Three developers who a year and half ago decided to move Washington into the ultraluxury housing market by building new houses with prices of $275,000 and up, are staging a retreat of sorts: lowering prices, building smaller houses and taking out the costly extras.
The three projects, Hillandale, Foxhall Crescents and the Cloisters, ran into trouble for a simple reason, area real estate experts said: Not enough buyers could afford them.
"There has never been that quantity of expensive homes built at one time," said Alan I. Kay of Rozansky and Kay, the developers of Foxhall Crescents on Foxhall Road NW. "We oversaturated the market because all of us were building at the same time."
Many local prospective buyers of such expensive houses could afford them only if they sold their current homes, a difficult undertaking when interest rates are high and economic conditions hard. So the pool of prospective buyers was reduced to newcomers to the area or foreigners, said several real estate experts.
"This market is very dependent on the resale market and when the interest rates shot up . . . people that owned very expensive houses could not sell their houses," said Jim Donohoe III of the Donohoe Co., which developed the first section of the Cloisters and is now trying to sell the vacant lots for the rest of the development.
In addition, some prospective buyers, given a choice between the new housing projects on the fringes of Georgetown and older houses that usually have more land and larger rooms, chose the latter, according to some real estate experts.
"Expensive houses are selling," said Wilene Goller, an agent who sells them exclusively. But the new developments lacked sales "because they didn't have the privacy and the look that people wanted," she said.
For now, the builders of Washington's three priciest projects are scaling back to houses that will sell for $225,000 to $400,000, hoping to give themselves a larger pool of potential buyers.
"Everybody is feeling their way and looking to find holes in the market," said Debbie Rosenstein, of Housing Data Reports, a housing information service. "They have found out this market is not that deep and they're trying to find out where that market really is."
As part of that search, the second section of houses at Foxhall Crescents will have starting prices of $360,000, according to Kay. The first section of 26 single-family houses on the estate once owned by former vice-president Nelson A. Rockefeller began with prices of about $400,000, which were quickly raised to $475,000.
In addition, Kay said, a house will be built in the second section only after it has been purchased, following the pattern established in the suburbs, where developers of higher-priced housing usually build individual custom houses, beginning construction only after they have a buyer.
In the first section of Foxhall Crescents, houses were built and then sat empty until they were bought. Plans call for the project to have a total of 120 houses.
Once-standard features such as silk wallpaper costing $100 a roll, finished recreation rooms, balconies off the master bedroom and Sherle Wagner bathroom fixtures, some in gold, have become optional. There will also be a lower grade of kitchen appliances, said Kay.
"As we continued to raise the price, the market rarefied," said Kay. "There is a tremendous difference between $300,000 and $400,000 and the number of people who can qualify to buy a house."
At today's prevailing mortgage interest rate of 13.5 percent, the monthly payment on a $400,000 mortgage over 30 years is $4,580 compared to $3,435 a month for a $300,000 mortgage. Most of these buyers do not face such high monthly payments because they have sold a former home to generate the money for a large enough down payment to substantially reduce them. Even then the prospective buyer of these expensive houses needs a minimum annual income of $100,000 a year, said real estate experts.
At Hillandale, formerly the Archbold estate, on Reservoir Road across from Georgetown University Hospital, both the size of the houses and the prices are shrinking.
"We're not going to decrease the quality of our project, but we're making them a bit smaller to keep the price down and be in a wider band of purchasers," said development manager Michael Gulino, who gave no details about what he termed a redesign of the town house project.
The company has built 54 town houses and is now trying to sell the last of them. It has reduced some prices selectively, but Gulino said, "We have not had a wholesale reduction in prices."
Three weeks ago, Gulino told a neighborhood citizens group that the new houses would range in price from $240,000 to $340,000. He told a reporter this week the numbers were incorrect, but declined to give correct figures. Hillandale prices once ranged from $275,00 to $475,000, he said.
Construction at Hillandale stopped in the summer of 1981 because "they were not selling so they decided to stop and regroup," said Phil Feola, a lawyer who is representing the development company.
Because of the slowdown in sales, the developers have asked city zoning officials to extend their deadline from four to 14 years for completing the 268-unit project.
Across the street at the Cloisters, on the site where a convent was once located, the Donohoe Co. built the first section of 15 town houses out of the total development of 142 houses, and wants to sell the remaining vacant lots because of the bad housing market.
Donohoe said the company has a contract to sell 17 of the lots to First Cambridge, a local housing developer, and 110 of the lots to Porten Sullivan, a company that has built almost exclusively medium-priced subdivisions in Montgomery County.
"We feel more comfortable in an area other than residential housing," said Donohoe, vice president for development. "It is more stable in other areas," he said, adding that the company would concentrate exclusively on building office and retail projects.
Ron Garshag of Porten and Sullivan said the exteriors of the new houses his company plans on the Cloisters lots will be the same as the existing Cloisters houses, but the new ones will be a little shorter and the prices will begin at $225,000 instead of $350,000. "These are going to be very handsome houses," said Garshag.
Garshag said the company wanted the project, its first in the District, because: "We think there is a market for houses at the right price. The market is a triangle and the higher you go the less people can qualify to buy. We will appeal to a larger base of people." CAPTION: Picture 1, With prices as high as $475,000, first Foxhall Crescents homes sold slowly. Scaling back on the extras in future homes will cut pricesto $360,000. Picutre 2, Only 15 of the 142 planned townhouses have been built at the Cloisters, and developers now want to sell off vacant lots. Photos by Gary Cameron--The Washington Post