Rendering of The Maia. Courtesy of PGN Architects.
The condo boom of the mid-2000s was characterized by 200+ unit projects that, in some cases, reshaped DC neighborhoods. However, when the bottom fell out of the national housing market in 2008 and tighter lending standards followed, condo developments of that size became a thing of the past and in the last few years, boutique has been the name of the game. That appears to be changing, though.
In recent months, news has been coming out that indicates a resurgence of mid-sized condo developments in DC, like The Maia, a project from Valor Development planned for the H Street Corridor, which recently increased in scope from 49 to 84 units. The reasons for the resurgence are three-fold: a shortage of condos, increased buyer demand and interest from local financiers.
In contrast to the flood of apartment buildings coming to the area in the next few years, the market for new condo projects over 10 units has been looking barren. According to a recent report on the regional market from Delta Associates, there are under 100 finished condo units for sale in downtown DC, at a time when the overall supply of housing units on the market is quite low.
Central Union Mission
“A lot of our clients recognize that there’s going to be a complete lack of supply. They see an opportunity that didn’t necessarily exist two years ago,” Lynn Hackney, president of local sales and marketing firm Urban Pace, told UrbanTurf. “There’s a lot of velocity in the 40-80 unit size range right now.”
In addition to The Maia, CAS Riegler recently announced plans to build a 54-unit development on 9th Street NW. Developer Jeffrey Schonberger is moving forward with a 51-unit project at the site of the Central Union Mission in Logan Circle, and Bozzuto has plans for a 63-unit condo development in Mount Vernon Triangle. Hackney tells us that a few more mid-sized projects are in the works, including an unnamed Adams Morgan development that could be in the 70-unit range.
“The scale is there to make the work and risk worthwhile,” Will Lansing, owner of Valor Development, told UrbanTurf. “Construction types and methodologies have improved, allowing some of the alternative construction systems that you find in these mid-sized projects to be more cost efficient then they were in years past.” If they can get the financing, developers also see a larger profit margin on slightly bigger projects. Fifty to eighty units seem to be the sweet spot right now for investors, developers, and buyers eager for a wider selection to choose from.
Rendering of CAS Riegler’s new 9th Street project.
This size range is also illustrative of the current reality of condo development financing. Mortgages for individual buyers from Freddie Mac, Fannie Mae and FHA require a certain percentage of a building to be sold before they will back a home loan. These days, a 200-unit project would need to sell at least 30 percent of its units without any government-backed financing. This is difficult to do for 60 units, which is why national banks shy away from large condo developments, but an achievable goal for slightly smaller-scale buildings.
The financial outlets who are interested in investing in the mid-size condo projects, our sources tell us, are local establishments like Eagle Bank, and private equity partners. “These types of firms are often more nimble and more willing to take the risk on a condo,” DC-area housing market analyst Mark Franceski said. “Big banks won’t invest in a project this size because they probably don’t want to make loans this small. They finance apartments because buildings that large won’t work as condos in today’s environment.”
Despite the recent popularity of 50-80 unit projects, it doesn’t seem that 100-unit+ projects are totally out of the question (even though the events of four years ago may be a sign to steer clear of developments this large). In mid-February, we reported on a parcel of buildings on 14th Street that was being pitched as a possible site for 65 new homes; we have since heard rumblings recently that the site could accommodate up to 125 residences.
This article originally published at http://dc.urbanturf.com/articles/blog/dcs_mid-sized_condo_boom/5369
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