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Local Housing Market Looking Better to Bosa

Dwindling supply and improved financing fundamentals are putting companies like Vancouver-based Bosa Development Corp. back in the downtown San Diego housing game, following a long period in which product sat unsold thanks to overbuilding.

Centre City Development Corp., the city’s downtown redevelopment agency, last month approved Bosa’s plans for a $250 million, 285-unit condominium development at Kettner Boulevard and Ash Street. The yet-unnamed, 36-story condo tower, with ground-floor retail elements, would be the first local condo project for Bosa since it built the nearby Bayside in 2008.

Bosa President Nat Bosa said the company plans to begin construction by the end of 2012, with completion expected around 2015. Bosa said he’s recently been encouraged by sales patterns in the downtown area, as inventory has steadily been shrinking and investment speculators have been driven from the market after becoming overleveraged.

Bosa officials said 190 of the 232 units at Bayside have been sold since late 2009, following a slow start, as buyers nationwide seek primary and secondary homes in urban waterfront areas.

“There are several markets that are doing better than others, and San Diego is one of them, but there is still some cleanup to do,” Bosa said, of the current climate.

According to CCDC data, there are 11 proposed downtown apartment projects in various planning stages, representing 1,785 new units, and 11 condominium projects with a total of 2,102 units. Construction timetables for most of the projects have not been announced.

Projects in the Pipeline

In addition to the Bosa project, approved housing developments that could begin construction within the next 18 to 24 months include Pinnacle International’s complex with a total of 965 apartments and condos at 15th and Island streets; United American Properties’ 150-250-apartment development at 14th and K streets; Alliance Residential Co.’s 201-apartment Broadstone Little Italy on Kettner Boulevard; developer Jonathan Segal’s 196-apartment Fat City Lofts, off Pacific Highway; and a 263-apartment complex planned by The Hanover Co. at 13th and Market streets.

CCDC spokesman Derek Danziger said most of the larger housing developments are mixed-use projects with retail elements, geared to planners’ long-term priority of bringing in new businesses to serve a growing downtown residential base. That population is expected to grow from its current 36,000 to a projected 90,000 by 2030.

Russ Valone, president and CEO of San Diego-based consulting firm MarketPointe Realty Advisors, said current demand and financing trends favor apartments over for-sale condos.

Residential construction financing, for single-family and condo projects, remains difficult to obtain, except for the best capitalized developers. Also, pricing and foreclosure issues are keeping many people out of the buying pool, and apartments remain in short supply relative to demand.

However, affordability remains less of an issue for the core buyers of upscale downtown condos, and Valone said some of the apartment projects currently in the development pipeline could end up being revised as condo projects as the economy improves in the next few years.

Also encouraging builders is the declining supply of new condos for sale. Valone noted that Equity Residential’s late 2010 purchase of downtown’s Vantage Pointe development, which it converted from condos into apartments, took nearly 700 units off the downtown market. There are currently just over 300 new downtown condos for sale, which Valone said is the lowest in several years.

Sales on the Upswing

MarketPointe data indicates that sales of downtown condos have generally been on the upswing during the past eight quarters, sparked largely by strong resales. A total of 1,070 units were sold in 2010, on par with 2009, and about two-thirds of those were resale transactions.

The past two years beat 2007 and 2008, though sales have yet to return to the heady days of 2002-2006, during which annual unit sales never fell below 1,400 and peaked at 2,326 in 2004.

In the first quarter of 2011, 265 downtown condos were sold, including 183 resales, up from a total of 255 in 2010’s first quarter.

Bosa owns other downtown San Diego sites where it will consider building more condos as market conditions warrant. Pricing has not been announced for units at Kettner and Ash.

Eric Martin, the company’s vice president of development, said declining costs for expenses including construction — down 15 percent to 20 percent compared with three years ago — are allowing the company to sell its newest condo offerings in markets such as San Francisco at lower prices than would have been the case before the recession.

Martin said the company maintains a long-term view of San Diego market conditions, and uses only its own money on developments. “That’s our equity and our investment up front — we don’t go for using partners for projects,” he said.

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