I agree that downtown is a work in progress. However, it becomes a more attractive place to work and live each year. And I would argue that SD, in general (not just downtown, but including downtown), has become a much more desirable place for people to want to live over the last 15 years. Longtime residents may disagree (and perhaps with good reason), but the population growth and image of the city as a “glamour city” (to use Robert Shiller’s words) speak for themselves. SD is not the sleepy beach town with no downtown that it was in the early-90s. For this reason, I think there’s a floor underneath prices (which is well below current prices but above where the uber-bears think it is) that didn’t exist in the last down cycle. I hope I’m wrong – I want values to plummet. But I just don’t see a peak-to-trough decline of 50%+ in absolute terms.
A few anecdotes. There are twelve units on my floor of the building where I live. It’s the top floor and the units are a bit nicer (with 18-ft. ceilings, etc.) so perhaps these aren’t entirely representative of the rest of the building. Nevertheless, of the 12 units, four are owned by absentee owners who don’t even bother to rent them out. One couple lives in Phoenix, one in SF, one in El Paso and the other in Rancho Santa Fe (they wanted a place to go before and after ball games). These are not flippers – they use the units one or two weekends a month and have no intention of selling. The three out-of-towners just wanted to have places in downtown SD. Fifteen years ago these buyers didn’t exist for SD. I know several other people who live in north SD County (and in other parts of the country) who want to buy downtown just to have a place here, but they’re waiting for prices to come down a bit. Now these are not average people from an income standpoint. They have the dough to blow and these buyers can’t support the kind of inventory that’s building up right now. But my point is that there are lots of buyers for downtown (and other parts of SD – La Jolla, RSF, etc.) that weren’t around 15 years ago.
The four most expensive words in investing are “This time it’s different.” But sometimes you do have to re-evaluate and say “This time it’s a little bit different.”
Lots of people sold stocks back in the late-50s when for the first time the dividend yield on the DOW went below the yield on 10-year treasuries. Those that didn’t change their thinking never bought back in…
Again, I think there’s still a long downward spiral for downtown ahead of us. At least I hope so. But SD and downtown have changed since the last downtown – we pull from a much larger group of buyers these days. I think these buyers will emerge before prices get so attractive that even boneheads can make the math work from an investment standpoint. But I hope to be proven wrong.
