The subprime mortgage crisis and subsequent global credit crunch have claimed another victim: the Atlanta condo.

Local real estate developers say financial backing for condo projects has all but dried up. Those able to get financing are turning to high-end rental apartments instead.

"Building condos right now is next to impossible, it really is," said Stephen Franco, a partner at Franco DeFoor Properties, an Atlanta real estate development company. "It's just financing. You can't get financing for condos."

High-end apartment complexes are in the works across the metro area, from trendy intown Atlanta neighborhoods to more suburban locales. Franco DeFoor is planning to build 250 to 300 upscale apartments on Memorial Drive in southeast Atlanta's Reynoldstown neighborhood, not far from a cluster of condo complexes.

"The new darling child of multifamily residential is rental," Franco said.

Atlanta's once-highflying condo market is reeling from an oversupply of units and a drop in demand as prospective buyers either can't get loans or are choosing to rent until the economy improves, real estate experts say.

It's a dramatic about-face for Atlanta's housing industry, which became infatuated with condos earlier this decade. The building binge changed the city's skyline and introduced a generation of Atlantans to high-rise living.

The condo craze was fueled by the soaring popularity of intown living. Growing numbers of young professionals and empty nesters sought a big-city lifestyle, where they could avoid lengthy commutes and walk to restaurants and shops. Lax lending standards, meanwhile, greatly increased the customer base.

While the Atlanta condo market never became as overheated as areas such as Miami, a glut of units has forced prices down and left some buildings half-empty. And a number of condo projects begun during the boom are under construction and poised to come online, further saturating the market.

Too risky for banks

It all spells too much risk for banks and other lenders that have been badly burned during the real estate crisis. Apartments have historically been less of a gamble than condos, experts say.

Atlanta-based Pollack Partners has completed the first phase of its first project, Two Blocks Apartment Homes, a $59 million, 400-unit luxury apartment complex in Dunwoody. The company also is planning a high-end apartment complex near Atlantic Station with up to 600 units.

The decline in new condo construction is a nationwide phenomenon. According to the National Multi-Housing Council, an industry trade group, condos accounted for 25 percent of new multifamily housing starts during the first quarter of this year, compared with more than 50 percent in 2006 at the height of the condo boom.

Many experts expect the trend to continue.

"Apartments are a fabulous sector to be in right now," said Bill Donges, CEO of Atlanta-based Lane Co. and chairman-elect of the National Association of Home Builders Multifamily Council. "People are coming back to rent because less people are able to qualify" for home mortgages.

In 2006, Lane's portfolio was split evenly between condos and apartments. Now, 95 percent of the company's units are rental apartments and 5 percent are condos. The company, which built apartments and condos at Atlantic Station, is now planning apartment complexes near City Hall East and in Atlanta's Grant Park neighborhood.

The abrupt change of fortune in the condo market has claimed numerous victims in Atlanta. Prices of existing units have been slashed in attempts to drum up business. Several high-profile condo projects have been put on hold, including Cousins Properties' Fox Plaza in Midtown. The owners of Tribute Lofts on Freedom Parkway near downtown Atlanta plan to auction off 40 condo units this month.

Residential development in Atlanta may be slowing, but it's far from ground to a halt. The metro area added more than 150,000 people last year, second in the nation behind Dallas-Fort Worth, according to the U.S. Census Bureau, and those newcomers have to live somewhere.

Many are young professionals, a demographic ideally suited to high-end rental apartments, said Bill Bollwerk, managing director at Alliance Residential, one of the nation's largest apartment builders.

Alliance is making a big bet on metro Atlanta by building four apartment complexes at the same time, with a total of nearly 1,000 units. Two opened last weekend —- one on Piedmont Road at I-85 near Buckhead, another in north DeKalb County near Dunwoody. The other two sites are in southeast Atlanta and in the Howell Mill-Marietta Street corridor near Georgia Tech.

"A lot of good jobs are created in Atlanta, and that's the primary driver for apartments," Bollwerk said.

The new rental complexes are far different from the dowdy garden apartments that sprouted in the 1980s and early 1990s. Today's high-end apartments often have "condolike" touches such as granite counter tops, stainless steel appliances, skyline views and rooftop decks.

Pollack Partners' Two Blocks complex in Dunwoody, for instance, features an Internet coffee bar, a clubroom with wide-screen TVs and an outdoor living room that includes a fireplace and Wi-Fi access.

Some units at Post Alexander, Post Properties' new apartment complex near Phipps Plaza in Buckhead, have soaring 10-foot ceilings, ceramic tile, granite counter tops and hardwood floors.

"Ten years ago in an apartment, you'd typically have pretty basic appliances, you'd have Formica counter tops, pretty plain-vanilla finishes," said Tom Senkbeil, chief investment officer at Post Properties.

All this luxury comes at a cost, with monthly rents in the $1,500 to $2,000 range. Developers say the rents are needed to offset the high cost of land in desirable intown locations.

Atlanta-based Post historically has been strictly an apartment developer, but during the condo boom, the company dipped its toe into the for-sale market. Post, like many companies, has re-evaluated that strategy.

But real estate is a notoriously cyclical business: What's out today is sure to be hot tomorrow. Some observers say the condo market may be near a turning point.

"We are starting to see prices come down where people are starting to buy again," said Richard Martin, an associate professor of real estate at the University of Georgia's Terry College of Business.

NEW LEASE ON LEASING

Troubles in the local condo market are pushing developers to build rental apartments. The number of apartment units has risen in recent years.

Units started

Units completed

2007....2006....2005....2007.....2006.....2005

Inside

Perimeter...4,256...3,617...2,997.....3,010....1,919....1,984

11-county

metro area 10,177...5,637....6,547....6,538....5,123....5,318

Source: Dale Henson Associates