Developers Struggle To Get Apartment Projects Underway In Montgomery County

Multifamily development in Montgomery County has hit a standstill, and with the pipeline nearly dry, developers are sending out an SOS.

The few projects that are getting underway are doing so with help from the county — in the form of affordable housing funds, tax abatements, public-private partnerships and, in one case, the county’s first tax increment financing deal.

But for bread-and-butter, market-rate apartment projects, there are very few paths forward, developers said last week at Bisnow’s Future of Montgomery County event.

“For the private sector, I don’t see a project starting in this county for at least two years,” Duball President Marc Dubick said onstage at the Gaithersburg Marriott Washingtonian Center. “And you figure out what that means in two years, because there's virtually no new deliveries coming, except a couple that are being finished in the next three to six months. So it's a serious problem.”

Over the past three quarters, only 38 multifamily units have been permitted in the county, according to data presented at its Quarterly Economic Indicators briefing at the end of July. 555 units were permitted in the first quarter of 2024 alone.

The slowest quarter was the first three months of this year, during which time there were only 7 units permitted in the county.

“The continuance of this slow pace for another quarter or two could indicate significant challenges in the multifamily market,” the county's first-quarter report said.

At Bisnow’s event, developers pointed to several factors that are handicapping projects, including approval timelines and zoning, but one item rose to the top of their lists: the county’s rent-stabilization law that went into effect last summer.

This year, the county is limiting rent increases by 5.7% for buildings that are at least 23 years old, down from the 6% it allowed last year. 

Dubick likened the regulation to committing an unnecessary penalty in football. 

He said that Montgomery County, instead of trying to score from the 10-yard line, “which is tough enough,” is trying to score from 15, 20 or 25 yards out.

“So when the capital does flow back in and some of these numbers work, Montgomery County has made it worse for themselves,” he said. 

While financing for every project is a challenge these days, “it's a bit difficult when you're in a jurisdiction that's layering in other legislation that's yet another roadblock,” said The Chevy Chase Land Co. CEO John Ziegenhein.

Meanwhile, the projects that are penciling are doing so because of incentives designed by the county to help specific types of projects.

Montgomery County is in the process of approving its first-ever TIF deal for MCB Real Estate’s Viva White Oak development near the Food and Drug Administration headquarters. The Baltimore-based company is approved to build 12M SF of mixed-use development on the 280-acre site. 

“I want to be 100% clear with you, without the TIF financing, this project doesn't happen, and no project of its scale could happen without this sort of partnership with the county,” MCB Real Estate co-founder David Bramble said at the event.

For affordable housing incentives, panelists highlighted Montgomery County’s new Nonprofit Preservation Fund, which provides low-interest interim loans for nonprofit developers to acquire and preserve affordable housing.

“It allows us to move quickly and to purchase a building,” Montgomery Housing Partnership Vice President of Real Estate Stephanie Roodman said, noting that it helped MHP purchase a 215-unit senior apartment complex in Rockville.

Chelsea Andrews, president of the Housing Opportunities Commission of Montgomery County, said her organization also used the fund to preserve 900 units in a Bethesda assemblage.

“So it definitely is a wonderful tool,” she said. 

Affordable developers also have the pandemic-era $100M Housing Production Fund at their disposal, panelists said, which has helped advance projects like the 463-unit Hillendale Gateway currently under development in Silver Spring.

“It's what will keep the trains going when things start slowing,” Andrews said. “And so we've been very fortunate to have that tool available.”

Roodman also pointed to a zoning measure passed last year that allows multifamily development on religious organizations’ land and a pandemic-era by-right payment in lieu of taxes program for nonprofits.

“It just creates a lot more certainty about expenses for affordable housing and makes it a lot more possible,” she said about the PILOT.

“We're lucky here in Montgomery County. We have a very dedicated county executive and county council to affordable housing. So while others may be having lots of problems, we're booming,” Roodman said. 

Montgomery County passed two more pieces of zoning legislation this year in an attempt to bolster housing development: one that accelerates the approval process for office-to-residential conversions and another that upzoned a series of main roads in the county to allow multifamily.

Even with the useful tools the county is providing, the pipeline slowdown is a problem county leaders know they need to contend with. Developers said they have been approached by planning officials asking how they can help push projects along. 

“I had never, ever received a call from an urban planner saying, ‘What can I do to help your project move forward?’ And I did a couple months ago,” Bozzuto Development Co. Vice President Justin Kennell said. “And I'll give the Park and Planning Department some props there, because they reached out knowing that the permit pipeline was really low, and said, ‘I know that you got preliminary plan approval a year ago. What's going on? How can we help?’” 

Roadside Development partner Jeff Edelstein said he also noticed the planning department’s efforts.

“They're trying to encourage developers and seeing how they can help because they're kind of raising the red flag, saying, ‘Listen, there's no permits coming out of our office,’” he said. “So everyone's in the same boat where, you know, they recognize it, and they're trying to figure out what they can do to help everyone, kind of get things off the ground.”