Region's Builders Rein In Visions
With Real Estate Downturn, Projects Scaled Back, Scrapped

By Paul Schwartzman and Alejandro Lazo
Washington Post Staff Writers
Sunday, January 27, 2008

The real estate boom had long since burned a gilded path through Bethesda, Tysons Corner and Arlington. Now it was Springfield's turn, and up stepped a developer with a vision of creating a cosmopolitan oasis out of a disheveled 10-acre patch beneath a highway interchange.

Midtown Springfield, the developer said, would bring luxurious apartments, a hotel, a supermarket and an office tower, embodying "the best in the modern downtown living experience." Gone would be a discount wine shop, Holiday Inn Express and commercial buildings that seem trapped in a 1970s time capsule.

Now the project is dead, another casualty of the real estate market downturn, one that's forcing new residential building permits in the region to their lowest levels since 1991.

As construction cranes soared across the metropolitan area over the past decade, an economic renaissance flourished from the burgeoning sprawl of Manassas to the industrial banks of the Anacostia to the once-blighted corridors of downtown Washington.

Yet with the housing market staggering and lenders tightening credit lines, civic leaders and developers are scaling back ambitions and dramatically altering -- if not killing -- vast projects.

"People are going to have to adjust their expectations about what future development will look like," said Peter Tatian, a senior research associate at the Urban Institute. "We're in a different period than the beginning of the decade, which was marked by extremely rapid economic growth fueling a very high-flying housing market. Now we've come back to a more normal situation."

Even before the economic downturn, builders began to rein in their visions. Developers in 2006 halted a plan to build a posh community of condos in North Bethesda known as Canyon Ranch.

Since then, more developers have canceled or recast projects. Or they are allowing their land to lie fallow, waiting for a revived market.

Just outside the Capital Beltway in Prince George's County, farmland that seemed ripe for development remains vacant as a builder seeks to withdraw from a deal to put up 2,000 homes. In Manassas Park, promises of a new town center featuring condos have been scrapped and replaced by more modest rental apartments.

And on Route 50 in Loudoun County, some civic leaders fear that economic turbulence will defer plans for turning the highway into an inviting gateway to their world, one lined with shops and cafes and offices.

"It's like a traffic accident with the rubber-necking -- everybody has slowed down," said Douglas Jemal, a developer who has postponed plans to build an office building across from the Washington Nationals' new stadium.

"You're taking a harder look before you go into the ground right now," said Jemal, among the leaders in the rebuilding of the District's downtown Seventh Street corridor. "Anyone who tells you different is lying."

By any measure, the Washington region's struggles have not nearly approached those in states such as Florida, California and Nevada, which are enduring a combination of plummeting real estate values and rapidly escalating foreclosure rates.

Equally apparent is that construction crews can still be found building large projects. On March 29, the Nationals are to open their ballpark in Southeast Washington, a neighborhood vibrating with office and residential construction. In Prince George's County, hundreds of acres of dirt are vanishing as the long-awaited National Harbor hotel and convention center takes shape.

Along the 14th Street corridor in Northwest Washington, developers are completing projects from Florida Avenue to Columbia Heights, where the District's first Target store is slated to open in early March.

Those projects were conceived and financed long before the slump began. "Many of the cranes you see in the air represent deals that were underwritten a year and a half to two years ago," said developer Jim Abdo. "The deal flow is literally like a spigot. Certain types of development deals have literally been turned off."

A sampling of statistics tells part of the story. In the District, nearly 2,000 units of housing were slated for construction in 2007, roughly a third less than the previous year's total. In Prince George's County, developers sought 78 subdivision permits last year, while more than 500 plans were submitted in 2005.

Across the region, there were just over 20,000 residential building permits issued in 2007, about half the number issued in 2005 and the fewest since 1991, when 16,500 were granted, according to an analysis of U.S. Census figures by Stephen S. Fuller, a professor at George Mason University.

Evidence of a changing market is also palpable on the ground.

More than 700 acres of farmland is slated for several thousand housing units in Upper Marlboro, just outside the Beltway, with easy access to downtown. At least part of the project is now in limbo because Pulte Homes' plan to build more than 2,000 homes has stalled.

While a Pulte spokesman acknowledged only that the company is negotiating to restructure the deal, a source familiar with the talks said the builder is seeking to withdraw. The developer is looking for a new partner, said the source, who spoke on the condition on anonymity, citing the private nature of the negotiations.

A few miles away, along Lottsford Road near FedEx Field, several parcels where developers promised office buildings remain untouched. Weeds are sprouting on one plot, where earth-moving equipment has sat idle for months. Signs advertise space for lease on many office buildings in the corridor.

While Prince George's leaders have long pushed for high-end housing to replace time-worn apartments, developer Mark Vogel cautions against establishing unreachable goals when a more modest approach may be prudent.

"Why are we ashamed of being a middle-class market?" he asked. "Our county always wanted to push the envelope. All the politicians wanted upscale, upscale, upscale. But we're not upscale. We're middle class, and there's nothing wrong with serving our teachers or middle-class people who don't make a bazillion dollars a year."

In southern Fairfax County, Bob Stockton has a clear view from his barbershop of the parcel he has been waiting to become Midtown Springfield, the kind of urban-style concoction that has transformed Silver Spring. The new apartments and offices, he hoped, would mean more customers trekking to his shop for $18 cuts.

But the developer, Kettler, citing rising construction costs and an uncertain market, canceled the project in July. "If we still had a hot condo market, we would've been rocking and rolling," Stockton said. "They would have been moving dirt out there by now."

Some developers are forging ahead even as they change their strategy.

As 2006 ended, PN Hoffman announced it would build 140 condos in downtown Washington, at 10th and G streets NW, over a sanctuary it would rebuild for First Congregational United Church of Christ. The plan drew attention because the church said it would keep its meals program for the homeless in the building, which was to include a fitness center, swimming pool and $1 million apartments.

A year later, a chain-link construction fence surrounded the church, no work had begun, and the developer rolled out a new plan: Instead of condos, it is planning a high-end office building. "It's a great place for condos, but you don't want to build and sell condos unless you have a robust market," said Steve Earle, PN Hoffman's president.

On the Web site for Manassas Park, city officials tout their community as Virginia's "newest city," though its downtown is defined by auto repair shops, warehouses and towing firms.

In 2005, Manassas Park officials and Clark Realty joined forces to change the city's image. The centerpiece of their vision was 30 acres of industrial terrain they hoped to turn into townhouses, condos, retail and office buildings, all of it across from a train station. A new city hall would anchor the site, which planners promised would draw pedestrians and commuters to work, shop and play.

By last May, the housing slump forced the developer to redraw the plan. Instead of condos, there would be 274 apartments. Instead of stand-alone commercial buildings, the offices and retail would sit beneath the apartments.

City officials and the developer say they remain committed to the development, though they said it will now take at least two years longer. "We're deferring it because the market is not there," said Jay Sotos, Clark's managing director.

The Washington region has endured downturns in the past, including the aftermath of the 1987 stock market crash and the dot-com bust of the 1990s. But the real estate industry is far healthier these days, said Robert Peck, former president of the Greater Washington Board of Trade. One reason, he said, is that banks require commercial developers to pre-lease a large percentage of their offices before issuing construction loans.

"We won't see developers leaping off the cranes because the fundamentals have been better than they were in the 1980's," said Peck, now a senior vice president with the Staubach Co., a real estate firm.

Yet he also said that edges of the metropolitan area -- towns and counties that were depending on a gush of development to remake their communities -- likely will have to wait longer.

"The outer fringes slow down first," he said. "Loudoun County is going to slow down before downtown Washington, or areas in Fairfax and Tysons. Good locations are still good locations."

The Rev. Chris Riedel hopes he doesn't have to wait too long for new life to come to his patch of Route 50 in Loudoun County.

For years, the pastor and his congregants have yearned for homes and shops to rise on the 400 acres of fields surrounding the white clapboard chapel that is home to their Arcola United Methodist Church.

At the height of the real estate market, a developer came forward with a promise to bring the accoutrements of city life to the soil.

Luxurious homes. Shopping. Two hotels. An elementary school. A park.

Then the housing market sagged, foreclosures took off, and the real estate world got the jitters.

The developer, Buchanan Partners, remains committed to bringing its proposal to life over the next 20 years. The developer expressed hope that the market revives by the time it breaks ground.

Riedel knows that nothing is guaranteed, only that there's a long road ahead.

Staff writers Kendra Marr, Anita Huslin and Cecilia Kang contributed to this report.