The Station North Townhomes had no shortage of pre-construction buyers, lured by the promise of luxury living near Penn Station in Baltimore's emerging arts district. Prices in 2005 reflected a red-hot market, rising tens of thousands of dollars with each batch of new contracts.
But when construction wrapped up last spring, subprime mortgage woes had begun to surface and the housing market was slumping.
Buyers with contracts no longer qualified for loans, and investors - who made up about a quarter of the buyers - dropped out. The four-story, four-bedroom homes, with granite kitchens, open floor plans, huge windows and garages, sat in stark contrast to nearby blocks of boarded and vacant homes. Just over half had been sold.
Now, amid a housing slump that has builders slashing prices and offering giveaways, Station North's developer is looking for tenants.
"The sales just pretty much stopped," said James D. Campbell, a principal with Somerset Development Co., of Washington.
Somerset hopes to rent the 14 unsold homes in the 32-unit development, offering a lease-to-buy program or straight rentals, with monthly payments ranging from $1,600 to $2,400. Rents are slightly higher for the lease-to-own program
So far, one family has signed on to lease with the option to buy, Campbell said. In that program, tenants sign a sales contract, but typically delay the closing six to 12 months, during which a portion of the rent gets applied to a down payment and tenants get help on improving their credit.
Somerset's sale prices, which started at a range of $280,000 to $300,000 in summer 2005 and climbed in a matter of months to the high $400,000s for the largest corner units, have already been reduced. They now range from $300,000 to $450,000. Campbell said additional price cuts were not an option.
"We didn't want to price them so low that it didn't make any kind of economic sense," Campbell said. "Renting will be a better strategy."
John E. Kortecamp, executive vice president of the Home Builders Association of Maryland, said he was unaware of any other Baltimore-area, for-sale housing projects that had converted to rentals.
Such conversions have become more common in the harder-hit housing market in metropolitan Washington, he said.
But "there is continued talk about more and more condos coming on the market, and if that trend turns out to be true, then we might very well see more of this," he said.
Melissa Wallace-Johnson, 29, an economist at the Bureau of Labor Statistics in Washington, moved in June from Silver Spring, where she and her husband rented, to Station North, where they bought their first home.
The couple got a reduced price of $339,000 with upgrades such as granite counters. And the couple liked the access to Penn Station and nightlife and restaurants in a neighborhood where people were renovating homes and bringing in new businesses.
"If we'd bought in Silver Spring, it would have been double the price," Wallace-Johnson said. "We've fallen in love with the neighborhood. You can tell it's on the verge of something."
The couple does not regret the decision, despite the conversion to rentals, which Wallace-Johnson said is a better route than slashing prices to try to sell.
"We went into this knowing we would not be there forever, but we didn't go into it to make money," she said. "We wanted to buy and own. We're confident we won't lose money."
One neighbor, though, said she is troubled by an increasing number of tenants, including those who are renting from individual property owners as well as those who will rent from the developer.
Homeowner Charmaine Mercer estimated that about 10 or 11 of the homes are now occupied by owners, with the rest either leased or vacant.
"People who rent don't have a vested interest in the properties," said Mercer, who moved with her husband from a suburban area near Catonsville last summer, drawn by the homes' contemporary design, the area's cultural activities and the proximity of the trains she takes to work in Washington.
Mercer said she and other homeowners have started to work together to deal with problems such as trash - and have even purchased trash cans for neighbors to use.
"There's an expectation when you pay a certain amount that there are issues you won't have to encounter, and that hasn't been the case," she said.
Converting for-sale homes to rentals is one strategy for waiting out a slow market, said Bob Aydukovic, vice president of economic development for the Downtown Partnership.
"What developers have realized is that the rental market is still extremely strong downtown," Aydukovic said. "They're going after that rental base and trying to get people in there to cover costs. The whole for-sale market is slow but not crashing."
Other builders have been forced to halt construction, reduce prices or lure buyers with incentives and giveaways. Inventory is still exceeding demand, Kortecamp said.
In November, Lennar Corp., one of the nation's largest homebuilders, sold the bulk of its unsold, 26-unit Federal Place luxury development off Key Highway in Baltimore's Federal Hill to Terra Nova Ventures, a local developer who cut prices by about 20 percent. The new owner has since sold one house.
And last month, because homebuilders were canceling land sales, Columbia's master developer General Growth Properties Inc., said it plans to lower the estimated market value of its remaining unsold residential lots in the Howard County community and take a non-cash charge of $77 million.
The Station North Townhomes may have felt the housing downturn more severely because of its location, Kortecamp said. While Penn Station has been a huge draw and is likely to be a centerpiece in future community revitalization, the new homes are still abutted by blocks of long-vacant properties.
"You get in some instances, a little ahead of the redevelopment curve," Kortecamp said.
Campbell says the goal is to offer homes for rent until the for-sale market rebounds.
"The for-sale market will at some point come back, and our goal is to rent them until that happens and get as many under the lease-to-own," he said. "We're still very optimistic. There's a lot of new families living there who weren't living there eight months ago."