Wednesday, Jan. 30, 2008

Market turn prompts changes in developers building plans

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Economic conditions appear to be prompting changes in how developers are going about the business of building communities.

In Gaithersburg, two builders have pulled out of a residential project on the Casey West property near the planned Watkins Mill interchange with Interstate 270, losing a $10 million deposit, said Assistant City Manager Fred Felton.

And at Crown Farm’s Aventiene community near the Washingtonian Center, two builders want to forgo their planned spring start with upscale single-family homes. Instead, KB Homes and Centex Homes want to start construction on the 180-acre project with the community’s commercial center, which includes rental units above the retail space, said Greg Ossont, Gaithersburg’s Director of Planning and Code Enforcement.

‘‘There’s a lot of projects that have had to make adjustments, presumably based on market conditions,” Felton said.

The Aventiene builders ‘‘don’t have any immediate plans to develop the residential area,” he said. ‘‘They’ve expressed a desire to move forward with the commercial center, so we’re working with them on the schematic development plan.”

Aventiene was originally planned as a mixed-use development of 2,250 homes and 320,000 square feet of commercial space, according to city records. But proposed changes in the plan would reduce the overall number of homes.

The retail area was originally expected to have up to 867 apartments and multi-family homes. A new proposal submitted to city leaders last week seeks to increase that number to 927 while reducing the number of multi-family homes in another section from a maximum of 1,010 to no more than 820.

Approval would also open the door for developers to seek County Council consent to convert up to 400 multi-family residential units in that section to 400,000 square feet of office space — trading residential units for 1,000 square feet of office space each.

No timetable shows when developers would begin building more than 200 single-family homes and at least 250 townhomes in two other mixed-use sections at Aventiene.

‘‘We’re just building in our flexibility to be able to develop as the situation dictates,” Greg May, a project manager for KB Homes, said Monday.

‘‘Obviously there is a market for retail centers, as well as multi-family rental apartments,” Ossont said. ‘‘Once the town center is up, it also becomes a marketing tool for the rest of the neighborhood.”

At Casey West, the future Watkins Mill Town Center on the west side of I-270 near Metropolitan Grove, developer BP Realty Investments of Potomac will build an ‘‘urban core” with office buildings, condominiums, movie theaters, shops and restaurants, Felton said. As for the residential component, BP Realty sold development rights for nearly 500 single-family homes, townhomes and two-over-two condominiums to Classic Development LLC several years ago.

Felton said Classic, which developed the Lakelands, had contracts to sell all the lots to NV Homes and Ryan Homes, but the builders recently backed out, forfeiting a $10 million-plus deposit.

Classic is now working alone with city planning staff to build 472 homes on the property, already primed with the alleys and utilities required to start construction, Felton said. The residences would include single-family homes, townhomes and two-over-two condominiums.

The project changes come as the area is also experiencing a spike in vacant office space. The Monument Realty building near the Casey East development project, near Route 355 and Watkins Mill Road, has approximately 200,000 square feet of unoccupied office space, Ossont said.

‘‘If you put that in perspective, that’s the size of almost the entire Market Square Shopping Center” in the Kentlands, which measures about 252,000 square feet, he said. The old National Geographic building, located at the GE Tech Park on Darnestown Road also has several hundred thousand square feet of vacant office space, Ossont said.

All of the changes could also be pointing to lost revenue for the city. Assistant City Manager Tony Tomasello last week presented city leaders at a planning session with data that showed substantial growth in property tax revenues in recent years, from about $11.5 million in 2004 to nearly $18 million in 2008. But he warned them about what’s to come.

‘‘It’s going to level off very suddenly,” he said. ‘‘It’s going to grow, grow, grow and then stop. And we need to be ready for when that happens.”