San Diego Business Journal

Condo Developers Bet Cautiously on Downtown

PROPERTY: Inventory Tight, But Financing Favors Apartments By Lou Hirsh Monday, August 19, 2013

As a result, downtown had only seven new condos — spread among three buildings — available for sale as of mid-2013.

“When those units are sold, there will be no more new, for-sale condos downtown,” said Valone, president and CEO of San Diego-based research and consulting firm MarketPointe Realty Advisors. “With what’s in the pipeline, the earliest that any new product would come online is late 2015 or early 2016.”

Valone said the downtown skyline has gone from more than 60 construction cranes working on various condo projects in the 2002-2006 period to a half-dozen cranes now deployed primarily on new apartments. While San Diego saw 2,316 new downtown condos sold at the market peak of 2004, that number dropped to 80 sold in 2012.

Since countywide trends suggest rising popularity for higher-density residential developments, such as for-sale attached townhomes, Valone said the downtown condo resale market could see a resurgence in coming months.

Mark Mills, an agent with RE/MAX LLC who specializes in downtown residential resale properties, has observed the resale condo market trending in favor of sellers so far in 2013, with sales prices on track to rise 10 percent over last year. The inventory of downtown resale condos stands at 230 units, he said, still below the 400 units seen two years ago, but above the low of 175 reached six months ago.

“The main issue for a while has been a lack of inventory,” Mills said. “We’ve recently seen a couple of units selling for $800,000 with multiple offers.”

And while Bosa’s development firm does not track condo resales in its completed downtown projects, he has heard anecdotally this year of an uptick in units going on the market, a sign of confidence among current condo owners.

“It’s still a buyer’s market, but the sellers are now holding out for better prices, as they should,” Bosa said.

Condo Conversions Coming?

Developers might also be encouraged to convert some apartment projects currently in the pipeline into condo developments. This happened in 2005, for instance, when a downtown development called Palermo opened as condos, after it was originally planned as rental units.

“That could be the trend again within the next two years,” Valone said. “You would probably see apartment conversions before you see a lot of new condo projects being built.”

Bosa said his company focuses on high-end condos, and units at Broadway and Pacific will likely sell for “well north of $1 million.” He is aiming for a mix of young professionals and retirees looking to minimize driving and reside near downtown shopping, dining and nightlife.

“We would welcome more development by others downtown,” Bosa said. “I think you need a lot more kinds of product, at different price points, to serve this market because so many more people will be coming to live downtown.”

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