Housing Complex

Low Appraisals: A Big Problem For Anacostia

Cedar Hill: Not yet.

Last week, GGW reported that developer William C. Smith would have to convert a chunk of the market rate units at the new Sheridan Station housing complex near the Anacostia metro into rentals, because the condos were appraised too low for buyers to secure mortgages that would cover the construction cost.

This week, Four Points Development had to get a two-year extension on its zoning application for Cedar Hill, the market-rate townhome project at W Street SE that was supposed to be on its way in late 2010. Developer Stan Voudrie tells me it's now on hold because of the same reason: Appraisals haven't been high enough for him to even get a construction loan, on account of neighborhood comparables being too low. "There’s some projects that are planned, and hopefully some of those will start to happen, but so far there’s not anything that is under construction or sold that is market rate for-sale," Voudrie says.

Despite low inventory across the District, even the stuff that is for sale around there has been moving very, very slowly. Darrin Davis of Anacostia River Realty tells me that he's tried everything to sell units in the brand-new Savoy Court condominiums: Offered a one-year break on condo fees, $5,000 towards a down payment, even a free Smartcar with the purchase of a condo. Even in projects where demand is strong—the Housing Authority says they've had lots of interest in their market-rate units at Sheridan Station—nobody can get loans to buy them for what they're worth if nothing else in the neighborhood costs much, and you can't sell units for less than they cost to build. "Until something happens with foreclosures and short sales bringing the prices down, I see it happening it even more," Davis says.

Of course, the upside is that non-profit housing developers can buy land cheaply to build units that are more affordable than anywhere else in the city. And maybe Four Points can just build the townhomes and rent them out—more people are renting these days anyway. But those choices, in turn, make it more difficult to finance market rate construction. If you care about mixed-income neighborhoods and bringing in people with some cash to spend, it's a vicious cycle.

Maybe this will change with the opening of the U.S. Goast Guard headquarters, as thousands of employees buy up foreclosures and invest in the neighborhood. But those employees will have to be heavily marketed to if they're going to overcome deeply ingrained prejudices to move to the ward to be closer to work.

  • http://ruseriousingme.blogspot.com R.U. Seriousing Me?

    Land + Construction Costs + Soft Costs = Total Cost

    If total cost per unit > sales price, developer won't build

    Assuming construction and soft costs are fixed, then land is the only variable.

    The total cost is too high because land in Anacostia is sold based on its future, speculative value, and not the value that it has today.

  • http://ruseriousingme.blogspot.com R.U. Seriousing Me?

    If developers were penalized for holding land vacant, it would force land prices down to a point at which development would be feasible.

  • Eric

    I believe that a big problem in Anacostia in real estate terms is that the comparables are often sales that occurred between family members, where a property is sold for *well* below market rate as a kind of "gift", but high enough to avoid the inheritance taxes that go along with gifting property. I've seen this occur several times in the $20-50k range for perfectly good properties that would otherwise be selling for 4 to 6 times as much. Banks see these comparables but don't seem to realize that they really aren't comparable at all. And people who "gift" their properties don't realize that instead of doing something great for their relative, they've just obliterated a sizable chunk of the wealth of their neighbors and neighborhood in general.

  • What

    "nobody can get loans to buy them for what they're worth"

    Umm, I hate to break it to you, but it seems pretty clear that they aren't worth that much.

    Second rule of real estate, "the market sets the value". Just because 400K 1 bedroom condos are selling like hotcakes in U Street, doesn't mean you can sell anything in Anacostia.

  • Eric

    @What: Check your real estate listings. Several homes sold in the $300s last year in Anacostia. Several homes sold for 1/6 that or less that would otherwise be comparable. "Comparables" that are duping the market are bringing down the ability of banks to loan for the true value of the properties. This has nothing to do with the "market sets the value". In areas of the city such as this, there are more factors than just the free market to worry about.

  • deedle

    Developers are penalized for holding vacant land, and that risk of tax liens makes it for them to get acquisition and construction loans. That prolongs the dearth of new development in low-demand areas.

  • http://ruseriousingme.blogspot.com R.U. Seriousing Me?

    @Eric: Do appraisers not have a way to distinguish between sales that are/aren't arms-length?

    I agree with "What" that $310k for a 2-over-2 condo at Sheridan Station is well above market value.

    For example, here's a large, newly renovated historic home (one of the biggest selling points about Anacostia)that sold (arms length) for $230k last year.

    http://www.zillow.com/homedetails/1645-U-St-SE-Washington-DC-20020/525158_zpid/

  • http://ruseriousingme.blogspot.com R.U. Seriousing Me?

    @deedle: If a property has a vacant building on it, then the owner is penalized (Tax rate increases to 5%). If the building is deemed "blighted," then the rate goes up even more (10%). Truly vacant property (no building, just land), is taxed as the same rate as any other commercial property: 1.65-1.85%.

    Consider the lot at 2502 MLK: http://g.co/maps/nbypq
    The assessed value is $168k, but the market value is $850k (2010 sales price). The effective tax rate is only 0.32%. That is an incentive (not a penalty) to keep the lot vacant until prices go up in the neighborhood.

  • http://www.AnacostiaRiverRealty.com Darrin Davis

    "...the upside is that non-profit housing developers can buy land cheaply to build units that are more affordable than anywhere else in the city."

    Now is the perfect time to buy in Anacostia neighborhoods. With the Department of Homeland Security, Coast Guard Hdq., General Dynamics, I-295 & I-395 highway completion and commercial/retail development taking place, prices in "Anacostia neighborhoods" will definitely rise. It takes a savvy investor to realize that this place is a goldmine.

    Darrin Davis, Owner
    Anacostia River Realty

  • http://www.congressheightsontherise.com The Advoc8te

    As a resident of Savoy Court I would be remiss not to mention that Savoy Court is in Congress Heights -- not Anacostia.

    We don't have the problem of short-sales and foreclosures at Savoy (which is a great building!) but the epidemic of what is happening at around us is causing big problems. Until the city sees this the critical situation it is in Ward 8 -- where bogus developers and property management companies flourish -- it is only going to get worse and fast.

    I can't sound the alarm loud enough. The City Council and the Mayor need to hold a series of emergency hearings ASAP to address the market rate housing market in Ward 8, especially the condominiums. We are looking at worse to come and I am not sure that is not the plan to make the land so cheap we can all be bought for a song when Department of Homeland Security opens up. :(

  • http://www.congressheightsontherise.com The Advoc8te

    @R U Seriousing me

    For example, here's a large, newly renovated historic home (one of the biggest selling points about Anacostia)that sold (arms length) for $230k last year.

    http://www.zillow.com/homedetails/1645-U-St-SE-Washington-DC-20020/525158_zpid/

    If that is Garber's old house that he renovated and that was featured on "Your first sale" the reality is that house was to be sold for more but the bank would not give the buyer a loan for that amount because it wouldn't appraise that high -- the comps wouldn't justify it but the reality is that house was worth WAY more than what Garber sold it for. Damn shame.

  • Cap City Records Panhandler

    Choppa City, Choppa City

  • Les Johnson

    @ Advoc8te, I believe his featured house was closer to MLK. This house is closer to Fendall - more east. But your point is still valid, these homes are often worth way more than the numbers indicate. Right now, Anacostia IS affordable housing, plain and simple. I tend to believe things will go up. This is inevitable.

  • Les Johnson

    Anacostia is the type of place you have to love and enjoy right now, even with it's imperfections. If you understand the pros of living here, you will be fine. If you get caught up in the future, impatience can set in over the pace of development. Still, based on economic forces it is an affordable neighborhood in a city where prices can be unreasonable. I see schools as a bigger issue. Education is very important to stabilizing FAMILIES. The two go hand in hand, which (poor schools)would make affordable housing a no go for many.....

  • Camy J.

    Why are appraisals so low in Sheridan? How far out (miles) can an appraiser go for comparables? SW/Near SE is teeming with real estate activity and is similiar to the Sheridan area. It couldn't be much further than a mile away.

  • Denise

    News flash! Sheridan Station condos have appraised at market value and the new owners are moving in. They are almost sold out during this phase. All that talk in March and April, all before sales began is now nonsense. Anacostia is on the rise and you will continue to see people buying and moving quickly. Check the facts and see for yourself.

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