I bought my first multi-unit property in 1998 – in 1999, when I bought my 2nd property, I paid 11.5 GRM and thought I was over-paying – the property was close to the beach and I was excited about having a ‘beach property’ so I went through with the purchase – as I continued buying property in the beach areas and Normal Heights / North Park, I watched GRMs on listings climb into the 14-16 range for average properties with some properties asking for 18-21 GRM
in 1998 and 1999 the numbers made sense for buying the 4plex properties I was looking at – they weren’t cashflow positive but rents were rising at the time so it seemed reasonable to expect at least breakeven cashflow within a few years – by 2002, when I stopped buying property, it was clear to me that San Diego’s market had become a bubble – there was no way (for me anyway) to pretend that buying property at those prices made sense – I started selling at that point
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the downtown condos are a sticky wicket – what do you do with several thousand excess condos?
there are only a few things that can be done with a residential housing unit, whether you are an individual or a corporation: 1) live in it; 2) rent it to someone else who wants to live in it; 3) let it sit vacant; or, 4) tear it down / redevelop it as something else
near the end of one of San Diego’s past real estate up-cycles, the black high-rise condos across from the convention center were built – by the time they were finished, the market for condos in the expected price range was gone – a single tenant ended up renting one of the penthouse suites and the rest of the high rise towers were left vacant for 10 years
we have already seen one of the projected luxury high-rise condo buildings in downtown get converted to a taxpayer-subsidized housing facility – I believe the property is near the police station
we are likely to see a combination of these outcomes but I suspect enough of these condos will become rental units that we will see an affect on San Diego’s rental market
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the cost of operating and maintaining a high-rise building is significant – that is reflected in the high HOA fees – if you read James Kunstler, he projects a very dim future for most high-rise structures – hopefully our future is not as grim as the one he writes about
