Downtown Condo Pricing Direction?

[davelj]

[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?

[sdrealtor]

DLJ
Thanx for the local insight and debunking a myth.

[sdrealtor]

DLJ
Thanx for the local insight and debunking a myth.

[sdrealtor]

DLJ
Thanx for the local insight and debunking a myth.

[sdrealtor]

DLJ
Thanx for the local insight and debunking a myth.

[sdrealtor]

DLJ
Thanx for the local insight and debunking a myth.

[briansd1]

I think that downtown condos are approaching a floor, except for the high-end units that were bought at the peak. The high-end transactions of the peak still not been fully flushed out.

I don’t see the market moving up either. So there will be a period of stagnation. The movement of interest rates will determine the stagnation period.

The question, is: do I really want to buy now and own with the carrying costs involved? Or do I want to continue renting and keep my options open. The answer is different with each potential buyer.

[briansd1]

I think that downtown condos are approaching a floor, except for the high-end units that were bought at the peak. The high-end transactions of the peak still not been fully flushed out.

I don’t see the market moving up either. So there will be a period of stagnation. The movement of interest rates will determine the stagnation period.

The question, is: do I really want to buy now and own with the carrying costs involved? Or do I want to continue renting and keep my options open. The answer is different with each potential buyer.

[briansd1]

I think that downtown condos are approaching a floor, except for the high-end units that were bought at the peak. The high-end transactions of the peak still not been fully flushed out.

I don’t see the market moving up either. So there will be a period of stagnation. The movement of interest rates will determine the stagnation period.

The question, is: do I really want to buy now and own with the carrying costs involved? Or do I want to continue renting and keep my options open. The answer is different with each potential buyer.

[briansd1]

I think that downtown condos are approaching a floor, except for the high-end units that were bought at the peak. The high-end transactions of the peak still not been fully flushed out.

I don’t see the market moving up either. So there will be a period of stagnation. The movement of interest rates will determine the stagnation period.

The question, is: do I really want to buy now and own with the carrying costs involved? Or do I want to continue renting and keep my options open. The answer is different with each potential buyer.

[briansd1]

I think that downtown condos are approaching a floor, except for the high-end units that were bought at the peak. The high-end transactions of the peak still not been fully flushed out.

I don’t see the market moving up either. So there will be a period of stagnation. The movement of interest rates will determine the stagnation period.

The question, is: do I really want to buy now and own with the carrying costs involved? Or do I want to continue renting and keep my options open. The answer is different with each potential buyer.

[davelj]

[quote=davelj][quote=davelj]

[quote=urbanrealtor]

3: The mean rate (taken over the course of the year) for closings in downtown is about 75/month.
The instantaneous rate of change on this is highly correlated to season (about 50 per october to march and about 100 per month april to september) but it works out the same. About 900 per year. Currently, there is about 400 active for sale in 92101 with roughly translates to about 5 months of inventory.
In a distress-heavy area, that is an impressive mean closing speed.
There are currently about 139 pendings listed in 92101. That means there are approximately 3 units for every one buyer as of today.
If you ask Jim Klinge about this, he will probably tell you that this is a healthy ratio with a just a hint of tilting toward a seller’s market.
[/quote]

I just wonder how much inventory is *really* out there. Again, I think most of the specuvestors are gone or will be gone by year’s end (2011). Now we’re seeing some unemployment-related foreclosures and short sales, but those are slowing down. So, my REAL question is how many new, unoccupied, un-owned units are sitting in downtown’s inventory. For example, how many units in Bayside have been purchased (to use just one example)? I wouldn’t be surprised if there are 1,000 new units sitting in inventory downtown. Having said that… I just don’t know. I’m pretty sure that I can get my hands on that data soon, though. But if you know these actual numbers, by all means… inquiring minds and all. I’d love to be wrong about this.[/quote]

urbanrealtor might be right about downtown. Here are the numbers I just got from a research firm (they don’t have an agenda, but it doesn’t mean their numbers are correct).

There are ~10,300 condo units downtown. There are currently ~325 resale units for sale. There are ~245 new developer units for sale (far fewer than I thought). There are ~75 units sold/month, so that’s about 7.5 months of inventory.

On the one hand there have got to be a lot of underwater borrowers in downtown (still), so that’s inventory-in-waiting. On the other hand, there have been a sh*tpile of foreclosures over the last several years so the weakest hands are out of the market. In addition, zero new units have hit the market for almost a year-and-a-half. And we won’t see any new units for at least 2.5 – 3 years (that’s at least a year before anyone breaks ground plus 1.5 – 2 years to completion). So… supply and demand are rapidly coming into equilibrium downtown… which is what happens when building grinds to a complete halt.

Anecdotally, where my building is concerned, we had about 25 units for sale at one time, mostly bank-owned. Now we’re down to six units for sale. Almost 40% of the units have changed hands over the last three years. Anyhow, just a datapoint.

The only current building downtown relates to (1) the new library, (2) expansion of SD City College, and (3) two subsidized apartment buildings. That’s it.

So, I have to agree with urbanrealtor – it doesn’t look too bad downtown from a supply-demand perspective, which surprises me.[/quote]

With almost two years of additional hindsight (since this thread got started) it turns out that urbanrealtor was right. Downtown is back into balance and arguably now favors sellers/landlords. I thought it would take a bit longer, but happy to be wrong.

There’s precious little inventory, and foreclosures are few and far between. Anecdotally, prices and rents in my building are up about 10%-15% from the trough. I believe there are three units for sale – down from 20+ at the trough.

Vantage Point is essentially fully leased up as is a newly-constructed building nearby. So, the rental inventory is tight.

There are now plans for additional condos on the table (at last) but it will likely be 2-3 years before those units are available. There is also a plan for another huge apartment building just east of Symphony Towers – ~800 units. Again, that’s 2-3 years from these units coming online.

So, long story short: it appears the worst is behind for downtown for this particular cycle… although I’m sure we’ll wash and repeat over the next decade; it’s human nature.

[CA renter]

Thanks for the update, davelj.

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