Rents Rise as Apartment Market Is Squeezed

Among the projects that have recently made the switch to rental or will remain rental are a 19-unit building at 1325 N. Pierce St. in Arlington; the 1901 West building in Annapolis, with 282 units; the Park Center complex in Alexandria, with 574 units; the Bristol at Fair Chase in Fair Oaks, with 392 units; and a 415-unit complex in Baileys Crossroads scheduled to break ground in the fall.

The going-rental option is under consideration by the developers of a 183-unit complex at the site of the old National Institute of Dry Cleaning, and a 325-unit project called Cameron House, both in Silver Spring.

Stephen Muller, president of Union Realty Partners Inc., which is building the 183-unit project, said he began considering the shift after a well-heeled family rented a single-family house he owns, saying they did not think it was a wise time to buy. "I think it's frankly smart," he said.

Coletta said he was influenced by the performance of Fairfield's condo projects in Fair Oaks, Herndon and Germantown.

"All are doing fine, but we've clearly see fatigue on the part of the consumer," Coletta said. "Traffic has dropped off, contracts have slowly declined. You see the writing on the wall at the same time apartment fundamentals are improving. It makes the business decision a pretty easy one."

Instead of converting the Virginia Commons complex in Dumfries into condos, its owners have decided to spend "several million dollars" upgrading the place and renting it to people who make $70,000 to $90,000 a year -- too much to qualify for housing assistance but too little to be able to afford to buy a home.

"Every owner nowadays goes through the thinking, 'Should I go condo, cash out and call it a day?' " said Kenneth Shiu, manager of Realco Millennium LLC, which owns Virginia Commons. "We started thinking, 'Why not make ourselves nicer and reposition the place?' "

Developers who proceed with condo plans face a flood of competitors. There are some 26,600 condo units being marketed in the Washington region, according to Delta Associates, up from about 23,100 in the same month last year. But there are some 48,000 units moving toward construction in a market where prices, though not falling, have already gone flat.

Leisch said that condo developers increase the base price of units so existing owners and new buyers feel confident they are buying into a rising market, but that then they offer concessions -- better appliances and upgrades, picking up part of the closing cost -- so new buyers think they are getting a good deal.

"It's the old shell game," Leisch said. "You increase the price to reduce the price so after all that nonsense, the price is unchanged. Car dealers do it all the time."