Comstock Homebuilding Cos. is finding out how cold Wall Street can be to the little guy. Once considered a poster child for the “fast” company, the 600-unit-a-year builder is feeling little of the warmth it enjoyed when it rode both the condo boom and the frothy Washington, D.C., market into an initial public offering just over 18 months ago. The deteriorating conditions in the Capital Region, Comstock's bread and butter, have been the proverbial brick tied to its stock price, pulling it steadily south. The stock hit its 52-week low at $3.65 per share in the second quarter and, at press time, was hovering around the $5 mark.

Despite management's belief that the Capital Region provides the company with good long-term growth potential, Comstock's story looks rather grim in the meantime. Not only have new-home orders fallen 29 percent and pricing slipped 24 percent in the first two quarters of the year, but the company also reported $12.9 million in impairment charges and land option write-offs during the same period.

Bank of America home building analyst Daniel Oppenheim says, “We are concerned about the company's focus on the Washington market, its limited track record relative to other home builders, and its focus on condos and condo conversions, which we believe can be more volatile than traditional home building.”

Management blames the falloff in orders on an overall decrease in housing demand, competitive pricing incentives, and a consumer preference shift toward lower priced condominiums and townhomes, as well as a diminished for-sale inventory at its $110 million, 469-unit high rise known as the Eclipse at Center Park in Potomac Yards.

Just about the only piece of good news is that Comstock's recent diversification strategy is working to some extent. The company's acquisitions of North Carolina-based Capitol Homes and Georgia-based Parker Chandler Homes have buoyed orders for the first half of the year, accounting for nearly 64 percent of all new orders. However, the two operations have ballooned Comstock's SG&A expenses by $1.2 million.

“We are very aware that the future growth and success of Comstock lies in part in our ability to streamline operations and maximize the efficiencies of the scale we have created,” CEO, Chris Clemente told analysts during the company's second quarter earnings call.

To stave off declining orders, the company is back-pedaling from some of its condo conversion projects, leaving them as rentals. The company also launched a rent-to-own program in some condos that allow tenants to benefit from a portion of the rent they have paid if they commit to purchasing a unit.

“I think Washington continues to go through an adjustment. The reality is that it has gotten to the point where it's a great opportunity to buy. [But] people are choosing to sit on the sidelines and opting to rent,” Clemente says.

And management appears to be operating on the assumption that buyer sentiment is wont to change anytime soon. The company's most recent 8-K, filed on August 9, forewarned investors of further impairments on condo conversions. It stated that an additional drop of 5 percent to 10 percent in average selling prices could result in future impairment charges of approximately $10 million to $20 million.

Learn more about markets featured in this article: Washington, DC.