Developments that are just breaking ground

[anxvariety]

Do you all see these developments that are just breaking ground and wonder what’s going to happen?

There’s a development just breaking ground over by where I live called ‘Pizza Del Oro’ or something like that.. 233 units and it’s right next to Pacific Breeze and some other apartment -> condo conversions.. Another off of 76 and Melrose in Jeffries Ranch that is in framing right now..

Once a project has broken ground, is it too late to shut it down?

As a kid I used to ride bikes over in Jeffries Ranch off 76 and Melrose.. there were tons of realy cool hills to ride up and down.. they certainly weren’t natural land formations! Well a little later in life I found out what it was! There was probably 200+ acres of home flats graded out that sat for about 10 years between 87 and 97.. I guess it was the last phase of Jeffries Ranch that they put off…

I wonder if kids these days will end up with lots of cool places to ride bikes! 😉

[PerryChase]

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.

[lindismith]

There is a condo development near me in the heart of Hillcrest, “Atlas”. Their website says it is supposed to be ready this summer. They are still digging out the foundation, and it’s August, so they are running late, but like the other developments on 5th Ave, I’m sure once that’s in, the rest will go pretty quickly.

What’s interesting to me is how late all these developments are, in terms of the market. It seems like the builders would be gauging the markets very closely, and pulling projects that are deemed too close to sell through profitably.

I agree with you PerryChase that it must be hard to stop, and from what I read yesterday in the thread about building permit approvals, it must be so frustrating to start a project at the beginning of a hot market, and wind up releasing the product/building as the market is winding down, simply due to the red tape process. (Obviously I don’t know if that’s the case with this particular project.)

What is really nice however, is how much more inventory all of these projects bring to a zip code that last year literally had one page of inventory on Zip. Now there are probably 10 pages! And, when these complete, there’ll be more.

[PerryChase]

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.

[anxvariety]

More bike hills and jumps! Yay!

[SD Realtor]

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.

[novice1027]

What are the chances of these builders seeing the writing on the wall, and they start to cut corners on their procudt? Is that something that has, or could happen?
Any input?

[PerryChase]

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]

[mycroft]

As I drive to work down Friars Road every morning, I’ve been watching the progress on a new complex called Fashion Walk. It’s located just across from Fashion Valley Mall. I just did a quick Google, and found out it’s supposed to be 161 units.

As far as I’m concerned, this would be high on the list of complexes I would hate to live in. Way too much traffic noise up and down Friars Road, cars idling pretty much all day long spewing toxic emissions while waiting to turn left into the mall, no view to the east or west, a view straight into the hillside to the north, and the mall to the south.

It’ll be interesting to see how quick they do sell. I hear tell there’s a sucker born every minute, and there’s been a bunch of minutes go by since they started building the place.

[LookoutBelow]

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 !!!

[PerryChase]

In defense of Fashion Walk, if it’s well done, it can be a good place to live if you’re not married and like city life. Commuting from North County is a drag for some.

At the right price, I think it’s OK. $150k for a 1-bedroom would be about right.

[salo_t]

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.

[Bugs]

I was approached a few years ago to appraise that site for a lender that was contemplating financing the project. It took me all of about 2 hours to figure out that at the then prevailing retail prices of the resulting units the project was a long shot. Once I passed that information along to this bank they withdrew.

The combination of site engineering necessary to max out the density, the shape of the lot, vehicular ingress/egress, the prevailaing price structure (at the time) and the number of hurdles the developers faced at the time were going to cost big bucks in pre-development and holding costs. It takes a long time to resolve these problems, and time is money in the development game.

Obviously this developer has stuck with it and they did find a lender (and an appraiser) who came to a more optimistic conclusion. The prices have come up enough to economically justify the development at some point, so to that extent I was wrong about the feasibility. But as for the holding costs and engineering and risks they were taking it looks like I was right. Had it taken them 2 years less to do this they would have made out okay. But the tale of the red tape has turned out to be a killer. I wouldn’t want to be in their shoes now.

[docteur]

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.

[PD]

They are marketing the Fashion Walk condos pretty heavily at the Westfield mall. There a number of posters up as well as standing advertisments on the tables at the food court. The photos are all of attractive women in their mid-twenties with a couple of lucky looking men sprinkled in among the women.
The Subliminal Message:
“Girls, you can live by the mall and shop, shop, shop, becoming more beautiful and thin the by day! Guys, there are tons of stupid, beautiful women here who spend so much time shopping that they don’t have a boyfriend… And better yet, they shop so much they’ll never know that you are dating twenty of their neighbors too! Hurry! Be hip, be hot! You can shop, or not!”

[Author]

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