Despite Shrinking Inventory, Financing for Condo Projects Hard to Come By

by Ryan Holeywell

Over the past several months, the dark cloud that has hung over the DC area condo market since it went bust has slowly been lifting. Existing condo inventory has been hovering right below the six-month supply, and there are now less than 1,000 new condo units on the market in DC proper, compared to over 1,500 new units on the market last November. But developers and analysts say new condo projects, particularly larger developments, are still taboo for banks that got burned during the boom and bust. As a result, financing is still pretty hard to come by. “Once you work your way up the chain, condominiums still scare people at the higher levels who make decisions about financing,” said Mark Franceski, director of market research at McWilliams|Ballard. “They’re not ready to come in and make that kind of commitment because they’re not convinced the market is back.” For a project to make sense for banks, a developer would have to start selling units while a project is under construction. That was the norm a few years ago, but most buyers aren’t at the point that they’d be willing to plunk down money for a unit that they haven’t seen yet. Still, some projects are attractive to bankers, especially small-scale developments. Franceski highlighted The Harrison in Friendship Heights, where 25 of 49 units have sold even though construction won’t be complete until November.
The Harrison
But pre-sales are still the exception to the rule, and as long as buyers aren’t prepared to put down a deposit and wait several years before they can move in, condo developers are going to encounter friction with lenders. “It has to swing back to a point where if you want a new condo, you can buy a resale or wait,” Franceski said. “And people just aren’t ready to wait.” Steve Schwat of Urban Investment Partners, which is converting apartments at 1801 and 1811 Wyoming Avenue NW to condos, agrees that banks are taking a more conservative approach to financing. “It is never going to be as easy as it was few years ago,” Schwat told UrbanTurf. “I think you’re going to go back to where there’s a barrier to entry. Not every guy with a sheet of graph paper and a laptop is a developer.” Schwat believes that the market has moved to a more rational position, closer to where it was before the condo boom, and banks are rightfully recognizing the risks that come with large, new projects. “Just a few years ago, developers could get as much as 95 percent financing for a project, but the upper limit now seems to be around 60 percent,” Schwat said. That’s not to say banks want to avoid the condo game altogether; rather, they are focusing more on projects that are building renovations rather than new construction. Those deals are more affordable and carry less risk. Local banks are also replacing some of the bigger banks as places developers choose, given their awareness of local markets. UIP’s Wyoming Avenue buildings are being financed by Bethesda-based EagleBank and Monument Bank, also based in Bethesda, is financing Madison Investments’ 28-unit 1020 Monroe Street condominium. Sia Madani, president of Madison Investments, said that local banks are especially attracted to mid-size projects of about 10 to 30 units that can be financed for $5 million to $8 million. And he thinks that it isn’t a lack of financing that is preventing a boom of new construction, but a lack of qualified developers pursuing projects. “Financing is there,” Madani said. “The local banks will do it. The people just aren’t credit worthy.”
Rendering of the 125-unit JBG/Grosvenor project
John Chappelear, senior vice president for multi-family and condo operations at Kettler, agrees that financing exists, even though the cost of building a condo today is higher than it has been in recent years. “The one rule that has changed is the banks are clearly more conservative, but having said that, they wouldn’t have loaned you the money before unless you had pre-sales,” Chappelear said. Chappelear explained that during the condo boom, it wasn’t too difficult to pre-sell 75 percent of the units in a building, but, with few exceptions, that is not the case today. “A market requires huge tenant demand in order to pull that off,” he said. “I don’t think it has reached that point.” Franceski predicts that banks will be more selective as they finance the next wave of condos, leaning toward well-known developers often joining forces in strategic partnerships so that they will have the confidence that projects will be executed properly. He cited the recent partnership between London-based developer Grosvenor and The JBG Cos. on a 125-unit project near 14th and S Streets NW, the largest new condo project announced in DC in quite some time. "It will be some time until we see 300-unit condo projects," Franceski said. "But the fact that JBG was able to get financing is an indication that reputable developers are starting to get the go-ahead for mid-sized projects." 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).

This article originally published at https://dc.urbanturf.com/articles/blog/despite_shrinking_inventory_financing_for_condo_projects_hard_to_come_by/2427


  1. Jim Elum said at 1:44 pm on Friday August 27, 2010:

    Very informative. There is also the 200-unit project/Safeway that was recently in the news and will be in Petworth. Not sure if they have decided whether or not that will be condos or apts, though.

  1. roots said at 1:28 pm on Saturday August 28, 2010:

    Nice article and not surprising. No one wants to see a bubble like the last few years. Development should be built for need, not just because. DC is in a good place right now, no need to cause a wave when looking for a ripple.

  1. DC Condo Boutique said at 8:02 am on Tuesday August 31, 2010:

    A resale driven condo market isn’t sexy like one driven by new construction, but it will sure help limit inventory and subsequently increase existing condo owners equity and net worth.  Condo owners sitting on paper gains will drive significant trade-up activity.

Comments are closed.

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

Looking to Give People A Reason to Stay Past 6pm
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?
Hitting Its Growth Spurt
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
The Quiet Neighborhood By the Beltway
Old Town
Mayberry By The Potomac
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 »


Profiles of 14 neighborhoods in suburban Maryland

Small-Town Living in the State Capital
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
A Suburb on Steroids
Rockville Town Square
Despite the Dynamism, Still Somewhat Generic
Takoma Park
More Than a Little Bit Quirky
A Foodie Magnet on the Verge of Change
Capitol Heights
Kudzu, Front Porches and Crime
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
Where (Almost) Everyone Knows Your Name
AU Park
One of DC’s Last Frontiers Before the Suburbs
DC’s Northern Neighborhood on the Cusp
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?
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
Foxhall Village
350 Homes Just West of Georgetown
Friendship Heights
A Shopping Mecca With a Few Places to Live
History, Hoyas and H&M
Glover Park
One of DC’s Preppier and More Family-Friendly Neighborhoods
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
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
Getting a Vibrancy of Its Own
The Duke’s Former Stomping Ground
Shepherd Park
DC’s Garden of Diversity
Spring Valley
A Suburb With a DC Zip Code
Not To Be Confused With Takoma Park
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

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

See more Northeast DC »

Southeast DC

6 neighborhoods from Capitol Hill to East of the River

Capitol Riverfront
Still Growing
Hill East
Capitol Hill’s Lesser Known Neighbor
Congress Heights
Gradually Rising
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 ▾