“This place has more cachet” remarks the woman to her friend, comparing the Columbia Heights neighborhood to Silver Spring, as she stands in front of a small condo building on Kenyon Street. The two women have walked up 14th St. NW, past the burgeoning condo buildings that cap off the metro on both sides – mushrooming out of gaping holes with the usual roadside racket – to check out some of the new construction. The women are only casually looking, they say; one owns a home in Takoma Park but contemplates moving closer to downtown and to “culture,” the other is a self-described empty nester considering a condominium because of proximity to the city and falling prices. She is searching for something special to draw her in, like a pool or other amenities she says.  Neither woman wants to give her name however, lest real estate agents swoop down like vultures on these casual Sunday browsers.

Perhaps these women are afraid that condo sellers in Columbia Heights are just that desperate. After the frantic condominium market cooled and eventually collapsed in the middle of 2006, the once swift sales of the ubiquitous luxury shelter has slowed citywide and in Columbia Heights in particular. Sales have fallen off from the heights of condo euphoria in 2005, and developers once scrambling to build a piece of the action, are now faced with excess inventory and falling prices. Add to that the competition of investors trying to sell units they thought they could quickly flip, and you have a recipe for a buyers market and potentially some half-empty buildings.

The trend is not unique to Columbia Heights however, or even to DC proper. Several other big cities like Las Vegas, Miami and Boston are experiencing a similar collapse; banks are reducing loans to builders or making them contingent on sales and developers themselves are turning to sales incentives or are instead converting projects to rentals for better returns.

Excess Inventory, Sales and Re-sales
Nam Le, 31, wanted to buy a place in Columbia Heights because, having lived in Mt. Pleasant in the 1980’s, Le knew the neighborhood and was interested in the new developments coming to Columbia Heights.

When he began to negotiate with the Tivoli Townhome/Condo development on Monroe St. between 13th and 14th Streets in the summer of 2006, Le knew the developer was eager to sell the units. “What we were told was that the developer wanted to sell the last few units quickly, because they needed the funds to move on to other projects” said Le who bought a one-bedroom condo in the development for a little under $500,000 last June.

“I was a little surprised at how much inventory there was,” Le said of his search. “It was almost like [the market] was saturated.”

Though the developers of Tivoli Townhomes/Condo’s were able to sell off their entire inventory as the market took a dive, other projects in the neighborhood are still working to sell theirs.

Four large condo buildings have been constructed on 14th Street, and two others are slated for construction within the next year on the same street; many smaller projects went up in other locations around Columbia Heights, creating ample competition to any seller.

Many of the large buildings meant to draw upper-income buyers to the neighborhood are only partially filled. The finishing of some projects has been delayed becaue of financing issues. According to real estate agents, it is the higher end projects that are suffering-- those trying to sell condos in the $500,000 and up range.

Two of the most visible high end projects steps away from the Metro are the Kenyon Square and Highland Park buildings, both developed by Donatelli Development, Inc. The Kenyon advertises to its desired clientele with a bright green sign reading “Scone. Newspaper. Starbucks. Less than 20 steps to the Metro.”

Kenyon Square has a total of 153 units with about 30 left –  but the building isn’t finished yet.  Highland Park which has yet to open, is only half sold – something that would have been unheard of in 2005.

According to local realtors, what's hurting some of these new projects the most are contract cancellations coupled with excess inventory. A lot of buyers pulled out, according to Barry Smith of Domus Realty, who is handling marketing and sales of both the Kenyon and Highland Park.  People who bought in at the beginning of the projects were planning to put down a deposit, ‘flip’ the property and sell the place after a couple of years hoping to make a generous profit.

“When the market leveled off and eventually declined. . . investors wanted to get out” Smith said, “and that 5 to 7 percent deposit was the best way to go. . . People said, ‘Keep my deposit, I don’t want the home anymore.’”

According to a special report by the Washington Post, the 20010 zip code (which includes parts of Columbia Heights) saw a 63% boost in housing prices in 2005.  This is the largest percentage increase in the District.  The median sales price jumped to $487,000.

Median condominium prices in the District rose $40k to $365,750 in 2005.

In the last year however, the pull-out of investors coupled with the slow down has also meant that individuals trying to re-sell units are facing tough competition.

Pam Kristoff, a realtor with Kristoff Group recalls the difficulty one client had in competing with other empty units when recently reselling a condo in Columbia Heights.

“This was a new unit itself, a new condo, reconditioned and renovated last summer,” Kristoff said, “but when the buyer goes to view the property prices . . . and sees a cost of $400,000 for a resale with no warranty, they think, ‘a new condo has a warranty and all the bells and whistles and additional amenities . . ..’ It’s a tough call to have to compete with developers in the market for resale,” Kristoff said.  Many people have the mentality that “new is better, even if it hasn’t been lived in,” Kristoff said.

Sellers may also have to compete with incentives thrown in by developers eager to get their units moving.  When Nam Le bought his home, the developer threw in a flat-screen TV and enticed him with incentives to help with closing costs if Le used the developer’s lender.

Offering such incentives has become more commonplace in the competitive market, where things like waiving condo fees for 3-6 months or throwing in other amenities are flashed by developers looking for buyers.

Those developers who have yet to construct their properties may be faced with tougher choices however. Further up the road, on 14th Street a hole has been dug out on the old Giant Grocery site where another luxury building called “Allegro Spaces” is supposed to be completed by fall of 2008 – but when asked about potential sales, DC North was told that they weren’t selling any units and couldn’t be sure when they would.

Seventy-two condo projects will be scaled back or canceled throughout the metro area this year, according to a real estate research firm Delta Associates.

Rental Conversions
David Franco and Jeff Blum are two local developers who threw in the towel on the sale of condos last January.  “View 14” is a 180 unit building with stunning views of the city   as it’s located on the border of Columbia Heights and U Street corridor on 14th Street.

Franco of Level2 Development says that after pre-sale rates were sluggish, they decided to convert the building to rentals.  “We converted in December to stay ahead of the curve, to switch from condo to rental while there was still time to make property changes . . . before construction started,” Franco said.

Level2 plans to break ground on the less costly building in approximately one month. Like many developers, Level2 has decided to capitalize on the fact that rental market is rising in DC. Franco says that they are not considering the possibility of converting back to condos in the future unless there is a severe change in market conditions. Franco also said that the change would not affect a million dollar community benefits package they had promised at the start of the project.

“Rental values have gone up in tandem with mortgage rates going down,” said Barry Smith. “It’s always something considered seriously,” Smith said when asked if the Donatelli projects would potentially convert to rentals.  “The Kenyon is already settled. But, there are certainly a lot of developers who have done [conversions],” Smith said.
Though rents were rising at 6.1 percent late last year in the city, according to the Bureau of Labor Statistics, industry analysts say that they too could fall if too many condos are converted to apartments in a short period of time.

A Buyers Market
Though Nam Le bought his condo last year when there were rumblings of the bottom falling out on the market, he is satisfied with his investment. “I bought with the intention of staying for awhile . . . if we move it will be because the neighborhood has changed,” said Le who lives with his girlfriend Valerie Plesch, 27. Plesch said they are hoping the character of the neighborhood doesn’t get swallowed up by new developments like the DC USA that will include a Target and a Best Buy.

Such a confident attitude is not usual for most buyers.

“Buyers in general are scared because of all of the publicity about the slow down in the market and the glut of condo units as the mortgage meltdown occurs,” said Barry Smith. “It’s actually a good time for someone to buy – sellers need to sell; especially for someone who needs a place to live…we’re not talking about investors.”

“Buyers have more flexibility, we have more wiggle room for incentives in the form of closing costs and . . . additional bonuses to the agent for helping to sell those units,” said Kristoff.  “I recently had a client who took the condo fees off for the course of two years and subtracted it from sales price to get a better deal. The seller had offered to pay for the condo fees and the buyer said, ‘I’d rather you give it to me right up front.’”

Advice for sellers?