I've been writing for years about the low market demand for "luxury apartments" at the outrageous rents being asked for in downtown Bethesda. While thousands of new units have been delivered in Bethesda since the "Great Recession" ended, rents have only skyrocketed, recently surpassing $3000 for 1-bedrooms for the first time at one of the newest buildings. Under the laws of supply-and-demand, and the free enterprise system, landlords should be cutting prices to meet the actual market rate, and undercutting each other to compete with the many options renters theoretically have. Instead, they have maintained the high rents publicly, while quietly filling their many vacant units with illegal Airbnb guests, college students, and corporate contract housing tenants. But the weak demand for the current product at the current price is now spilling into more obvious view, with the proposed replacement of a failed condominium project with a retail building.
Washington, D.C.-based Dochter & Alexander Retail Advisors is pitching a new retail development for 8011 Norfolk Avenue, the former site of Steamers behind the Gallery Bethesda apartment tower. This site, and adjacent property, had been assembled for The Claiborne, a boutique condominium project. Groundbreaking for that building stalled repeatedly, and it is apparently now dead after 10 years of talk and development approvals. The property was sold to Rock Creek Property Group last year.
While the renderings of the proposed retail development look great, the bigger story here is what this is telling us about the multifamily real estate market in Bethesda.
The Bethesda condo market has been dead for some time now. Banks who finance condo mortgages are more than slightly averse to approving loans for condo owners whose neighbors will be Airbnb tourists and college students, to say the least. And you have to actually sell the condos, as opposed to filling them with frat brothers for the spring semester, and they won't sell at way-above-market-rate prices. So condos are kaput for now.
But 10 years ago, you might have seen a rental apartment developer swoop in to snap up 8011 Norfolk once The Claiborne flatlined. They haven't. In fact, multifamily housing building permits have dropped 96% over the last year, Montgomery Perspective reported last month. While blogger Adam Pagnucco is blaming that on the County Council's passage of a rent control law, the fact is that rent control doesn't apply to new construction for 23 years - by which time, reading the Montgomery County cartel tea leaves, the rent control law will have long since been repealed. Most developers sell their buildings shortly after they are delivered, anyway, so they couldn't care less about what happens in 2049.
No, the problem is that there is simply no demand for the apartment product being offered at the price it's being offered at. And now we are seeing the first crack in the dam that developers have constructed to hold off the forces of the free market.
Beyond the lack of multifamily development suitors for 8011 Norfolk, there is a second factor that supports this. That end of the Woodmont Triangle has historically been a terrible location for retail. It's a very quiet, low-traffic area more conducive to a good night's rest than high-octane shopping. If retail is now seen as more viable there than sleepy apartments...well, the multifamily market in Bethesda is in real trouble, folks.
We've already seen the impact of this low demand in the Westbard sector. The number of residential units sought by Regency Centers at Westbard Square was significantly below what was approved in the 2016 Westbard sector plan. Two apartment buildings were entirely deleted, and a third was changed to a nursing home use. A separate developer of two additional projects on the "Park Bethesda" site backed out altogether. When there's red hot market demand for apartments, a collapse like that - or at 8011 Norfolk - simply doesn't happen.
The chickens are slowly coming home to roost for our incompetent and corrupt elected officials who have created this moribund economy. They want to be reelected - and, in some cases, promoted - in November's election. And this is the record they're running on? Heckuva job, Brownie!
44 comments:
The slowing of new residential multifamily construction is not a local phenomenon. Condos across the country now take years to sell out, making them a very limited option for developers. As a renter, I feel the pain of high rent in downtown Bethesda, but that is true for the entire region, not just MoCo and certainly not just Bethesda. I believe most experts still believe that it’s still more economical to rent than the buy in nearly all neighborhoods in the DMV. At least if you want to live close to a walkable transit oriented urban village like Bethesda.
And yet every corner is being knocked down to make way for a 10-story or higher building with million dollar units and street-level retail. A question, which has been asked multiple times over but never answered is, where are all the people? No restaurant, with few exceptions, has a wait for a table or requires a reservation and there's no nightlight really at all. The streets and the sidewalks are empty after 9pm. Moribund is accurate.
Rent control alone killed the apartment market in Bethesda not lack of demand or pricing. The new office to residential tax abatement has restarted several projects which will deliver in the the next 5 years.
Any signs 'big investment' in the county or even the state is drying up? My gut feeling us that principally bigger retailers want a 'Bethesda footprint' for their websites but real investment is lacking.. on the flipside, small scale businesses such as smoke shops and maybe some pizzerias are more about money laundering.
6:40: Rent control doesn't apply to new construction for 23 years. The office conversions were already happening without the incentives (Guardian Building and Elan in Silver Spring, for example). The "tax abatement" is nothing more than profiteering by developers who sought this 20 year(!!) tax exemption from Andrew Friedson, who delivered it obediently for his sugar daddies. The exemption is so broad that it applies to projects that tear down offices, rather than converting them. The revenue impact is going to blow another massive hole in County budgets for the next two decades at least.
I don't think I've read so many factual inaccuracies in one article before. The apartment market everywhere is in a similar state. From DC to Arlington to College Park to Tysons neighborhoods that just a few years ago had cranes crowding the sky have very little activity today.
Your argument that rent control doesn't impact the economics of new development couldn't be more wrong. As you correctly stated (many but not all) developers sell after stabilization, but that sale price is 100% negatively impacted by rent control.
Like any other business investment, commercial real estate investors look at the discounted cash flow over the useful life of the asset to calculate their ROI, and if they can't achieve market-rate rents because of some artificial restrictions even way down the road the property value is adversely impacted. It's simple math.
Also, the rents you see are completely market driven, now more then ever, with all of the new supply.
Anyway Montgomery County's economy in general is flat lining because of years of incompetence by the current county executive and left-wing radicals on the council. The Trump administration's federal cutbacks and rent control are just the straw breaking the camel's back.
6:55: If the rents are market driven by all of the new supply, wouldn't they be dropping, not rising?
If things "are tough all over," why do most other jurisdictions have many times the building permits of MoCo on Adam Pagnucco's chart?
And if rent control is the dealbreaker for new construction and asset prices, why are the developers at Rio and Lakeforest moving forward like gangbusters on major developments? My guess is it's because rents aren't likely to be $3000 a month there, unless they are delusional.
I doubt the rent control law is going to survive the next Council, but even as is, it applies over two decades later, and can be avoided by the renovation loophole.
Adam Pagnucco is no Steve Kornacki or Steve Rattner, just another factless Dyer.
7:31: He may believe the planet will implode if he names me as a media outlet in his quarterly laments regarding the supposed lack of news sources in MoCo, but are you disputing his statistics regarding permits?
Give him credit for persistence, whoever the anonymous real estate shill is on this comments thread.
Next thing we know is that these Apartments will become illegal aliens flophouses, if they aren't already.
I think you're missing the nuance here. Face rents aren't going to swing wildy to the negative, absent any severe shocks (like COVID). What you'll usually see is a major deceleration in rent growth, say from +3% to +1%, and yes sometimes mildly negative. Also, decreasing rents is typically a last resort for property managers, you'll usually see a bunch of concessions - 1+ months of free rent, gift cards etc - first.
I'm glad you pointed out the building permits, because as I said, even though oversupply is prevalent everywhere, Montgomery County's problems are far worse thanks to rent control and other ham-fisted regulation.
Again that doesn't mean construction is going to halt everywhere entirely. There are also niche product like senior living and affordable housing that you can see is still getting built in many submarkets. And things like OZs, exceptionally high demand growth, tax abatements and so on can offset the anti-business regulatory environment and result in positive financial feasibility for a project
Gaithersburg is the only region of the county with any sort of meaningful private sector growth thanks to life sciences, but even that has been fizzling out and now they might not even get to use their brand new high school as promised by the county exec.
Lakeforest isn't going "gangbusters" haha. The developer has been working with the city for the better part of a decade just to get just put the first shovels in the ground, and I doubt you see much multifamily actually get built there any time soon (regardless of what might be planned on paper to secure approvals). It's essentially a retail+townhome project
Looking at the 2024/2025 Uhaul statistics, MD is #4 for outbound migration. Just one data point but there needs to be a course correction as expensive housing coupled with middle class exodus does not bode well for remaining taxpayers with Moore trying to close a 8.1B deficit by spending more.
The "free market" is NOT working here due to unbridled greed and gouging by developers and corporate landlords, with the help of the planning board and county council. And please, stop blaming rent stabilization for this situation. As Robert pointed out, it only applies to properties that have been rental apartment buildings for more than 20 years. Rent stablization in MoCo has only been in place for 2 years. This trend started long before 2024.
"... Under the laws of supply-and-demand, and the free enterprise system, landlords should be cutting prices to meet the actual market rate, and undercutting each other to compete with the many options renters theoretically have. Instead, they have maintained the high rents publicly, while quietly filling their many vacant units with illegal Airbnb guests, college students, and corporate contract housing tenants. But the weak demand for the current product at the current price is now spilling into more obvious view, with the proposed replacement of a failed condominium project with a retail building...."
These come from bigger level changes.
Loss of positions at NIH.
Loss of government positions overall.
Loss of government adjacent worker.
Loss of international residents.
Loss of wealthy international students paying $$$ for housing.
Without the federal government to provide stable employment opportunities, everything changes.
This is not a micro level problem.
The landlord/owner of our building kept jacking up rents for new tenants until last fall, when occupancy dropped to below 75% after a steady decline in 2024-2025 and after consistently being at or close to 100% for years, even through the pandemic. They've dropped the rent for newbies by $250/month ~ we'll see if that makes a difference.
6:09AM The irony is the hottest restaurant with a long wait was Woodmont Grill :)
Indeed, on the weekends, it doesn't feel like an influx of hundreds of new renters in the downtown on the streets and in the stores and restaurants.
Perhaps these new people don't go out? Presumably if they're paying $3000 a month to live in Bethesda, they like the area?
The MPDU folks probably don't have the resources to dine out regularly or shop at high end boutiques? It's why I think the county needs to promote housing everywhere in the county, not just focusing on every lot "inside the beltway".
4909 Auburn, a new building, is offering 3 months free rent. I've never seen anyone entering or exiting that building.
They are already, the former Aldon buildings in Battery Lane "purchased" by HOC, mis-managed by ResOne have become just that.
Exactly! The figures indicate that while total statewide federal job losses exceed 25,000, the direct impact on Montgomery County includes both federal employees and a, significant reduction in supporting private-sector jobs. But, blind Bobby Dyer doesn't see beyond his CDS, Cartel Derangement Syndrome.
Thousands of permits for Fairfax but almost nothing is getting built so I'm not sure where that number came from
2:44: How many federal employees were ever paying $2700-3000+ rent? Are these the same people who are financially ruined by government shutdowns, and require free meals and food banks to survive? I hardly think government workers are the demographic for these new buildings, unless Uncle Sam is picking up the tab with a subsidized corporate housing contract arrangement.
2:34 - They live in condos that cost upwards of a million dollars. They don't go out? Huh? They don't cook I'll guarantee you that. They eat out like New Yorkers do. So again, where are the people? There are literally hundreds of new residents that have moved in yet it's a ghost town. And dozens of more condo buildings coming.
Dozens of new condos coming to MoCo? All most all of the dozens of multi-family towers in downtown Bethesda are proposed as rental units as stated by the developers. The last condo project was the Cheval, which took several years to sell out.
City of Rockville and City of Gaithersburg do not have rent control. They are separate from Montgomery County in that respect. Although the political climate throughout the county has a negative impact even if they don't have rent control...yet.
I've only seen them on exercise machines up on the 3rd floor while walking past Jack The Clipper.
The other night I paid $100 for two non-meat/non-fish regular entrees, two appetizers, and two desserts at a long-standing Italian restaurant that relocated into the Triangle a few years ago. Do that a few times and it starts to add up.
@2:34, if you're paying $3,000/month for a one-bedroom, your paycheck may not stretch sufficiently to dine in the area frequently. With decent credit, you can buy a condo for not much more a month in payments. A quick peek at units in the area shows several *two*bedroom, 1,000+ square-footers available in downtown Bethesda, all for under $400k --some under $300k. With decent credit and 20% down, you can cough up the mortgage *and* $800 monthly HOA fees and still come out at under $3,100/month nut.
415 sq ft studios start at $2,357 ~ 684 sq ft 1 BR/1BA on a lower floor starts at $2,672 ~ 2 BRs start at $3,449... those rents don't include utilities, pet fee ($50/month per pet, up to 2 pets), parking, etc. (Some of these new buildings charge up to $20 a month to process your payment ~ are you kidding me?)
What a rip-off! No wonder they're offering 3 months free rent, but that barely makes a dent especially if you stay after the initial lease ends when the rent no doubt will go up and the specials/offers evaporate.
Do MPDUs play a role in the overall increasing rent prices? Is the lower cost of rent for MPDUs heavily subsidized by the higher cost of rent paid by non-MPDUs?
4:58: Yes, especially for standard minimum projects that aren't getting bonus density - there's no such thing as a free lunch.
@2:36 PM - Let ICE know that: https://www.ice.gov/webform/ice-tip-form
7:40 : To the fullest.
How's that free market working regarding the minimum wage? Progressive policy wrecks everything it touches and no amount of "it will work better this time" has ever changed that.
There's a dirty little secret that MC has been quietly buying individual condo units and turning them into section 8 housing, thus lowering the values of other units because those tenants are responsible for more damage and service calls by police and management thus raising the costs for other owners.
NIH Scientist Positions:
Staff Scientist (Maryland): $116,986 per year.
Research Scientist (US): ~ $158,764 per year.
Senior Scientist (US): ~ $217,947 per year.
IT Specialist: ~ $122,773 average.
So, to answer your question, many more than you think.
Also, when there is no investment in MoCo, you throw a hissy fit...and when there is investment in MoCo, you throw a hissy fit. I can assure you, these developers have much more to lose than you do with your whining. They may know more about their market dynamics than you do.
That same developer which also built Lionsgate and Stonehall as their next project built a rental building, the Sophia. That should tell you that the Condo market is not happening in Bethesda. Rentals generate cash flow more quickly which is what investors in these projects are looking for.
Rent control does have a negative effect on housing. Fewer units are built. Also, if older units need extensive maintenance and the rent does not cover it owners will stop renting and take the unit off the market. Check what is happening in NYC. Also, rents are market driven. Some Bethesda apartments have lowered their rents.
11:55PM yeah, when you're at $3,000+ a month, that's a lot of cash to burn in rent vs. getting a mortgage.
Solid market assessment.
Before all the political firings, there was a 25% vacancy in apartments and condos in the Bethesda area, and it’s probably more but that statistic is buried. Now with thousands of people laid off/fired, and a weak job market,it’s impossible that there’s growing demand. Nonetheless,MOCO gives these fat cat developers taxpayer money to build build, build, and they are rewarded with bags of money towards their political campaigns. So the building isn’t going to stop even if there’s no demand.
The cartel price fixes rents and condo prices.
Atlantic City without the casinos, but no doubt that will come next to fill the empty buildings.
8:56, no surprise, of course. Isn't that a basic tenet of 'the Left?' We all get to share in the suffering of the underperforming and get to enhance the opportunists.
A room mate's dad was a contractor. She said that developers survive by leveraging debt. They always need to have projects to feed the pump.
Not surprised, but shocked that can be done. How can that not be in violation of most HOA's? This is truly, "there goes the neighborhood."
8:56: If you have a loud neighbor not following the rules in an apartment building in is the landlord's problem. In a condo it's your problem.
the group buying the apartment building cares about the rent control and it impacts values dumbass
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