Retail condominiums, as these properties are commonly known, are not a new concept, but they had been making a comeback in recent months as the economy strengthened. Whether they can maintain the momentum is now a question following the latest market convulsion.
Four of the Lansdowne units are currently under contract to a local fitness club, hair salon and tailor, who took two slots, according to Scott Gustavson, a broker with Windward Commercial, the firm handling the retail sales. He is in talks with several other potential buyers for the remaining units.
“Interest rates are low and that plays into the hands of the small owner-occupant,” he said. “Assuming you can get a loan, which is no doubt challenging in this environment, this opportunity can be an investment property down the road.”
Gustavson and his partner, Kevin Nicholas, are only marketing the units to small, local retailers in part because of covenant restrictions on the property.
To create a shopping hub, Lansdowne Development wanted its retail component to rise up alongside that of Bethesda-based Saul Centers, which is developing adjacent land. As a part of their agreement, Lansdowne Development could only lease or sell the retail to local tenants with no more than five store locations, so as not to compete with Saul Centers’ lineup of national players.
“We decided to sell the retail to entrepreneurs to give them an economic advantage,” said Hobie Michael, managing partner of Lansdowne Development. “In the long-run owning is cheaper than leasing, there’s equity and they don’t have to worry about rent increases.”
Construction of the retail condos and overhead townhomes got under way earlier this month, with completion slated for the first quarter of 2012, Gustavson said. Lansdowne Development has already built more than 500 residential units within Lansdowne Town Center.
According to Rick Fernandez, managing director of Calkain Urban Investment Advisors in Reston, a seller of retail condos, the niche is thriving in the Washington area.
“To be sure, there are only a finite number of these units in the market, so the number of sales is paltry compared to, say, the office sector. Exact sales figures are hard to come by,” he said.
Fernandez said developers have relied on retail condos to “take some cash out of their projects to either funnel back into the development or use for another deal.”
Retail condos, he noted, are typically purchased by investors, rather than small retailers. In instances where mom-and-pop outfits buy, they tend to sell the unit and lease it back to use the proceeds to grow their business.