By Allan Lengel
Washington Post Staff Writer
Wednesday, May 16, 2007; D01

Two years ago, during the giddy real estate frenzy, some investors bought 300-plus garden-style apartment units in Fairfax County to convert to condominiums.

Yesterday, a California bank foreclosed on the group's loan and bought the property -- minus about 45 units that had been sold -- for $60 million, outbidding a suitor from suburban Chicago at an auction on the front steps of the Fairfax County Judicial Center. The bank, Fremont Investment and Loan, said it hoped to resell the property.

The foreclosure on Ridgeleigh at Van Dorn Metro was just one of several foreclosures in recent weeks of condo conversion projects in the Washington area and was another sorry sign of the soft real estate market and an oversupply of condos, real estate experts said.

"It's part of the slowing housing market," said Scott MacIntosh, senior economist for the National Association of Realtors. "Fewer first-time buyers are willing to take that risk and go out and buy. I guess they see it's safer to put money in the stock market rather than buy their first home."

In the first quarter of the year, 3,472 condo units that were either in the planning stage or about to come on line in the Washington area were changed to apartments and another 790 were simply canceled, according to a report by Delta Associates, an Alexandria real estate research and consulting firm.

"Rumors of conversion projects going on the market abound . . . so more condo projects will likely end up as apartment buildings," the Delta report concludes.

In 2005, there were about 13,000 condos sold in the Washington area, compared with 6,600 last year, according to Delta. The market has a bloated, 3.4-year supply of condos.

William Rich, a vice president of Delta, said the decline in condo sales has been due in part to problems in the mortgage industry and also to a drop in investors buying condos to resell for profit.

Still, he said, some condo projects are moving forward. "Some developers are just going to plug ahead and wait it out because they think their project is better than what's out there," he said.

Besides the Fairfax County property, banks recently foreclosed on three condominium conversions owned by Triton Real Estate Partners of Annapolis: the 434-unit Monterey Condominium in North Bethesda, the 303-unit Landing at Spa Creek in Annapolis and the 508-unit Rodgers Forge Condominiums in Baltimore County.

Yesterday's auction was on the same day that Korman Communities, a real estate firm in Plymouth Meeting, Pa., announced plans to open a luxury, extended-stay hotel in Fairfax County near Dulles International Airport, a project that had originally been built as a 169-unit condo.

Washington Communities, a Vienna company whose officers include President Richard Deeds and Vice President Lyle Waldron, bought the Ridgeleigh at Van Dorn Metro apartments in late 2005 and secured a loan for up to $84.2 million from the California bank, which has a regional commercial-loan office in Bethesda, according to county records. The bank declined to say how much of the loan was dispensed.

The plan was simple: Convert 15, four-story apartment buildings to condominiums, and do it in two phases. At the time of the purchase, the market seemed ripe: Buyers had been lining up outside new projects, eager to buy before prices escalated even more.

In 2006, the first phase of the condos went up for sale. Units ranged from 589 square feet to 1,081 square feet and were priced from $274,990 to $444,990, according to a news article posted on the complex's Web site.

Eventually, about 45 condos were sold. But that wasn't enough. The first phase remains a mix of rentals and condos; what would have been the second phase is still rentals.

According to someone familiar with the project, the company was not "able to sell units, pay down debts and were not able to sell units fast enough." The source spoke on condition of anonymity because of the sensitive nature of the transaction.

Lawyer James C. Brennan, listed as the registered agent for Washington Communities, did not return a number of phone calls over several days. Attempts to reach company officers by phone were unsuccessful.

Yesterday, at 1 p.m., the foreclosure was announced, and lawyer Jeremy Root, one of two substitute trustees, read a dry description of the property in front of the steps of the Fairfax County Judicial Center. The area was fenced off from the noisy construction that at times drowned out the reading.

Then lawyer William H. Casterline Jr., the second substitute trustee, began the auction. The first bid, $50 million, came from Eron Sodie, the lending bank's vice president and regional manager in Bethesda.

Several feet away stood portfolio manager Chris Beaulieu of Ritchie Capital, of Lisle, Ill. He bid $51 million. The bank went to $55 million.

"Do I have $56 million?" Casterline asked. The Illinois man bid $55.5 million. The bank came back with $60 million. The Illinois man backed off. The bidding ended.

Afterward, Beaulieu was asked whether his firm would have stuck with the condo plan.

Citing the uncertain market, he said: "We were going to take a fresh look. We were looking at different options given the deteriorating market."

Staff researchers Alice Crites and Karl Evanzz contributed to this report.