I believe that once a project is launched it’re very hard to stop unless at a big loss.

Now is the time to monitor the new developments coming online. This past week-end I went to San Elijo Hills for the first time just to see. There was one development (i don’t remember name) on phase 1 with only one house sold. I also drove around and saw quite few “for sale” signs in most neighborhoods.

Builders are generally ahead of the market so we’ll see some price reductions in the fall.

On the resale market, I noticed that condos that last year sold for $350,000 are now $299,000.

http://www.atlashillcrest.com

Interesting. I think that this is the first large national builder entering the market in Hillcrest. I wonder what that will to prices. From what I understand they were mostly condo conversion with 1 or 2 brand new developments.

My experience is that Hillcrest RE held up pretty well during the last downturn in 1990s. At that time there were beginning selling Village Hillcrest condos for $250k which was quite high for condos.

The housing stock in Hillcrest is pretty old. I believe this DR Horton project will add a higher quality new product at the same price as old conversions.

Been out for awhile… Good to be back… btw this is SD Realtor, not sdrealtor….

I am not an expert but I believe once ground is broken the developer is well past committing to the project. I would imagine that developers work as follows…. Large tracts of land are identified for possible development. Studies are made, projections, etc and if it can be shown that the developer will receive at least a minimum ROI they will move forward with the plan. It is not like any other business. One of the large engineering firms I work for requires a minimum margin of over 40% on thier products. So let’s say the numbers pan out for the developer. Then they would logically solicit financing for the purchase of the land and other costs. The financing would come from big players, banks, insurance companies, whoever. I do not believe the developers themselves underwrite all of these projects. Once the land is purchased, it would most likely need to be developed in a timely manner. Perhaps not immediately but developers do not just buy land and sit on it. Again, most of the time they are buying it with other peoples money. One of the recent financial reports from one of the big developers was a write off of some large amount of monies due to forfeited deposits. In essence the developer put down deposits on land purchases but the recent swing in the market blow thier ROI projections to a less then tolerable value. So they lose the deposit which is the cost of doing business.

Kind of a long winded answer but I believe once ground breaking is done, they finish out the project regardless of market conditions…. The caviot would be what the legalese with whoever underwrote the project allows.

Here’s an ad from Pulte for a new development in Santee. They are not starting with low prices but have incentives.
2 and 3 bd condos from low $400k.

$15 gas card to visit
Laptop for kids
Plantation shutters for mom
Plasma TV for dad

[img_assist|nid=1074|title=pulte|desc=|link=node|align=left|width=207|height=400]

I saw that dump over by the fashion valley mall and my cousin was with me in the car, he said “Jeez…I guess they’ll build just about anywhere here in SD” !!! I htought it was a sewer program, NOT a condo complex. I was as shocked as he was !

I wonder what the developer had in his crack pipe when he dreamed this one up ? Or better yet, the financial institution that lended on this disaster ! I cant wait to see what the people who buy there look like as I drive by….Are dumb people really that much different looking than you or I ? are they that evident ? (Except for the drooling!)

They carved out a hill side and “Squeezed” in around 150 or so units…. What a great view also, the mall parking lot. BEEEAUTIFUL !!!

I live two blocks from that construction by the fashion valley mall. My first concern was the way they carved into the side of the hill and blocked it up with cement. Mission Valley is technically a flood zone and after seeing hill sides give away in the last big rain I dont think I would want to be anywhere near that place during a heavy rain season or earthquake.

As a land subdivider, I know that a lot of single family home developers use rolling options on subdivisions, so they can develop in phases and treat each phase as if it was a separate build out.

For example, let’s say they want to take down a 150 lot subdivision with the first phase being 25 lots and the remaining phases the same (six phases of 25 lots each).

There are certain costs — fees, mass grading, architecture, engineering, improvement plans, etc. which represent an upfront load that may take two or three phases to recapture but the last three phases could work on a stand alone basis as they move through the buildout.

If the market tanks, the developer walks on the last few phases, the landowner retains the balance of the final map /subdivision with mass graded lots and attempts to resell them again to another developer, holds them until the market recovers or sometimes builds out the project himself (much lower land basis).

I have heard that several large builders (and condo converters) are letting go of their marginal deals that are under option and focusing only on deals that make sense in a softening market (those deals that were purchased a few years ago and still have plenty of upside).

I recently read that one large public builder in particular let go of several optioned projects across the country, at a cost of $ 5 Million in lost option consideration (just a cost of doing business).

By using options, builders minimize their exposure and reduce market risk and, as opposed to buying, also show no debt on their books (a big plus for a public company) while controlling a project as if they owned it. It also improves dramatically their Internal Rate of Return (IRR) because they have much less cash out at any one given time. So a difficult deal under a purchase scenario can pencil quite nicely on a rolling option scenario.

So, builders have other choices than to continue building out a losing project. Believe me, they have learned a lot during the last few housing recessions. These are large, well diversified and extremely successful companies that operate in many markets across the US. Many of them have been in business for several decades and are often passed from father to son. They’ve made it through past recessions and they will make it through this one too.