[quote=CA renter]
What about all the units that were converted to rentals when the developers were unable to sell them? I’d guess that as soon as the prices rise to a certain point, these will come back on the market as “for sale” inventory. I’m guessing the developers/builders are in the red every month on a lot of these units, and they’d be happy to off-load them ASAP.
You know the downtown market far better than I; what are your observations regarding these units and the possibility that the developers are losing money every month if they are being rented out?[/quote]
The only downtown developments I’m aware of that were originally intended to be condos, but subsequently turned into rentals, are Vantage Point, Smart Corner and Broadway Lofts. Vantage Point was sold to Zell’s Equity Residential Properties and are now operated as apartments. As ERP is a wholesaler and not a retailer, these won’t come onto the market for decades, if ever. ERP rarely sells and has never retailed. So, they would have to sell the building to some other operator who would then retail the units out. Given ERP’s m.o. I just don’t see that happening. Broadway Lofts (~80 units if memory serves) could come on the market eventually as I think that group would like to sell one day. Smart Corner is selling all of the non-studio units, and renting out the studio units. So, one would think that those studio units will one day also be for sale. Other than that, however, there aren’t a lot of these units out there as a percentage of the total, so I don’t see much of an impact there.
There were a lot of busted condo deals getting sold and re-financed in ’08 and ’09 in other parts of SD. My bank financed one in ’09 in which the new owners bought the units for $110K/door (in RB). We recently asked them if their long-term plan was to sell the units as condos if the market ever came back and their response was, “No, because then we’d have to replace the cash flow economics of the deal we have, which would be very difficult.” So, they’re planning on holding the units as apartments indefinitely. I think there’s a lot of that going on, particularly with the extremely favorable rates that many folks were able to get from Fannie/Freddie on apartment loans. If you bought well and locked in low-rate, long-term financing… you’ll be hard-pressed to replace that combination again, so why sell?
