Housing Complex

Yes, the Builders Are Getting Nervous

How much is too much? (Lydia DePillis)

Developers are like racehorses: They all respond to the starting bell at the same time. With so many apartments and condos underway and in the pipeline—really, it's starting to feel almost 2007-ish around here—it's fair to ask: What happens when they're all done and on the market? There's a lot of pent-up demand in D.C., but some amount has got to be too much.

The specter of oversupply is starting to haunt one of the most prolific local developers, JBG. At a Bisnow event on investment this morning, managing director Matt Kelly was fairly frank about his concern. "If all the projects in the works right now do get going, there will be a glut of apartments, certainly in Washington," he said.

Later, when the panel was asked what keeps them up at night, Kelly eschewed the obvious answer—the federal government sky is falling!—to voice the same fear. "There is just a ton of supply coming," he said. "In certain markets, there will be spot oversupply." Which is developer-speak for holy shit guys slow down so my building will still sell.

Long term, Kelly probably shouldn't worry too much; D.C. is a growth area and people will keep trying to move here. But if all the projects starting now come online at the same time, then yeah, condos and apartments could take longer to sell and rent at lower prices. And then construction falls off a cliff again and we start the whole cycle over.

  • RT

    In good locations, there won't be too much. It may affect the second-rate properties in the region (which are overpriced and underamenitized- but fill due to sheer demand) by poaching tenants, but these properties will rent up if they're located in DC, near Metro, or near major job centers. If they're in Ashburn or Germantown... well... I've got a beach to sell you in Alaska.

  • RT

    PS Even if you hack off current underwritten rents by 10%, the numbers work on these properties. Wouldn't be as attractive from an equity/return perspective, but they could pay debt service and make a little money until the market rebounded and concessions burned off. See: Capitol Riverfront apartments that delivered in 2009. The concessions are burning off and those properties are now making money despite being planned as condos (with higher $ condo finishes).

  • RT

    PPS Matt Kelly is seriously impressive/smart (and no, I don't know the guy personally). He is quite frank and in-depth with his analysis. Those JBG folks are a modern day brain trust. The 800-lb gorilla of DC CRE. They have the capital to get about 10 projects out of the ground simultaneously.

  • Brooklander

    How about finding someone who is paying through the nose for an apartment in DC and asking them how they feel about the prospect of paying a lower rent? Might help balance the article a little bit.

  • Rob

    Which is developer-speak for holy shit guys slow down so my building will still sell.

    You left off the end of your sentence... "at some absurdly high price." Inflation-adjusted rents and home prices in DC are at a near historic high. The developers are worried they'll have to sell for less than they wanted to. For the rest of us, is this really such a problem?

  • Weiwen Ng

    I'm all for density, but I think there is an UNDERsupply of affordable housing, especially in places reasonably close to the Metro stops.

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  • Randall M.

    I can't see how LOWER rents and overall housing costs are bad for District residents. Think of it this way, would developers rather have 40% occupancy at high rates or 90% occupancy at marginally lower rates. My hope is that oversupply draws people in the exurbs closer in, increasing the tax base.

  • er

    theres an assumption that more units equals lower rents. have ya'll seen that play out in dc? or any other underdeveloped city? i haven't. the more they build, the higher the rents.

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