Signs Of Impending Free Fall In North Virginia Real Estate Market

At first glance, this 14-story office building doesn't look like a harbinger of doom. But posted on the building's wall is a sign that reads "Retail Space for Lease."

A few years ago, this would have been unthinkable for a building that literally overlooks the Clarendon Metro station. "We don't see a lot of that around Arlington," says Tom Rice, the county's land assessor.

From his perspective, Arlington's real estate market is still strong. But Rice has anecdotal evidence about tough times ahead for commercial real estate: things like stores, hotels, apartments and, yes, office buildings.

"The developers of those properties anticipated that they were going to be nearly 100 percent leased within a short time after being complete," Rice says, "and they're not." County officials predict the value of commercial real estate, nearly half of Arlington's tax base, could decline by 17 percent next year.

Rice says the reason for this decline will sound familiar to anyone who's followed the sub prime mortgage meltdown: banks financed developments with little to no equity, and now that office vacancy rates are on the rise, those developments are in default.

David Schultz reports...