Two developers have announced they are delaying prominent luxury condominium projects in Arlington, further demonstrating the shift in the county's real estate market.
The JBG Companies is putting on hold plans to construct a 23-story building in western Ballston, and is exploring different scenarios for the site.
"Right now we are re-evaluating the best use [for the project], but the condo situation is by no means ruled out," said Matt Blocher, a company's spokesman.
In exchange for additional density in the project, originally called the Fairmont and now dubbed the Spire, JBG agreed to pay nearly $11 million toward the construction of an underground passageway for the western entrance to the Ballston Metro. Company and county officials both said they do not anticipate any change in the agreement, but admit that any significant delays to the project would set back the timetable for the completion of the second Metro entrance.
Meanwhile, Centex Corp. has suspended work on a series of five-story condo buildings in the Ft. Myers neighborhood. Earlier this year the company demolished three buildings on the sites, which contained 140 market-rate affordable units, to make way for luxury dwellings.
"It's no secret that the market pace has slowed down, and we're taking a pause," said Pat Duke, a marketing director for the company. "We're doing what everyone else is doing and re-assessing."
FOR THE PAST two years Arlington's condo market, like that of the rest of the Washington area, has been scorching hot, fueled by speculators seeking a hefty return on their investment.
Recently the market has become over-saturated with supply. The number of condos listed in Arlington has more than tripled since this time last year, and the amount of new condos that came online in June was 37 percent higher than new units unveiled last June, according to the Greater Capital Area Association of Realtors.
"There have been so many residential units built in the past year, that developers are asking how much more the market can absorb," said Tom Miller, Arlington Planning Supervisor. Developers "don't want to be sitting three years from now with an empty building."
Dovetailing with an overabundance of supply has been a steep drop in sales. The number of condos sold in the first six months of 2006 is 13 percent below the figures for the previous years, and June 2006 sales are down 25 percent compared to last June.
The major reason for the slow-down, analysts said, is that earlier this year people came to believe the condo market had reached a peak and purchasing one was no longer a profitable investment strategy.
"People are no longer buying condos as an investment and that was driving the market" said Tom Newman, real estate specialist for the Arlington Economic Development office. "Projects that at one time had 20 to 25 sales a month are down to three a month."
Other factors contributing to the shift away from condos has been high interest rates, which has made it harder for companies to secure financing, and rapidly escalating construction costs.
Construction costs region-wide have increased by 15 percent over the past two years, and risen by 24 percent since the beginning of 2003. In comparison, construction costs rose by less than 1 percent per year from 1997 to 2002.
The Arlington condo market has not taken as big a hit as other similarly-priced areas across the country, officials said. No developer has yet completely abandoned a project.
THE DROP IN interest in condos has been a boon for the local apartment market, as more residents are seeking to rent units rather than buy.
JBG officials said they are considering turning the Spire project into an apartment building, and would then have the option of converting the units into condos further down the road. If the company is to overhaul the project, it would have to go through additional site plan hearings, a costly and time-consuming process that officials said they would prefer not to do.
"We have a lot of money invested [in the Spire], we believe in the location and we want everything determined as soon as possible," Blocher, the JBG spokesman, said.
Yet nearby residents fear that the pause in development may jeopardize the Metro funding, which JBG agreed to in return for greater density on the site.
"We're concerned that they will go back to the county and say that the condo market is not worth $11 million," said Ari Meltzer, a representative for the Continental building, which abuts the Spire property. "We want to make sure the situation doesn't arise where the county and developer would renegotiate how much JBG contributes to the Metro."
As part of the adjacent Arlington Gateway site, JBG has already built an escalator wellway in the ground floor of one of its new office buildings.
The total estimated cost of the second Metro entrance project is between $35 and $50 million, of which the county has secured almost $10 million. While JBG is now responsible for more than half of the underground passageway, the county will have to construct the remaining sections and build a mezzanine, train room and escalators for the western entrance. County officials said they are still seeking revenue sources for the remaining costs.
Besides the initial $11 million the county saves by agreeing to the deal with JBG, having the work done at the same time as the Spire is being built will reduce the project’s overall costs, said County Board Chairman Chris Zimmerman.
While the county does not know what affect the delay will have on building the Metro entrance, officials have no plans to re-negotiate the amount JBG is contributing to the project, Zimmerman said.