Canyon Ranch Project On Hold

A Tysons Corner developer is reevaluating plans for the $1 billion Canyon Ranch Living project in North Bethesda because of the slowdown in the real estate market and rapidly increasing construction costs, according to a letter received yesterday by buyers who have made deposits on the luxury condominiums.

The Penrose Group will evaluate the project for 30 days, during which time it will not accept additional sales contracts. The move comes as developers have been dealing with a sharp decline in the housing market, particularly for condos.

The Canyon Ranch project, where residents would live in a high-priced spa community on 53 acres near I-270 and Old Georgetown Road, includes plans for two 20-story towers with 434 condominiums ranging in price from $900,000 to $5 million. There are also 157 hotel rooms, 87 luxury rental apartments, and a 90,000-square-foot wellness center.

Canyon Ranch, a renowned spa with resort locations in Arizona and Massachusetts, has another community under construction in Miami Beach. The first of two phases is sold out, and the second is nearly 80 percent sold. A Canyon Ranch community in Chicago is also planned.

The decision to reevaluate the project and stop taking contracts was first disclosed yesterday morning in a filing to the Securities and Exchange Commission by Crescent Real Estate Equities Co., a Fort Worth firm that owns a 48 percent stake in Canyon Ranch.

Mark Gregg, the president of the Penrose Group, did not respond to requests for comment.

The letter to potential buyers from the developers of the North Bethesda project, read to The Post by a buyer who has made a deposit, made no mention of what was happening with existing deposits. It is not clear how many people have made deposits.

The letter said the project had more than $50 million in reservations, appearing to "outperform the marketplace." But the troubled real estate marketplace, increased construction costs and the need to secure additional government approvals "will require us to reexamine the project based on a new sales schedule and updated construction costs estimates," the letter said, adding that effort was "necessary so as not to compromise our standards or to force you to endure significant delays in the completion of your new home."

In a statement, Canyon Ranch said: "Canyon Ranch is pleased with the response from buyers in Bethesda to date," and went on to refer to the success of the Miami Beach project.

The reevaluation comes as abundant supply and slow sales of condos have prompted more than a few developers to rethink their plans. So far this year, at least 1,800 units in more than a half-dozen condo projects in the region have been abandoned as developers decided not to move forward with condo conversions, shifted from proposed condo complexes to rental apartments or cancelled projects altogether.

The Canyon Ranch project has proved difficult since the beginning.

The Penrose Group secured a partnership deal with Canyon Ranch, which calls for the spa company to receive an upfront payment and ongoing management fees to run the development. The land belongs to the Camalier family, which developed the Rock Spring office park in Bethesda, home to Marriott International Inc.

At one point, the deal fell apart, but an agreement was finally reached in late April.

Staff writer Tomoeh Murakami Tse contributed to this report.