What housing slump?
Australian developer Constellation Property Group is taking the long view of the economy. The company is breaking ground April 29 on a $17 million, 61-unit residential complex in National City.
Despite losing an equity partner a year ago, the company convinced the city to extend a two-year bridge loan for $2.5 million to keep the project moving and preserve the city’s downtown redevelopment initiative.
“The city stepped in when one of our equity partners stepped out,” said Eugene Marchese, president of the Constellation Property Group in San Diego and chairman of Marchese Partners in Sydney, Australia. “We had a sort of difference of opinion in terms of product. We wanted to stay with steel and concrete, and Phoenix (Equity Partners) wanted stick and stucco. The city was very adamant that they wanted us to stay with our business plan, and we agreed with them.”
National City Mayor Ron Morrison said the short-term loan is a “nudge” to keep the project from stalling.
“Their corporate money was tied up and they couldn’t use their own money to pay it back,” said Morrison. “It’s purely a financing mechanism. For that reason, we thought it was important to get the project moving.”
The first building of the project, which will eventually include a downtown hotel tower and retail center, is being touted as a catalyst for developing the city’s downtown core.
The first building, called Centro, is expected to be completed in mid-2009. Construction on the other two buildings is scheduled to start in January 2009 and be completed in January 2011, according to a Constellation spokeswoman.
The project fits into National City’s downtown specific plan completed two years ago, which consists of several major residential projects, pedestrian-oriented retail shops, a hotel and a senior living center in the city’s bay front area, said Morrison.
National City has been building out its downtown infrastructure with street improvements, a new police station, library and community college, he said.
“When was the last time you went to National City?” Marchese said. “Go down and have a look. The tree plantings, the street furniture, the Kimball Park upgrade , it’s actually quite a beautiful area.”
Downtown Game Plan
The city has been working with developers to design slender residential towers that have views of the bay to the west and mountains to the east. Designs are staggered to prevent obstructing other people’s views, with units priced in the $400,000 range, said Morrison.
“You can’t touch that in this (San Diego) area,” Morrison said. “The city is working hard to make them mid-class affordable without being subsidized.”
Marchese says the advantage of building in National City is that it’s on the doorstep of downtown, which is expected to draw in San Diego professionals.
“Housing is a staple,” he said. “Even if we get to the end, and the market conditions haven’t changed from today, we believe even as a rental property it stands up pretty well because of its location.”
Constellation received a construction loan from San Francisco-based United Commercial Bank. The developer was also able to get lower construction bids because of the slowdown in the real estate market, said Marchese, who estimated savings of 23 percent compared to bids from two years ago when the market was hot.
“There is a huge advantage for us to be building at the moment,” he said.
The downturn in residential real estate “is more a case of market conditions,” he said.
“We saw it in Australia. It was the same scenario,” he said. “And the knee-jerk is to stop everything, which doesn’t help. If you find a bank that has a longer-term vision , that’s where you’ll find success.”
Bullish On Building
A loan officer at United Commercial Bank said the fact that the city was willing to lend money to Constellation showed collaboration and cooperation.
“That always helps,” said John Cinderey. “We’re happy to support them. We need to remember that, yes, this is a trying time in real estate, but if we’re not lending to good borrowers it hurts the economy.”
Constellation is also building an extended-stay condominium project north of Mission Brewery on Hancock Street, which should be completed in September, he said.
Both projects will be designed in an ultra-contemporary style familiar in Sydney: lots of glass, large balconies and openness.
The company, which has 300 employees in Australia and 24 in San Diego, is trying to build a track record in the United States. It also has projects in Tempe, Ariz., and Austin, Texas.
“At the end of the day, if you build a quality product people will want to own or rent it. We see rents in San Diego climbing, which is an indication that people like living downtown,” said Marchese. “Who doesn’t want to live in San Diego?”