When Washington custom-home builder Robert T. Foley bought 21 lots at Foxhall and Reservoir roads NW in 1979, he had every reason to believe in its destiny as a prime location for huge, Georgian-style luxury homes. In fact, he found it so attractive that he built his own home there.
But now the lush-life plot has turned to economic quicksand, swallowing funds borrowed at high interest rates while three houses and 15 empty lots remain unsold. So Foley is taking an unusual step to get back on solid ground: today at noon he will hold a public auction of the 15 lots at the project he called Foxhall Terrace.
The builder had expected to sell seven of his $589,000 to $695,000 mansions a year and to be done with the project in three years. However, more than two years after buying the property, he has sold only one home and one lot.
Foley's inability to capitalize on one of the city's choicest spots is a startling sign of the depth--and now height--of the current housing depression. In a form of what might be called "trickle-up economics," even the normally immune luxury market is being affected by the slump.
Industry experts in the past exempted luxury-class houses from generalizations about slumping housing markets, saying that people rich enough to buy $500,000 houses have their own resources and are insulated from the harsh realities of high interest rates.
But this once-common wisdom no longer applies, a fact to which Robert Foley's situation can attest.
"That tells it all" about the luxury market, said one industry analyst about the builder's auction of the prime land.
Foley attributes much of the unprecedented impact on the top-of-the-line market to the sheer length of this slump and says others in the luxury category now are feeling the downturn, too.
"The buyers are just turned off," Foley said. "They're not even making any offers."
The builder says he believes he may be the first to use the auction method to sell lots in bulk but that others in his position are likely to follow. He is hoping the device first of all will catch people's attention in today's sodden market.
"If you put up a 'For Sale, See Your Broker' sign on this, everyone just yawns," Foley explains.
He still plans to try to sell three luxury homes he has already built, priced at $589,000 to $695,000, in the usual way, however. These are four- and five-story houses with elevators and terraces on sloping terrain, some with views of the Washington Monument.
Several analysts say a "don't buy" psychology has imbued the market to the extent that even true bargains are going begging. And some frustrated and angry real estate brokers and specialists also blame the media, saying they have helped create this negative psychology with their reports of lagging sales and stories of gloom-and-doom projections.
"When the public gets paralyzed like they are now, people with that kind of money to be able to buy luxury homes tend to hold back," said G. V. Brenneman, president of Brenneman Associates Inc. and first vice president of the Washington Board of Realtors. For example, Brenneman's firm handles the Watergate, practically synonymous with the luxury apartment in Washington, and he says sales there are slow. Prices range from around $100,000 to $725,000, he said.
Brenneman said there has been some resurgence in segments of the luxury market, such as in parts of Georgetown, "but by this I mean we actually have a few buyers." These tend to be "wheeler-dealers," he added.
"There is no question that the luxury market has slowed, though it was one of the last to be hit," said Robert Snider, president of Snider Bros. Inc. "Many builders are surviving, but I can't honestly say there are any now that haven't been hit."
Even the most exclusive now are feeling the effects of the pinch on the "move-up" market--people selling their homes to buy something bigger or better.
At Foxhall Crescent, the development of half-million-dollar homes on the former Nelson Rockefeller estate off Foxhall Road, buyers of late have been known to worry about someone else's financing more than their own.
One deal was jeopardized not because of the buyer's financing or even that of the buyer's buyer, said sales manager Dagmar Hewitt Burton. It was a result of a chain of financial deals where the fourth would-be homeowner down the line had problems, and eventually the three buyers dependent on that sale got together and found a way to help out, she said.
"It's a snowball effect, and there are all kinds of machinations going on" to deal with it, Burton said.
(Every situation is different, she stressed, however. As an example, she cited one cancellation from a fellow who signed a deal for a Foxhall Crescent home because he was so sure President Reagan was giving him a Cabinet appointment--only to find himself disappointed.)
Two years ago, the developers of Foxhall Crescent said they had presold 16 of the first 26 three-story, four-bedroom homes. Now there are 48 of the detached houses, arranged in crescent-shaped clusters and using 18th-Century English architecture styles and curved facades, and 31 have been sold, Burton said.
Throughout the Washington area, builders and developers of luxury housing are starting to adjust their plans to the changed market by slowing building schedules, offering cut-rate financing or trying new marketing techniques.
At the 42-acre Hillandale project at 39th Street and Reservoir Road NW, brokers are being offered a 1982 Mercedes by the developer if they can sell four homes in six months, and brokers' fees have been increased from 2 percent to 3 percent, a spokesman said.
Other real estate industry sources said these are indications of slow sales there, but project manager Michael Gulino insisted that is not right. The project is "doing very well" and "better than most," Gulino said, but he declined to provide sales figures for the town house project. Nine months ago, the development announced that it had sold 32 of the first 54 brick homes, but Gulino also would not say if many more had been sold since then.
Located at the former Archbold family estate and bordering on the Glover Archbold Park, the Hillandale plan calls for a total of 268 units. Future building will be "paced to sales," Gulino said.
East on Reservoir Road at the Cloisters, there is an echo. "We are pacing things" at a somewhat slower building rate, said Howard Sherman of S.J. Lurie Inc., the firm in charge of marketing and advertising. Sherman, however, was willing to give sales figures, though they are hardly conclusive since sales on the first 15 brick town houses only began in September. With six of them sold in the first two months, the developers are "not unhappy" with the results so far, he said.
Financing deals are becoming common even on the uncommon home, where developers in the past have not worried about such things, industry experts say. One historic $650,000 estate in Fairfax County, for example, is advertised as having a pool, gardens, six bedrooms, five fireplaces, separate servants quarters--and "owner financing. . . ."
Several developers have "bought down" interest rates. Hillandale says it offers 11 7/8 percent financing; the Cloisters is offering 14 3/4 percent, five-year loans, and others will provide special financing on an individual basis as needed.
U.S. Home, the country's largest builder, started putting homes on 60 wooded lots in Potomac but in April stopped building and started selling the lots. Noni Adashek, sales consultant, said the area lent itself more to custom-building and that sales are going well with about 25 lots left.
U.S. Home also is providing interest-only financing there through a New York bank, she said. Under this system, people put 25 percent down and then don't pay until six months later when their interest is determined as one-half percentage point over prime.
But Adashek and others put more emphasis on other factors to keep ahead in the down market, including quality, design and location.
At the Weslie, a Rosslyn high-rise condominium of two-story apartments with a picture-window view of Washington, Diane Von Meister of Von Meister Properties said a changing life style of the affluent has kept sales there "slow but steady."
"People want to lock the door and go," she said, predicting that the luxury market will swing away from the huge suburban home that takes a lot of care.
Ed Walker, sales manager at the Crystal Gateway luxury high-rise (which sports a bathroom that is almost entirely mirrored), says two-thirds of the units in the first phase are sold. The project has been helped by the close-in Crystal City location, he said.
Maxine Schwartzman, project manager at the Elberon development off River Road in Potomac, designed to consist of 52 custom-built homes that cost about $400,000, insists the key to selling now is not financing or bargains but "good taste," though Elberon offers a variety of financing plans.
Some large price cuts can be found on expensive homes in the Washington area--as much as a drop from $500,000 to $325,000--but these were overpriced to begin with, according to Schwartzman.
"A lot of builders in Potomac think that bigger is better, that vulgar is better," she said. "Just taking a junky suburban house and making it four feet bigger one way and three feet bigger another doesn't make it a $400,000 house."
A livable design and quality finishing are all-important, Schwartzman stressed. "People want an efficient but beautiful house when you're talking about luxury housing. . . . They want it superb but not enormous."