Oct 04, 2015

San Diego County condo resales and construction have been limping along during the real estate recovery, as developers and consumers focused on rentals.

But demand may be rising as millennials and empty nesters begin to search for a care-free place to buy, and supply should naturally grow if builders can find sites and financing.

“I think we’re at the first inning of a condo boom,” said Brad Termini, whose Zephyr Partners is building projects in Carlsbad, Escondido and Bankers Hill overlooking Balboa Park.

He’s starting construction soon on The Park-Bankers Hill, a 60-unit, 12-story building on the site of the Sixth Avenue Medical Center between Olive and Palm streets. Prices range from $1.1 million to nearly $5 million floor plans of 1,167 to 5,566 square feet.
“It’s a lot of money but our buyers at The Park want and desire a certain level of service and amenities, and they’re willing to pay for them,” he said.

Chris Larson, 42, and his partner, John Travaglione, are buying a $1.55 million, 1,540-square-foot unit at The Park as a second home before retiring from Brooklyn, N.Y.

“We love the sleek, modern kitchens, the high-end appliances against the tones of the flooring, as well as the chic use of marble in the bathrooms along with the outdoor fireplace,” Larson said. “The units set out to be timeless.”

The numbers don’t yet show a rush to buy and build.

The Greater San Diego Association of Realtors’ latest count shows only 2,014 listings for resale condos, down 15 percent from a year ago and half the size of the market in 2010.

Newly constructed condo sales so far this year point to a total of less than 600 in all of 2015, the lowest on record going back to 1991, according to MarketPointe Realty Advisors.

“A big reason for the relatively low performance is the inability of the market to acquire financing necessary to build product downtown,” said MarketPointe President Russ Valone, citing the region’s previous new-condo leader.

For the last five years or more, young renters have been reluctant to buy, many because mounting student debt left little room to save for a down payment. Homeowners wishing to downsize have been waiting for their houses to recover the devaluations they faced during the recession and then apply that equity to condo purchases. Renters who lost their homes through foreclosure have also been sitting on the sidelines as they rebuild their credit and save up for a downpayment.

If the real estate downturn of the past decade taught local consumers anything, it was that housing prices do not always go up. San Diego housing is only about 10 percent away from its all-time November 2005 peak, according to CoreLogic, but will prices keep rising at the current annualized clip of 5.4 percent identified this past week by the S&P/Case Shiller Home Price Index?

“I think there there’s a lot of skeptical people thinking this is a big bubble again,” said Shelly Wilson, a Re/Max real estate agent in Rancho Bernardo.

Wilson said the downturn in resale condo listings has more to do with a decline investor interest. Some of her clients are worried that interest rates will rise before they buy but she said the small increase, currently anticipated by economists, should not pose a major stumbling block.

Meanwhile, rents are rising at 5 percent or more annually and sometimes exceeding the mortgage payment on a comparable place. And so it may be more economical to buy than rent. Individual circumstances obviously dictate what is best to do at any given time.
Canadian developer Nat Bosa, like Termini, isn’t waiting for an all-clear signal to get moving. He’s begun construction on 41-story Pacific Gate, a 216-unit tower on Pacific Highway at Broadway where prices will start at around $1 million each. A 45-story twin is nearing approval immediately north, next to the Santa Fe Depot, and Bosa has several other condo sites that promise to keep him busy for another decade.

“There’s no question that homeownership is still on the minds of a lot of people,” Bosa said. “As rents go up, many people are going to decide — ‘Hold on, what am I doing, paying the landlord which I’ll be at the mercy of all the time.”

Ask recent condo buyers and they’ll say buying made sense, at least to them.

Newlyweds Kelly Porter, 30, and Rodolofo Arinas, 35, closed escrow earlier this month on a 1,212-square-foot townhouse at Hallmark Communities’ Cleveland Street 8 in downtown Oceanside. Prices start at $472,900 and the monthly homeowners dues are less than $300. It’s costing them $2,600 a month, about double theIR former rent. But they feel nearby access to the beach and Coaster will make this a good investment.

“I’ve never lived in a new home,” said Porter, a nurse at Scripps Green Hospital. “But now that I’m seeing it, I don’t think I could ever not buy a new home.”

Tom Archbold, Hallmark executive vice president, said he’s starting another eight-plex and 15 townhouses elsewhere on Cleveland Street and getting interest from movedowns as well as first-time buyers.

“It’s a real diversified crowd — I’m amazed,” he said.

Cornerstone Communities Chairman Ure Kretowicz said he’s making a big play for the attached-housing market because single-family-home lots are so scarce and expensive. He has 400 units planned in Otay Mesa, 225 in Otay Ranch and 636 in Carlsbad.

“I think in the next years large suburban single-family-home communities are going to be a dinosaur,” Kretowicz said. “I think the future for San Diego is going to be in attached product in one form or another.”

That’s the view of the San Diego Association of Governments, which forecasts that most the half-million homes built over the next 30 years will be in multi-family arrangements — stacked flats and townhouses.

Sergio Florez, 37, was busy last weekend painting the 1,394-square-foot townhome he and his wife Laura bought for $300,000 in Cornerstone’s Maravilla at Visa del Sur off state Route 905 in Otay Mesa.

“It’s great — we feel so excited by it since our first child is coming,” Florez said. “It was perfect timing.”

With newly built single-family homes going for $800,000 or more in distant parts of the county, Tim Sullivan, practice leader at Meyers Research, said condos naturally become a more affordable choice in the new-home market. He looks forward to two or three years of an “economic runway” that will generate more demand and more supply. His company identifies 27 actively selling condo and townhouse projects, expected to generate 2,348 units in the county. Another 24 projects with 2,044 are planned.

But Sullivan offered a voice of caution:

“I’ve seen tons of economic pundits say 2017 is when there’s an inflection point, a natural softening in the economy,” he said. “One thing that concerns me is home prices and affordability, which we’ve talked about for 20 years.”

One way to add many more homes to the for-sale supply is to turn recently built apartments into condos. There’s been a veritable building boom of apartments which has yet to slacken, given San Diego’s relatively low vacancy rate of around 5 percent.

One example is Aloft on Cortez Hill, a 168-unit building on Date Street downtown. Oliver McMillan opened the project in 2006, sold 69 units and then rented out the rest to ride out the real estate downturn. The company is now putting the units back up for sale as leases expire. Prices range from $304,000 to $557,000 on floor plans of 606 to 1,175 square feet, said Tom Holmes, the Berkshire Hathaway California Properties broker on the building.

Nicole Iezzi, 38, a medical sales representative, began renting in November and decided to buy a third-floor unit, priced at $291,500. She cited the pool, hot tub, fire pit, gym and underground parking as key amenities — and the homeowner dues of around $300, a bargain compared what’s charged elsewhere. She sold her home in Temecula to be to Lindbergh Field because of her busy travel schedule.

“I honestly believe real estate is one of the greatest things you can get yourself involved in,” she said.


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