Condo craze losing steam

North Baltimore conversion canceled as market weakens

August 03, 2006|By LORRAINE MIRABELLA | LORRAINE MIRABELLA,SUN REPORTER

When they learned that their apartment building at 3900 N. Charles St. would turn condominium, many residents reluctantly packed up and moved, scrambling to find new homes in the sought-after neighborhood. Some elderly tenants gathered paperwork to show that they legally qualified for six more years as renters. A handful made offers to buy.

Now, five months after registering to convert the building to condos and adding a private screening room, a health spa and a library, the owner is abandoning the conversion because of slow sales. DSF Group of Boston plans to market the units it had offered for $185,000 to $300,000 as luxury rentals.

"It's really what the market wants, and it's as straightforward as that," said Art Solomon, chairman and chief executive of DSF, which bought the 232-unit building in North Baltimore's Tuscany-Canterbury neighborhood in January from the Harry and Jeanette Weinberg Foundation.

DSF has taken 35 to 40 reservations since starting the marketing campaign for the Halstead at Guilford Condominium in April, Solomon said.

The abrupt switch - the first halting of a condo conversion in the state in at least three years - was made at a time when the once red-hot housing market is losing steam, as buying power is eroded by rising interest rates, soaring energy costs and record home prices.

Home sales in Baltimore and the five surrounding counties have fallen each month since October from year-earlier levels, and the number of unsold properties has been piling up: The number for sale in June was more than twice the number a year earlier.

In addition, developers, in the belief that a city that once shunned condos is ready to embrace them, have been adding hundreds of units in the region as the overall market has weakened, and more are in the pipeline.

And nationwide investors, intent on cashing in on rising real estate values, had been snatching up units in hot markets, fanning demand and fueling fears of overbuilding.

In the Baltimore area, about 5,000 condos - 1,300 of them in the city - were for sale at the end of June, nearly double the 2,800 that were for sale six months earlier, according to Delta Associates, an Alexandria, Va.-based real estate information firm. Developers plan to market 5,024 new condos in the area over the next three years, 2,053 of them in the city, Delta reports.

Nationally the market for condos has slowed significantly over the past six months, with more for sale now than at any time since the early 1990s, said Celia Chen, director of housing economics for Moody's Economy.com. Overall sales were down 10 percent as of June 30 from June 2005, while prices have remained flat.

Because prices had risen so fast, and mortgage rates have climbed, "the affordability of housing is eroding in many areas," Chen said. "It's becoming more difficult for people to buy houses."

With so many new condos coming on line in a slowing market, conversions of older buildings face stiff competition, experts said.

"If it's in an area with a lot of competition, where there are new condo projects as well as conversions, a plain vanilla building ... would be a project that wouldn't work," said William Rich, a vice president of Delta Associates.

The 3900 N. Charles building was one of 28 condo conversions registered with the state this year, according to the office of the Maryland Secretary of State. Staff members said DSF's about-face was the first in at least three years.

Though the Halstead is the first Maryland conversion to be called off, there have been several in Northern Virginia, where there has been a condo building boom.

The 574-unit Park Center in Alexandria began a conversion in October but pulled back during the second quarter of this year. The developer, Monument Realty of Washington, also halted a conversion this month at the 256-unit The Prime in Arlington County after receiving 52 contracts.

At the end of June, about 13,300 condos - 3,800 of them conversions - were for sale in Northern Virginia, up from 9,600 a year earlier, Delta Associates said.

"The supply is exceeding demand," said Robert Stein, president of RMS & Associates, a condo converter and developer based in McLean, Va. "If the supply exceeds the demand and the price points are too high, people are going to be resistant to buying a condo right now because they're worried about the economy and international events and interest rates and gas prices."

Real estate agents, too, say they are seeing the impact of more condos in a softer market.

"There's so many more condos because so many of these apartments are converting to condo, and these are places we didn't have two years ago," said Amy Ruth, a real estate agent with ReMax American Dream in Lutherville who has been selling homes in the area for 26 years.

"Add that to the market slowing, and of course it's going to slow the sales. It's not horrible, and condo sales haven't stopped, but it's slowing."

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