City apartments boom in a volatile market

January 24, 2007|By Joe Palazzolo | Joe Palazzolo,Special to The Sun

Ryan Conlon had a condo picked out. Nothing showy, but nice. Two bedrooms and a porch. No roommates, no landlords.

The 29-year-old supervisor at Geico in Bowie was almost locked into the deal when he suddenly backed out.

"The condo market is no good right now," he decided.

Instead, he and a friend took sanctuary at 1901 West, Annapolis' newest luxury apartment complex, signing a one-year lease in December for a two-bedroom, two-bathroom unit with granite countertops, maple cabinets and stainless-steel appliances - for $1,900 a month.

"For someone like me who makes decent money, I could afford a condo right now, but then I'd be house-poor," he said. "I plan on buying as soon as prices go down."

People like Conlon are why the apartment market in the city is tight, despite a crush of new buildings and condos for lease by investors: Well-off Annapolitans are gobbling up high-end rental units, waiting for prices of single-family homes and condos to stabilize.

The city is a victim of its own success: Annapolis' waterfront real estate, Colonial charm and proximity to Baltimore and Washington have driven up housing costs.

The average price per square foot jumped $10 to $380 last year, even as four new condo conversions - the Landing at Spa Creek, Lake Heron, Regatta Bay and North Green - entered the market, according to Delta Associates, a Virginia-based real-estate information company.

The pace of condo sales in Annapolis slackened from nine units a month in 2005 to four in 2006.

"I wouldn't say that Annapolis is in dire straits, but the market would be doing better if there were fewer new projects," said William Rich, a vice president at Delta.

About 66 percent of Annapolis' condos stood empty at the year's end, according to Delta.

Condos are more vulnerable than single-family homes to price fluctuations because they attract investors who either flip them or rent them out, said Bill Hyland, an associate broker at Keller Williams Realty. He runs a Web site, www.myannapoliscondo.com, that tracks condo sales in Annapolis and supplies buyer information, and said the fluctuations in the Annapolis condo market have never been this pronounced.

"For some people, it's a good idea to buy right now. For others, it's not," Hyland said. "Many of the listing prices were overextended to begin with, and most have dropped 20 percent in the past year. There are some pretty good opportunities out there."

He and his wife are renting an Eastport condo that "we could nowhere near afford to buy." They intend to buy again once the market settles.

Single-family home sales in Annapolis fell off by almost half in 2006, down to 173 from 305, according to Joseph Cater, chief economist and president of Market-Economics Inc. in Eastport. The average sale price rose about 1 percent last year, to $549,219.

"We've come from a very long way in housing," Cater said. "Prices tend to ramp up very quickly and become sticky on the way down. The market is going to take time to readjust."

A wave of conversions has added more than 700 apartments to the city's inventory in less than two years, and the number of apartments has grown by about 20 percent - to almost 6,000 - in the past six years, Cater said. Investors who couldn't unload their condos because of market conditions have resorted to renting them.

While the added inventory was expected to drive rents down, it has only slowed their ascent. The average rent in the county was $1,349 in the fourth quarter of 2006, a 2.7 percent increase from the previous quarter, according to Delta. The county's apartment vacancy rate increased marginally from 2.1 percent to 2.9 percent, still tight by market standards. City statistics were not available.

"Overall, what's going on is that the slowing housing market is affecting the apartment market," said Grant Montgomery, a vice president at Delta. "The cumulative effect of the increased inventory of apartments could drive down rents, but we're still not seeing a decrease in this market."

The slowdown might be more seasonal than evidence of saturation in the apartment market, Montgomery said.

"We'll have to wait and see," he said. "Right now, it's still a landlord's market."

Even so, new apartments in the area are trying to lure tenants with move-in specials and incentives.

At West and Chinquapin Round roads, 1901 West is offering new tenants 1 1/2 months' free rent. Down the road, Stone Point Apartments is handing out one month's free rent. Both properties are handled by Greenbelt-based Bozzuto Management Co.

Kevin Sheehan, senior vice president at Bozzuto, said that his company is confident that the market will continue to shove along, particularly as more jobs are created. But the inducements give Bozzuto an edge.

"We're having great success with these two communities," Sheehan said. "Unlike some of the other areas, we continue to see some momentum in the Annapolis market."

A month after construction wrapped up, nearly 100 of 1901 West's 300 apartments are leased. Jeramy Utara, a leasing consultant at Stone Point, which opened in the fall of 2005, said the building is 80 percent leased. Rents at both range from about $1,100 to $2,000.

"Compared with numbers from last year, it's been four or five times as busy," Utara said. "It's harder to buy a home and harder to buy a condo, so the rental market is going through the roof, which is great for us."

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