Inside the breakneck race to lease Washington apartments

Beginning in May, a six-month-old miniature English bulldog named Emmy will take up residence in the sleek new lobby of 2M, one of dozens of apartment buildings being completed in the region this year.

The building’s owners, William C. Smith & C0., acquired her as a way of attracting apartment-seekers to their building amid a sea of apartments within a few blocks in the NoMa neighborhood of Northeast D.C.

“I was sitting at a cafe one day, and we saw a puppy come in and everyone just stopped in their tracks and came alive,” said Holli Beckman, a vice president at the company. “And it just dawned on me that everyone loves doggies and babies, right?”

That’s right — there are communal gyms, pools, spas, game rooms, grills, roof decks and the like, but Emmy may be the first communal dog. Named to coincide with the building’s brand (two M’s), Emmy has a doghouse that is a replica of the building. Residents too busy for their own dogs will be able to pick her up in the lobby, take her upstairs to their apartment or for a walk, and return her as they would a library book, a DVD or bowling shoes.

No word on whether a communal baby may follow.

A record number of apartments being built in recent years means there is now a fierce competition to find people with the income to afford living in them. When the boom started a few years ago, a nicely finished kitchen or a landscaped courtyard made a project stand out. Now those are considered baseline essentials if a building is going to compete.

“At this point, everybody is doing the same stuff,” said Jonathan B. Cox, senior vice president at Arlington-based AvalonBay Communities. “Everybody has a pool and a gym. Everybody is doing quartz or granite countertops. Everybody is doing stainless-steel appliances.”

Last year, Cox’s company acquired a building a block away from 2M, called First and M. Two-and-a-half years after it was completed, the building is less than 90 percent occupied, despite offers of rent discounts and amenities, including a rooftop pool and spa, a theater room, a D’Tails pet salon, soundproof music “practice jam-rooms,” 24-hour resident concierge and a dry-cleaning valet service.

“There’s nothing you can do,” Cox said. “When you’re leasing apartments with a lot of the competition at the same time, it’s a problem.”

A new normal

Don’t tell JoLynn Scotch there’s nothing you can do.

Scotch is senior vice president of Bozzuto Management Co., which manages thousands of apartments from Northern Virginia to Baltimore. Despite all the construction, Scotch said the company’s buildings are 94 percent occupied on average, only slightly down from last year.

This is in large part because the company has been managing its new buildings like they are boutique hotels. In addition to the rooftop pools, expansive gyms and massage rooms, Bozzuto hires from college hospitality programs and its staff creates a calendar full of activities for residents, including discounts to local restaurants, movie nights and wine tastings. Need to hire a dog walker? They can handle that for you.

At a Bozzuto building in NoMa, Scotch and her staff provide signature cupcakes to residents on their birthdays. For residents of the CityCenterDC apartments, also managed by Bozzuto, the Cuba Libre restaurant nearby mixes a signature cocktail.

“The renters are really into convenience,” Scotch said. “They are obviously renting by choice. The incomes in our buildings are quite high, so we are trying to make their living experience as convenient as possible. I want to create a great experience so they have everything they need at their fingertips at the building. So they don’t have to leave.”

Still, the competition is brutal, and it’s intensifying. There are 39,122 apartments being planned or built in the Washington area right now, the most ever recorded.

Construction will be completed on more than 18,000 apartments this year, according to the research firm Delta Associates, a 69 percent increase over the 10,671 units that were completed in 2013. And there were 3,000 more apartments added to the pipeline alone in the fourth quarter of 2013.

The extended boom has produced a division among real estate researchers and analysts, between those who think too many apartments are being built and those who see a larger cultural shift toward renting in urban areas that will push builders to add thousands of more units per year than they did in the past. A new normal, so to speak.

There is evidence to support both sides. Those who say too many units are being built point to the fact that rents are already decreasing for higher-end apartments, having dropped 3 percent last year. Vacancy is up to 4.9 percent, from 4.3 percent a year ago. Companies that have completed buildings in locations slightly off the beaten path are having a harder time filling their projects, so concessions — such as a month or two of free rent to persuade renters to sign a lease — are more regularly available.

Certain neighborhoods “are getting hammered,” Cox said. “But overall, we expect rents to be down 3 or 4 percent this year.”

On the whole, apartments are still renting quickly and banks are still lending developers money to build more of them. Delta researchers see a societal shift toward renting in cities such as Washington that they say bodes well.

“Tens of thousands of prospective renters in the millennial cohort will continue to join the workforce over the coming decade and demand flexible housing arrangements that apartments provide,” Delta wrote in its 2013 apartment report.

Moving forward

MRP Realty is one of the developers plowing ahead with new buildings, even in neighborhoods that analysts from Delta and elsewhere say are experiencing overbuilding. In NoMa, where there are more than 3,000 units recently completed or under construction, MRP is building the 400-unit Elevation apartments. In the Potomac Yard area of Alexandria, where there are five projects in the works, MRP is putting up a 323-unit building.

“You just need to get through this period where everyone is leasing all at the same time,” said Matt Robinson, a principal at MRP. He said the company has begun plotting additional apartment projects that he hopes can open when the wave of competitors is less daunting. In the meantime, he is building more spacious, fully equipped gyms and rooftop grills than he can count.

“We’ve seen an explosion in the amount of people who use grills,” he said. “I don’t think we can build enough of them.”

Another company trying to navigate the competitive waters is LCOR, a Pennsylvania-based developer that has major holdings in the Washington area. One of LCOR’s largest projects is in White Flint, called North Bethesda Center, where it has already built a series of office buildings serving agencies, including the Nuclear Regulatory Commission, and a 312-unit apartment building, the Wentworth, that has a Harris Teeter in it. The National Institutes of Health and Walter Reed National Military Medical Center is a couple Metro stops away.

When the Wentworth was completed in 2008, there was no trouble finding renters. By late 2009, it was 95 percent leased, said Bill Hard, an LCOR executive vice president. “Folks who are coming in for two- or three-year stints at NIH or Walter Reed or any of the federal agencies are going to pick a place that’s convenient to the Red Line. We’ve got some amenities that are walkable, and I think that’s increasing,” he said.

Hard said the experience gave the company confidence to begin a second building next door that is now almost complete. Leasing will begin in June on the 18-story, 341-unit tower, called Aurora. It features a pool, sun deck, fitness center and game room with foosball, shuffle board and table tennis. It even has a golf simulator.

LCOR is charging more for Aurora ($2.65 per square foot) than it did for Wentworth ($2.45). Studios go for between $1,587 and $1,716 a month, one-bedrooms for $1,786 to $2,347, one bedrooms with dens from $2,131 to $2,343 and two-bedrooms for $2,315 to $3,145. Nearby, the Pike & Rose development is adding restaurants and shopping.

But Hard said he understands why there is beginning to be concern about the number of new apartment projects.

“I think from our perspective, yes you have to be careful with locations, and you have to be aware of what’s going on in the area. And at the end of the day, if you build a good product in a good location, particularly near a Metro station ... we think over the long haul, these are good long-term investments, even if there are bumps along the way,” he said.

Hard had better tread carefully, however. Across the way Bozzuto will be leasing PerSei apartments at Pike & Rose, and Scotch will be offering customized cupcakes from Georgetown Cupcake.

Jonathan O'Connell has covered land use and development in the Washington area for more than five years.
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