By Sandhya Somashekhar
Washington Post Staff Writer
Saturday, August 5, 2006

A giant development company is withdrawing its offer to give a Virginia town an unprecedented amount of money in exchange for approval to build a subdivision, citing the cooling housing market for the change of heart.

Centex Homes of Dallas, one of the nation's largest developers, said it can no longer afford to offer Warrenton $22 million -- almost half the town's annual budget -- to approve 300 luxury homes for seniors within its borders in Fauquier County. The developer notified Warrenton officials in a letter received Thursday.

"It was possible to consider such [an offer] as remotely feasible only in a rising market, where Centex could hope to make a reasonable return on its very substantial investment," wrote Robert K. Davis, the company's division president. "[We] would not have made that agreement had it been possible to predict the timing of the current residential downturn."

The deal would have been the most generous cash donation of its kind in state history, industry officials said. Warrenton would have collected nearly $74,000 a home, more than double what Fauquier usually receives from a developer.

Warrenton officials said they were stunned by the letter. The tone, they said, was confrontational compared with the "good faith" discussions that had occurred for more than a year.

In the letter, Davis gave an ultimatum: Approve a higher-density project, which would be more profitable for the company, or give up the $22 million. Town officials say Centex has other options, such as renegotiating the cost of the land.

Centex officials declined to comment beyond the letter. Warrenton officials said they will continue to negotiate with the company.

"The tooth fairy brought us a lot of money," said John "Sparky" Lewis, a Town Council member.

Last month, the Town Council agreed in principle to annex the 492 acres, now an unincorporated part of Fauquier, allowing Centex to connect to Warrenton's sewer system.

The resolution for annexation came after concessions from Centex. The company had hoped to build nearly 800 homes, which Fauquier and Warrenton rejected. Centex scaled back the project to satisfy opponents, settling on 298 luxury homes for buyers 55 or older starting at $850,000. They also offered $22 million to sweeten the deal.

Town officials had praised the deal as a victory for local governments seeking influence over the subdivisions popping up across the region.

It had been a particularly unusual agreement because in Virginia, developers typically give local governments a per-parcel amount to offset the effect on schools and roads. Because it would be a senior community on a major thoroughfare, the Warrenton development would have had a minimal effect on both. The millions of dollars would have been pure profit to the town of 8,000, which planned to use it to pay off the debt on a new aquatic center.

Last month, Centex defended the concessions, which industry specialists called a bribe, saying they were the "cost of doing business" in Virginia. In this week's letter, however, Davis said the compromise would be an untenable loss because it "represents a 56 percent decrease in the potential yield of the property."

The outlook for home sales has changed in recent months. Home prices in the Washington area declined this summer for the first time in five years, and some economists predict that the trend may deepen in the coming years. But demand for "active-adult housing" for older people is growing.