Pressure is building for those in rental business

May 16, 2009|By ARNOLD PLATOU

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WASHINGTON COUNTY -- This spring, Allan Johnson put a two-bedroom North Hagerstown apartment with off-street parking, basement laundry and furnished heat up for rent for $650 per month.


It was the same price previous tenants had paid for at least four years, but Johnson received hardly any calls and no contract until he dropped the rent to $595.

For the first time in Johnson's 30 years in the business, rents all over the area are falling -- creating fresh trouble for landlords and already struggling homeowners alike.

"There are a lot of people trying to rent out apartments right now and it's very difficult," said Johnson, who is president of the 300-plus-member Landlords and Property Owners Association of Washington County.

"Other thing, I've had tenants lose their jobs and move back with parents, or adults are doubling up. Might be a husband and a wife and an uncle. It's the way things are going right now," Johnson said. "Things are tough. Unemployment isn't enough to pay their rent."

But as demand for rentals slips, the supply still is rising.

You've probably seen the double-message "For Sale" and "For Rent" real estate signs. Unable to sell their houses as they struggle to pay mortgages, many homeowners also are putting their places up for rent.

"The market is flooded with not only houses to sell, but houses to rent," Realtor Cynthia Moler said.

Then, there are the 10 or 11 large apartment buildings under construction in a field near the Hagerstown YMCA, next to more than 20 other apartment buildings that aren't yet fully rented.

"Those new apartments that are coming on line up there are coming on at precisely the wrong time," said Hyatt Wight, a Virginia-based consultant whose clients include another large apartment complex in Hagerstown. "... He's picking a lot of customers from the rest of us."

'A not-so-easy time'

David Shaool knows this isn't the best time for his father's company to be building more units at Cortland Apartments, the large rental complex between the YMCA, Eastern Boulevard and the Stone House Square shopping center.

Shaool, regional property manager for Ben Shaool Management Inc., said in such a competitive rental market, the expansion is painful for the Hagerstown-based company.

"The main point is, we're struggling like everybody else. Losing money? Yes. Definitely, costly to not be able to get tenants in there fast and to get through this 'carry' period. Yeah, absolutely, it puts a strain," he said.

"I'd like to say to all those (other) property owners, we are having a not-so-easy time just like everybody else," he said. "Hopefully, everybody will buckle down and hang in there. The U.S. economy is going to get through this."

The company, which has owned the large tract for at least five years, has Hagerstown's approval to build 36 apartment buildings. Each is to contain 12 apartments, giving the entire complex 432 units.

Shaool, while willing to discuss the issues at length, was reluctant to disclose specifics about the buildings.

He only would say "more than half" of them are completed and they're "hoping by mid-fall" to finish the rest. He declined to say how many of the apartments in the current buildings haven't been rented yet, though he acknowledged some problems.

At a reporter's request, Mike Heyser, the city's chief code official, looked at building permits issued for Cortland Apartments.

"As best as I can determine, there's 11 buildings still under construction," Heyser said. "So I think that 25 are approved for use."

According to the building permits, Heyser said, each of the apartment buildings is valued at $660,000. He said he doesn't know how many of the apartments are rented.

Shaool said his company has no choice but to finish building the rest of the apartments.

With the financing it has, "we're stuck. We have to finish this," he said.

"... You have the terms of the loan, and you have the permits and you have a lot of other factors. It doesn't make sense to stop the project, especially since" the local rental market is strong in healthier economic times.

Trying to fill the glass

Shaool said the problems in Hagerstown's rental market include the high number of homes being lost to foreclosure.

He said it was startling, for instance, to see townhomes in one of his developments being sold after foreclosure for less than he paid to build them.

"I never would have thought it would go this low," he said.

Such low prices are costing him tenants at projects such as Cortland, Shaool said.

"It hurts us because I've got tenants every month that have been waiting for that opportune time to buy. They're grabbing that new home," he said.

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