Condo buyers in driver’s seat
Saving up for a brand-new condo that’s move-in ready? Just want to turn the key and unpack your boxes? Condominiums are a popular alternative to single-family homes because of their relative affordability and low upkeep. But with little construction on the horizon, there will be fewer newly built units to pick from down the road.
“With fewer new condos being built, there will be a drought at some point,” said Elaine Golden-Gealer, senior director of the Coldwell-Banker New Homes and Condominium Division for Los Angeles. “The biggest selection is now, and in the next six months to a year. Once those units are sold, the builders will wait until the economy gets better to build again.”
Construction has practically come to a stop in Southern California as builders feeling the pinch of a down economy and a slow housing market are pulling the plug on projects, converting condos to rentals and lowering the prices on finished units to get rid of inventory.
Housing analysts say that it takes three to four years for a developer to complete a condo project and that the condo building slowdown actually started in mid-2005.
“The big guys like Horton, Centex and Lennar closed the doors to new projects by early 2007, and most got out alive,” said Alan Nevin, director of economic research for MarketPointe Realty Advisors in San Diego. “They finished up phases of projects but have not been willing to go forward with future projects.”
For example, work was supposed to have started last year on one of the largest planned condo developments in the Los Angeles area -- 2,600 units in the Grand Avenue project downtown -- but it’s been put on hold, Nevin said. “Related Cos. hasn’t been able to assemble the financing, so they’re uncommitted as to when they’ll start now,” he said.
“In the Valley, everything’s come to a grinding halt,” Nevin said. “If you go to North Hollywood, there were 20 condominium projects for sale last year, and most sold. If they didn’t, the developer sold some units and held the rest for rentals.”
For now, he noted, potential condo buyers are in the driver’s seat, with builders offering incentives and reducing prices to move completed units.
Neil and Angela Symes looked for a year before finding a one-bedroom condo, which they bought in June. The couple decided to downsize to one car in November, and because Angela commutes to her job in Long Beach, they needed their home to be within walking distance of Neil’s office in Glendale.
The Symeses, who also own a house in Las Vegas, had been renting an apartment until the market cooled enough to buy in Glendale. Their 835-square-foot condo is half the size of the apartment, “but now we own it,” said Neil Symes, data manager for YellowPages.com.
“We went to 15 to 20 open houses looking at places and used it as a way to choose our Realtor,” Neil said. “In general, I think there are some good deals out there now, but there are still some that are overpriced.”
Most new condos, he said, were out of their price range, so the couple concentrated on looking at existing ones, buying a resale unit that had been listed at $275,000 for $244,000. The vacant condo had been on the market for more than six months.
This month, Brian Adler and his partners are scheduled to open Villa Vento, a 22-unit project in Studio City that features two- and three-bedroom condos with a four-story waterfall in the courtyard. Prices range from $672,000 to $900,000.
“Even though the market has dropped off dramatically, there are sales taking place in high-end pockets,” said Adler, who is also constructing a 20-unit project in Beverly Hills that is a year and a half away from completion.
Also underway is the Burbank Collection, a mixed-use project that’s the final phase of Burbank’s Entertainment District development. The units, which range from $400,000 to $900,000, are designed to appeal to empty-nesters and singles in the entertainment business, said Robert Champion, founder of the Champion Real Estate Group.
“We’re almost 40% pre-sold in the project before it’s finished,” Champion said. “The bigger problem for us is getting qualified buyers to . . . requalify under current lending requirements.”
In the future, he believes that new projects will succeed only in areas where condos are scarce, jobs are nearby and pricing is competitive with single-family homes.
Applications for condo building permits are down 60% to 70% in most counties in Southern California, said Sherman Harmer, co-chairman of the Urban Council of the California Building Industry Assn. and president of Urban Housing Partners in San Diego.
“No new project has started in our county in the last two years,” he said.
The economic downturn for developers, Harmer said, accelerated in August 2007 with the subprime mortgage debacle and deepened in January when an international liquidity crisis dried up construction financing.
“We’ve seen 12 builders and developers in San Diego County consolidate with their Orange County or Riverside County operations, or close their offices,” Harmer said.
Builders such as the Irvine-based Sares-Regis Group, which has both condo and apartment operations, have changed strategies with the market.
“We had projects in the pipeline for Irvine, Palm Desert, Pasadena and Anaheim and are continuing forward with them but have shifted them to rental instead of being for-sale properties,” said Ed Eyerman, the firm’s vice president of sales and marketing in new home sales.
Sares-Regis has two condo projects closing out now -- a 100-unit development in Hollywood that has eight units still unsold, and a 344-unit property in Aliso Viejo with 22 available -- where buyers have been offered incentives, including prepaid property taxes and price reductions.
For those who bought into a new condo project at a higher price, and are seeing comparable units go for less now, Eyerman recommends they take the long view and consider it a side effect of the current market, not as an irreversible loss.
“Just because your neighbor got their place for less,” he said, “doesn’t mean you won’t get more than what you paid when you sell.”
