I think The Corner is supposed to be a burger joint/bar with a sort of lounge feel, that is what i heard. Walking past it I cant tell what it is supposed to be yet myself.

Condo Article in WSJ
 

Woes in Condo Market Build
As New Supply Floods Cities
By JENNIFER S. FORSYTH and JONATHAN KARP
March 22, 2008; Page A1

The condominium market is about to get worse as many cities brace for a flood of new supply this year -- the result of construction started at the height of the housing boom.

More than 4,000 new units will be completed in both Atlanta and Phoenix by the end of the year. Developers in Miami and Fort Lauderdale, Fla., are readying nearly 10,000 total new units in a market already struggling with canyons of unsold condos. San Diego, another hard-hit region, will add 2,500 units, according to estimates provided by Reis Inc., a New York-based real-estate-research firm.

The new building comes on top of unprecedented supply. The U.S. finished 2007 with a supply of condos large enough to absorb 10 months of demand, the highest level since the National Association of Realtors began the tally in 1999.

The deluge means bad news for developers and potentially lower prices, including in cities such as Atlanta and Dallas that have avoided the worst of the housing bust. If defaults and foreclosures rise, lenders will feel the pain too.

Regulators have been sounding the alarm for weeks about the exposure of small and mid-size banks to commercial real estate, which mostly means construction loans to developers of condos and single-family housing.

Lenders of all sizes have $42 billion of condominium debt on their books, according to Foresight Analytics. In just three months -- between the third and fourth quarters of last year -- the delinquency rate rose to 10% from 5.9%, says the Oakland, Calif., research firm.

The news isn't bad for everyone. Vulture buyers have started to circle, hoping to take advantage of foreclosed properties that banks may start dumping at fire-sale prices. Also, some condos are being converted to rental units, increasing supply for renters and putting downward pressure on prices.

It may seem surprising that anyone would want to add supply to a market whose troubles have been well-publicized for many months. But the economics of condo building encourage developers to bring half-finished projects to completion, even when prices and demand are plunging.

Developers usually put up their own money for a project first, then spend borrowed funds. Once developers have spent their money and have commitments from lenders, they have a strong incentive to keep building to finish the project.

"These developers had millions of dollars tied up and they had them financed so they just moved forward," says J. Ronald Terwilliger, chief executive of Trammell Crow Residential, which builds many rental apartment buildings and also a few condos. "What they hope is that by the time the project is finished the market comes back."

Shelving Projects

However, developers and lenders can more easily shelve projects that are still in the early stages. Many developments nationwide are being canceled, suggesting that by next year or 2010, the number of new condos coming onto the market may slow to a trickle.

One big question hanging over the market is how many of the buyers who have put down deposits during construction will show up to close the deal. Some deposits were as little as 3% of the purchase price. The price of a condo has frequently fallen more than the amount of the deposit, giving the buyer an incentive to forfeit the deposit.

For example, if a buyer put down $50,000 for a unit priced at $500,000, and the value falls to $400,000, the buyer is apt to walk away -- or find some fault with the unit and sue the developer to get the deposit back. Furthermore, some buyers who still want to move in are finding that they no longer qualify for mortgage loans.

In Miami, only 57 units in the 118-unit Onyx on the Bay have closed since August 2007, leaving the remaining 61 units in the possession of the developer, according to Miami-Dade County records. Willy Bermello, the Onyx's developer, could not be reached.

The deteriorating economy isn't helping. "When the world goes to hell in a handbasket, the last thing anyone wants to buy is a condo," says Cathy Schlegel, a mortgage-loan broker in Fort Worth, Texas, whose condo in a high-rise called The Tower sat on the market for 14 months before she finally sold it at a loss in February.

The rising supply is a reflection of the picture in 2004 through 2006 -- a time of huge demand for condos. Speculation was rampant as investors believed empty nesters and young professionals seeking an urban experience akin to what they watched on "Friends" would prop up the condo market for years.

Most projects take about three years from the time they are marketed to potential buyers to the time they are ready to be moved into. Deposits help developers get a construction loan that is to be paid off when the buyers close on their new condos years later.

However, cancellations are rising, meaning developers may not be able to pay back their banks. Peter Zalewski, founder of Condo Vultures Realty LLC in Miami, says condo developers he is working with are expecting 20% to 40% of buyers who put down deposits to walk away from the deal. In some areas, such as inland buildings and new projects along the river in Miami "walkaways" are expected to be even higher.

Unlike single-family housing, condos tend to be concentrated in certain areas, meaning the pain is limited to pockets of the country.

In Jacksonville, Fla., developer Cameron Kuhn had planned to redevelop the SunTrust office tower into office condos as part of a larger complex that included residential condos. Now the housing condo tower is on hold, dashing city officials' hopes that the project would help to bring parking, residents and more life to the downtown.

Prices of condos have been steady in some areas and fallen elsewhere. The median condo sales price in the Cape Coral-Fort Myers area of Florida fell 26% to $202,300 in the fourth quarter of 2007 from $273,400 a year earlier.

Prices dropped nearly 20% in Tucson, Ariz., and 12% in the Atlanta area during that time, according to National Association of Realtors data. Inside the newly minted Quantum on the Bay in Miami, prices for two-bedroom units have fallen from the high $700,000s to around $500,000.

One option for a developer is to convert the condos to apartments. However, these projects are usually financed with the presumption that sales of individual condos pay off more than rents from a comparably sized apartment building. Also, lenders typically expect developers to pay off condo construction loans with the millions of dollars they receive when closing on the sales. Such a quick payout isn't possible if the developer is only receiving monthly rental payments.

Mr. Terwilliger says Trammell Crow plans its condo developments with an eye towards converting them into rentals if necessary. But its profits are cut when it does that because the company typically spends more for land and amenities when developing condos, he says.

A project called ATLofts at the mammoth Atlantic Station project in downtown Atlanta presold about 80% of its 303 units in a mixed-use building that had condos above retail space. But the project ran into water-infiltration problems. That gave buyers an out.

The developer, Lane Co., ended up turning about half the units into rentals. The developer of the retail space, Atlantic Town Center, bought the remaining 156 units as condos. Today, only 52 of those have sold, according to Haddow & Co., an Atlanta-based real-estate consulting company. An Atlantic Town Center spokesman predicted the remaining condos will sell "considering the prime location."

As more condominium projects get into trouble, investors are looking to pounce. Some 700 people showed up for a distressed-real-estate conference this past week in Miami where the condo glut was the dominant discussion subject.

Valet parking attendants had to wave participants away from the hotel and toward a parking lot at a shopping center, and attendees overwhelmed the conference halls, forcing many to watch the proceedings on screens in adjoining rooms.

--Peter Grant contributed to this article.

Write to Jonathan Karp at jonathan.karp@wsj.com

Where are these 2500 units finishing this year? The only projects that I know of that are under construction are Vantage Point, Sapphire, Bayside, and Breeza. I've always said, as long as you are buying a unit that you plan on living in, as a home, for a while, there's no need to worry.

I think its funny how you are always posting the doomsday articles. I hope that the market does continue to trend downward. It may be my chance to get something on the cheap, but I doubt it. You always get what you pay for.

I think the article refers to condos in general and not just in the downtown area. So that add's a whole lot more. Isn't Strata going up after all? Also that massive project in National City. Many other low rise condos going up all over the county too.

I do agree with keg though. I am not looking to make money off the real estate market when I buy a home. I am looking to have a personal dwelling I enjoy. The market got turned into "lets all make money" instead of lets find houses to RESIDE IN. I'll pay whatever price I feel a unit is worth to ME regardless of a declining market because if i'm buying i'm planning on staying and land (for the most part) is a finite resource. It will never become worth nothing.

Vantage Point (679)
Sapphire (96)
Bayside(158)
Breeza(241)

Total 1,164

There's also

Aria (137)
Hard Rock (200?)
Cracker Factory (11)

and

Studio 15 (275?; 1/09)
15th & Market (?)
16th & Market (136;2009)

Altogether, I don't see 2,500 either. Perhaps hotel rooms are included?

San Diego is not limited to DT

Hillcrest has several projects, one on 5th ave and one high-rise right next to Balboa Park, (I also noticed something else across the street from balboa starting starting construction, not sure if it's condo or not); there are some smaller developments in North Park

There are also things going up in Fashion Valley

I really want to see Cosmo happen...IMO it could be the most attractive building in the city.

The one on Sixth Ave, is stopped

The other one on 6th Ave is stopped.

maybe so, but my point was you were disputing the WSJ article soley on what you know of DT. If you took the entire city into consideration, thier number many be accurate. I don't think the WSJ pulls numbers out of thin air, maybe the UT would but not the WSJ hehehe:)

I agree. Something will go up there - - it is a prime location, the question is when and what

Hopefully anyone who buys it will either keep a similar design or work off the design to create something even better :)

I still think it would be a good location to try and challenge the 500ft height limit

Those radius maps that were posted some time back on this site show that East Village is just outside the circular radius specified by the FDA that is subject to the strict restrictions. I really think Ballpark Village and the Cosmo Square site are outside of that radius, based on those maps. When these height limits were put into place, downtown didn't stretch this far east, so the radius became known as a "blanket" rule that nothing dt could be over 500ft. It just convincing our very conservative, backwards, NIMBY government officials to approve it that would be a nightmare.

Anyway, any project that could distinguish itself as the tallest skyscraper in the city would have an advantage in marketing and media attention, so I'm surprised no developer has the cajones to try:shrug:

I agree; however I think the best type of project, one that would be worthwhile to a developer, would be one that would make money. To me, I am thinking office building. And, I am uncertain southeastern downtown San Diego generates sufficient interest for an office building of such height. Well see... as downtown has evolved, and continues to evolve, at a rapid rate.

Btw, what would make an area attractive enough to build something taller and more grand? What has worked in other great American cities?

Whatever happened with the Stella condo project off of Hancock st. near old town (from the same developer as Embassy/Lumina downtown)? I remember we were discussing it when they started grading the site in late 2006, did they stop after that? Is anyone up on what stalled it besides the obvious answer that its located in a stupid location? I keep meaning to drive by just to see where they left it but i always forget. On the same note, why hasn't this group been able to get any of their proposals off the ground, not Embassy, not Stella, and not the one they proposed for national city either (at least i'm pretty sure the national city one is MIA also)? Australian mob front? I feel like they spent the last 5 years all on a dare to see who could publish the best flash based real estate website.

I don't write the articles, I merely read them. If you can direct me to the rosy "condo market" articles, I will be glad to post those also.

I see from your posted photos that you probably live in Fahrenheit (or maybe Park Blvd East). You must be a renter because otherwise I can't imagine that your are thrilled that prices are down 40% or more from the peak in those buildings.

You also said that you work for a large general contractor. Obviously you interested in the continued building boom (even if it is detrimental to the overall market). Let's make sure we all know which point of view everyone is coming from.

^^^ I am a wouldbe buyer that wants to see prices come down to rational levels... and also interested in a healthy local economy.

:sly: I'm not sure what happened with them - they had plans in SD before they had plans in Phoenix (either Tempe of Scottsdale I can't remember), but now it looks like the Phx project will get started before Lumina here. Maybe the Phx market was more attractive for some reason? Though I hear they are in the same downturn the rest of the country is in

I think it is under construction... Pretty far along as well. Any web cams in that area...? If you take the trolley I think you can see it.

http://www.stellalife.com/indexFlash.htm

You can see it from the 5 Freeway if you know where to look.

I am all for edgy projects in pioneering areas but knowing that there are some relative bargains on condos outside of industrial areas, what discount will be required to sell these units?

I hope that Britt, Dion and Caroline get a good deal!

We own our place in Fahrenheit and purchased at pre-sale to what resales are selling for now in our building. So am I bummed that in 3 years i have 0% return? Sort of, but we plan on living here for another 10 years, so we'll see what the place is worth in 10 years, as that is all that really matters I work for a large contractor that does mainly military / commercial work and have actually increased our company size by 20% in the last month to merely keep up with all of our work, and we are trying to hire more people right now. I'd be interested to know what unit in my building is down 40%, as I would probably purchase that as a rental. There is only 1 unit available for sale in our building, and it is due to a divorce/breakup. It has been on the market for over a year due to their asking price and only 1 parking space for a 2 bedroom. Also the last unit that sold in our building was purchased for 383K (700 sf loft) back in March of '06, and sold as a resale for $380k. A $3k loss is hardly 40%, and that purchase price still puts units at well over $500 per SF.

Though I agree that many speculative investors are taking a bath in the current market, real estate is highly localized and, as I keep telling my friends who want to purchase downtown, but are waiting for the nicer buildings to drop to the same levels as the other buildings, that this will not happen. While you may get a unit in Diamond Terrace, Park Blvd West/East for under $400/SF, some day, you will not find a unit in my building for that. You can't get the Fahrenheit/M2i/doma product anymore (exposed concrete, 11-20 ft. ceilings, gas ranges, etc...) All you get now are your 8'6" - 9' ceilings, orange peel drywall, and china granite counters, and electric ovens.

I hope that you are right and Fahrenheit is immune to the current market downturn but if your building hasn't had a sale in 24 months and the only unit on the market has been for sale for 12 months, I doubt that you can use March 2006 prices as a barometer for current value. Parkloft is twice the building that Fahrenheit is (even with the inept HOA board, the high HOA's and the construction defect lawsuit). Check the current prices over there. The "exposed concrete, 11-20 ft. ceilings, gas ranges, etc..." are all great amenities in a rising market. Buyers pay very small premiums for these in a down market.

Sorry, miss-type. March '06 original purchase = $383K
Nov '07 resale of same unit = $380K

Personally, I've been in Parkloft, and to me, having a desk clerk (I don't consider him a door man since he doesn't open the door!) and a work out facility (especially with Fit opening) worth paying at least an additional $200 per month in HOA fees.

Also agree that while buyers wont pay premium for the nicer units in a down market, they will in the up market. The owners of the nicer units that live in their units will not sell until the market turns around, if ever. Personally, I plan on never selling our unit.