A new trend has developed in the depressed Washington housing market, an economic response that some developers would rather keep under wraps: a return of convertorcondominiums to rental status.
Until recently, the real estate marketing news centered around which Washington-area apartment building would convert to condominiums next. Now, the focus is on filling unsold apartments at all costs. In an era of record interest rates, this sometimes means converting the "For Sale" sign to "For Rent"--at least temporarily.
"Any building where a developer has any more than about four units left is covertly and overtly looking for rentals," said local developer G. V. (Mike) Brenneman.
"If you can't sell the stuff, what are you going to do," he added. "Sit there with an empty building?"
"Rather than take a loss, go ahead and rent them," Marvin Weissberg, a Georgetown developer, said. Weissberg, a general partner in the Flour Mill luxury condominium project in Georgetown, is taking his own advice by renting out his unsold units.
"I don't think any developer is particularly anxious to say to the whole world, 'Hey, I can't sell my stuff, so I'm renting it,' " Brenneman said. "But they're doing it." In addition to the condominium owners openly advertising that their buildings have rental units, Brenneman points to small classified ads for rental apartments that are in condo buildings but not identified that way.
Among the major projects in the area that now have reverted to rental programs are The Promenade in Bethesda, The Car Barn on Capitol Hill and 1201 Eads in Crystal City.
The owners of 1201 Eads in Crystal City had planned to market the new high-rise building as condominiums last summer, "but people were just not ready to buy," said rental manager Clement Mitchell. "Right now, we're just interested in renting" the 350 apartments, Mitchell said.
The building may return to condominium status in the future, Mitchell added. In fact, renters at 1201 Eads are offered an option to buy their units if the building converts to condominium status at a price guaranteed to increase no more than 6 percent annually. "It's a perfect speculative thing for someone looking for a condominium down the road," Mitchell said.
Indeed, the rental building is advertised as a haven for the prospective buyer. "If interest rates have caused you to defer purchasing a brand-new condominium unit," one ad states, "Our problem is the same as yours in reverse. . . . Here you may well find the home you'd like to buy. In the meantime, though, you can rent your future home for considerably less than current mortgage payments."
The condominiums were designed to sell for $40,000 to $140,000, according to Mitchell. Rents at 1201 Eads range from $435 monthly for an efficiency to $1,095 for the most expensive two-bedroom, including utilities.
In December, the 1201 Eads management offered a month's free rent "to get people in," Mitchell said.
At the Promenade cooperative in Bethesda, "One of the important reasons of getting people to the building is once you're in, you're going to want to stay," said leasing coordinator Karen Parrish.
"The idea behind it all is really sales, eventually," she said. "We show a lot to people who are interested in both" sales and rental, added Parrish.
Promenade representatives are working with Montgomery County corporations to drum up rental business from executives on temporary assignment, Parrish said. "Perhaps that person would be locating in Washington permanently and they would end up purchasing here," she said.
After Parrish spoke to a reporter about the rental program which began in November, Promenade leasing manager Jane Katz denied they have a rental program. "We have nothing to say," Katz said. "As far as the co-op people know, there isn't anything for lease."
Another Maryland complex, Westchester Park Towers in College Park, is renting rather than selling in one entire 270-unit building slated for condominium conversion. "If times had been more robust, it would have been coming on schedule in six months or so," said Joseph Gornall, a spokesman for the complex's owners.
In the condominium building, the owners rent apartments for investor-owners. With about 40 apartments still unsold, the owners may be putting the remaining units up for rent themselves, Gornall said. "The owners are spending the slow holiday period mulling over that question."
The Car Barn of Capitol Hill, a rehabilitated 85-year-old trolley car barn, also has taken the plunge from condominium to rental, stressing the building's luxury features. "The same ads they had for sale are running for rental," notes Washington real estate attorney Arnold Spevack.
The condominium project is a casualty of "the way the market downturn has been," explains Joseph Bier, an assistant vice president of the Charles E. Smith Co. that manages the Car Barn "And it's on the fringe area" of Capitol Hill renovation, he pointed out.
A handful of $300,000 condominiums were left unsold at Georgetown's Flour Mill and "most people just want the bargain condominium" in today's market, observes the development's general partner Weissberg. "We feel there's going to be a large appreciation of units in the next few years, so we decided to keep them," Weissberg explained.
By holding onto the condominiums until 1983, the developers can reap large profits on the units, Weissberg said. The current slump, he predicts, is following cyclical economic patterns.
"We saw the same thing in 1974," explains Washington developer Brenneman. "A lot of buildings that were condo went back to rental."
And by 1978, recalls Weissberg, the values of the rented condominiums had escalated "100 percent."
While waiting for the next economic upturn, Weissberg is renting two- and four-bedroom duplexes overlooking the Potomac for $1,250 to $3,800 a month. Condominium rentals, Weissberg and other developers point out, have unusual amenities not usually found in rental buildings, from extra-large rooms to on-premise saunas.
For the upper-income individual willing to forego a tax break from buying an apartment, Weissberg argued, "The biggest bargain in the world today is renting these condominiums, because it costs so much more to buy them."