani told UrbanTurf that when the housing market slowed in the past couple years, developers who had new condos in the works hedged their bets and converted them into apartments. A potential influx of condo supply vanished and condo conversions essentially came to a halt in 2006.

That may be about to change.

“The way you satisfy demand quickly is through condo conversions,” said Grant Montgomery, a vice president at real estate research firm Delta Associates. “The product is already there. You just need to get your condominium regime up and running.”

The statistics illustrate how quickly and drastically that condo supply dried up. In the first quarter of 2010, the metro area’s inventory of new condos for sale was 4,600, including only 916 in DC proper, Delta Associates VP William Rich explained. To put that number in perspective, in 2006 there were about 25,000 units for sale in the metro area and 5,000 in DC.

In order to increase inventory to meet demand, developers will likely be turning to small, distressed properties like 1020 Monroe Street, as many lack the financing to pursue the construction of large, new condos.

“There’s not much out there in terms of new stuff, and what is selling are units in older buildings from five or six years ago,” Madani said. “I think in DC it’s going to start switching back to a seller’s market. We were in a buyer’s market for awhile – especially condos – but now, that’s where the short supply is.”

Madison Investments has also converted the nine-unit Trevelyan House at 1436 Ogden Street NW, which was bought in 2008. Units will go on the market in the coming weeks.

Due to the cumbersome process of conversions in DC (mainly due to the city’s tenant rights laws), William Rich said most of the new conversions will initially occur in the Rosslyn-Ballston Corridor and Montgomery County. But Stacey Milam, vice president of investments and director of national multi-housing at real estate broker Marcus & Millchap, said DC neighborhoods that weren’t drastically affected by the housing crunch, such as Dupont, Logan Circle and U Street, could also see an uptick in conversions, noting that he anticipates many developers from outside the region setting their sights on the DC area. 

“If you run a fund, it’s a no-brainer to come to this market because your risks are mitigated,” Milam said. “There’s a lot of money chasing this market.”

Not all condo conversion projects are small these days. In January, sales began at the converted 76-unit Embassy Condominiums in Mount Pleasant, though that project was several years in development.  And the Waterfront Tower conversion in Southwest has been selling units since 2009. There is also speculation that Miami-based Crescent Heights, which purchased The Palatine, a 262-unit complex in Arlington at a foreclosure auction earlier this year, may plan to convert the property from rentals to condos, though the company remains tight-lipped on its plans.

image
Restored lobby of The Embassy

But Mark Franceski, director of market research at sales and marketing firm McWilliams|Ballard, said purchases of bankrupt and blighted buildings like 1020 Monroe may prove to be the new model, due to the speed and ease of the process.

“They’re flying under the radar with bankruptcy sales,” Franceski told UrbanTurf. “If you get the right people to work on it, you can turn units over in six to eight months as opposed to building a new building. The money’s not huge, but you don’t need gigantic loans that are hard to get.”

Franceski noted that projects like these also afford developers the opportunity to “get their feet wet” and learn about the conversion process while minimizing their risk. What’s more, developers may find that it isn’t worth it to convert large apartment buildings since rental prices haven’t been devalued. “They’re almost too valuable as apartment buildings,” Franceski said.

Other likely candidates for conversions include buildings that were originally planned as condos but were instead changed to rentals when the housing bubble burst.

“Product-wise they were planned, built and designed as condominiums, so they make obvious candidates for conversions back to their original planned use,” said Montgomery, of Delta.

But real estate experts caution that developers aren’t going to launch a giant conversion bonanza, since the sting of the housing bubble won’t soon be forgotten.

“We will not see (conversions) like we did last time,” Montgomery said. “I think the market has been chastened.”

Ryan Holeywell is a Washington, DC-based journalist whose work has appeared in USA Today, The Detroit Free Press and washingtonpost.com. He can be reached at .(JavaScript must be enabled to view this email address).

See other articles related to: dclofts, dc condos, dc apartments, condo conversion

This article originally published at http://dc.urbanturf.com/articles/blog/condo_conversions_return_as_dc_supply_tightens/2180

4 Comments

  1. Agist said at 2:34 pm on Thursday June 17, 2010:

    This is good to know. I have been looking for awhile and the number of places on the market is pretty slim. It is nice to know that there are some new projects in the works, even if they won’t be delivering for months.

  1. Barry said at 12:34 pm on Friday June 18, 2010:

    I know that there are a number of projects that are coming online in Columbia Heights and Petworth, but is there anything in the works for Dupont?

  1. Jamie said at 3:36 pm on Monday June 21, 2010:

    This can only be good for the city and developing neighborhoods, kind of a silver lining to the housing bust.

    While big projects are dramatic, there are many, many buildings like this one (especially around Columbia Heights) that probably were too small for big players to bother with during the boom…. and too big for any individual seeking to buy or live in the neighborhood.

    But by renovating/restoring properties such as these, there’s much less impact during the construction in any given area; troublesome spots in get a big lift; and hopefully some nice historic buildings such as this one will be spared the wrecking ball (and the much bigger replacement building) that might otherwise have come.

  1. K. David Meit said at 11:04 am on Friday June 25, 2010:

    Additional conversion leads to continued loss of much needed rental housing. Of course the economics of rent control force housing providers to make this economic choice to earn a reasonable return on their capital. With rent control up for renewal this year, the City Council should wake up and take notice.

Join the discussion

UrbanTurf now requires registration in order to post comments. Register here, or login below if you are already registered.

Click here if you forgot your password.




 

Payam Bakhaje

Long & Foster Realtors

202-345-2778

Serving:

Shaw

Woodley Park

Dupont Circle

NEW!

DC Real Estate Guides

Short guides to navigating the DC-area real estate market

We’ve collected all our helpful guides for buying, selling and renting in and around Washington, DC in one place. Visit guides.urbanturf.com or start browsing below!

Northern Virginia

Profiles of 14 neighborhoods across Northern Virginia

Ballston
Looking to Give People A Reason to Stay Past 6pm
Clarendon
Happily Straddling the Line Between City and Suburb
Columbia Pike
Arlington’s Neglected Stepchild is Getting a Makeover
Crystal City
Turning Lemons into Lemonade
Lyon Village
Developing An Air of Exclusivity?
Rosslyn
Hitting Its Growth Spurt
Shirlington
An Urban Village Hitting Its Stride
Del Ray
Virginia’s Small Town Near the Big City
Eisenhower Avenue
The Vibrancy Might Take a Few Years
Huntington
The Quiet Neighborhood By the Beltway
Old Town
Mayberry By The Potomac
Parkfairfax
132 Commerical-Free Acres
Downtown Falls Church
Staying the Same in the Midst of Change
Tysons Corner
Radical Change Could Be On The Way

See more Northern Virginia »

Maryland

Profiles of 14 neighborhoods in suburban Maryland

Annapolis
Small-Town Living in the State Capital
Bethesda
Bedroom Community Gets Buzzing Cache
Cabin John
In With The New While Maintaining the Old
Chevy Chase
Affluence, Green Lawns and Pricey Homes
Downtown Silver Spring
Experiencing a Resurgence After a Bumpy History
Potomac
A Suburb on Steroids
Rockville Town Square
Despite the Dynamism, Still Somewhat Generic
Takoma Park
More Than a Little Bit Quirky
Wheaton
A Foodie Magnet on the Verge of Change
Capitol Heights
Kudzu, Front Porches and Crime
Hyattsville
Glass Half Full or Half Empty?
Mount Rainier
Artists, Affordable Homes and A Silo Full of Corn
National Harbor
A Development Rises Next to the Potomac
Riverdale Park
A Town Looking For Its Identity

See more Maryland »

Northwest DC

30+ neighborhood profiles for the city's biggest quadrant

16th Street Heights
DC's Sleeper Neighborhood
Bloomingdale
Where (Almost) Everyone Knows Your Name
AU Park
One of DC’s Last Frontiers Before the Suburbs
Brightwood
DC’s Northern Neighborhood on the Cusp
Burleith
DC’s 535 House Neighborhood
Cathedral Heights
Do You Know Where That Is?
Chevy Chase DC
Not to Be Confused With the Other Chevy Chase
Cleveland Park
Coming Back After A Rough Year
Columbia Heights
DC’s Most Diverse Neighborhood, But For How Long?
Crestwood
An Island of Serenity East of the Park
Dupont Circle
The Best of DC (For a Price)
Foggy Bottom & West End
Where the Institutional Meets the International
Forest Hills
Ambassadors and Adventurous Architecture
Fort Totten
Five Years Could Make a Big Difference
Foxhall Village
350 Homes Just West of Georgetown
Friendship Heights
A Shopping Mecca With a Few Places to Live
Georgetown
History, Hoyas and H&M
Glover Park
One of DC’s Preppier and More Family-Friendly Neighborhoods
Kalorama
A Posh View From Embassy Row
LeDroit Park
A Quiet Enclave in the Middle of the City
Logan Circle
Trendy Now, But Not By Accident
Mount Pleasant
Sought-After Homes Surround Main Street in Transition
Mount Vernon Triangle
From Seedy to Sought-After
Palisades
The Long, Skinny Neighborhood at the City’s Northwest Edge
Park View
It’s Not Petworth
Penn Quarter/Chinatown
DC’s Go-Go-Go Neighborhood
Petworth
Getting a Vibrancy of Its Own
Shaw
The Duke’s Former Stomping Ground
Shepherd Park
DC’s Garden of Diversity
Spring Valley
A Suburb With a DC Zip Code
Takoma
Not To Be Confused With Takoma Park
Tenleytown
Not Quite Like Its Neighbors
U Street Corridor
The Difference a Decade Makes
Woodley Park
Deceptively Residential
Adams Morgan
No Longer DC’s Hippest Neighborhood, But Still Loved by Residents

See more Northwest DC »

Southwest DC

The little quadrant that could

Southwest Waterfront
A Neighborhood Where A Change Is Gonna Come

See more Southwest DC »

Northeast DC

Profiles of 10 neighborhoods in NE

Brookland
New Development Could Shake Up Pastoral Peace
Deanwood
A Little Bit of Country Just Inside the District’s Borders
Eckington
Not to Be Confused With Bloomingdale
H Street
A Place To Party, and To Settle Down
Langdon
The Northeast Neighborhood That Few Know About
Michigan Park
A Newsletter-On-Your-Doorstep Community
NoMa
Evolving from a Brand to a Neighborhood
Rosedale
Ripe for Investment Right About Now
Trinidad
The Difference 5 Years Makes
Woodridge
Big Houses, A Dusty Commercial Strip and Potential

See more Northeast DC »

Southeast DC

6 'hoods from Capitol Hill to East of the River

Capitol Riverfront
Still Growing
Hill East
Capitol Hill’s Lesser Known Neighbor
Congress Heights
Gradually Rising
Hillcrest
Notable for Its Neighborliness
Historic Anacostia
Future Promise Breeds Cautious Optimism
Eastern Market
A More European Way of Living

See more Southeast DC »

Upcoming Seminars ▾