Mark Mills, a downtown condominium specialist with RE/MAX Real Estate Consultants, wrote that out of estimated 8,000 condominium units constructed between 2001 and 2008, only about 3 percent remain available.
“There are not many markets like this anywhere in America where supply is so limited,” Mills said. “This is bad news for buyers and even worse, no new condos are under construction.
“It’s not uncommon for condo sellers to receive multiple offers these days. The pendulum has swung to the sellers’ favor in 2011,” Mills added.
Russell Valone, MarketPointe Realty Advisors president, said while he doesn’t believe multiple offers are that common, there is no denying the available inventory is shrinking significantly.
“New inventory is down to 276. I remember (in the mid-2000s) when it was a couple of thousand. We sold 145 this year, so we’re down to less than a year’s worth of new inventory,” Valone said, adding both new and resold inventory total about 500 units.
Mills noted that while there are plans in the pipeline, the next condominium tower won’t be ready before Bosa Development comes online with a project in 2014 or 2015.
The first up will likely be a 287-unit development Bosa is planning at Kettner and Ash. The Vancouver, British Columbia developer is also considering a new condominium tower adjacent to its Bayside development along the North Embarcadero.
Bayside was the last new downtown San Diego condominium project. Available for occupancy in summer of 2009, it took approximately two years to sell out.
“The sales story of Bayside is one that a lot of developers paid attention to, and thus the hesitancy to build new condos in the near future,” Mills stated.
According to a Mark Co. report, Bayside was closing in on the last of its 232 sales as of the end of May. As of that date, 216 units had closed escrow, nine were under contract and nine were available. Bayside lowered its prices and the sales pace picked up.
The prices of the Bayside units weren’t only relatively low, (averaging in the $900,000s instead of more than $1 million), but Mills noted that Bosa was selling the project’s remaining units at 20 percent off its construction cost.
This has been happening as the Vancouver developer shifts its immediate focus to its San Francisco projects.
Others such as Centurion Development’s Sapphire Tower at 1262 Kettner Blvd. have also wound down. It had 76 closings, 13 under contract and nine available as of the end of May, according to The Mark Co.
Some complexes such as The Smart Corner — which has a trolley moving through the property on the edge of the East Village near City College — have had a more difficult time. Smart Corner, co-developed by Lankford & Associates and Canyon Johnson Urban Partners, among others has taken several years to sell the first 140 of its 301 units.
Another 11 were under contract at the end of May, but that leaves 150 awaiting buyers.
Slow sales have been due to a soft economy and what many consider to be a less-than-ideal location.
The 679-unit Vantage Pointe development on B Street wasn’t able to sell a single condominium after it ran headlong into the recession at the last decade’s end. Since then, the property was purchased by Sam Zell’s Chicago-based Equity Residential for $200 million, and is reportedly 95 percent leased after having been converted into apartments.
There is no clear answer as to when building might start again.
“Before another developer comes to downtown San Diego and starts building condos, the sales price per square foot is going to have to climb a couple hundred dollars for them to not only cover their costs but make the profit they are seeking,” Mills said.
“Supply is influenced by a variety of factors. These include available land, availability of building permits, construction financing terms, builder confidence and faith that future housing demand will be strong enough for investors to sell their condominiums for a profit,” Mills continued. “Playing an increasing role in developers’ minds these days is the rise in raw materials costs that need to be recovered through higher sales prices. When you look at downtown San Diego, you have very little land left to build on, difficulty getting building permits due to strict city guidelines, and strict and difficult construction loan terms.”
Valone, who recalls when the 60 to 70 cranes in the air downtown led some to quip that the crane was the city bird, isn’t exactly sure when they will return.
“It has more to do with lending than demand, though we might still see someone cement a deal before the end of the year,” Valone said.
In the meantime, Mills said prices that went through the floor during the recession increased by 4 percent during the first six months of 2011. At this pace, Mills said downtown could see its condo prices rise 8 percent this year. He suggested downtown San Diego real estate is faring better than most cities because it offers excellent weather, condos less than 10 years old and a low crime rate.
It also is not only highly favored among second-home buyers; Mills said 40 percent of condos bought in 2011 were by those paying cash.