San Diego high-rise condo market goes from frenzy to fizzle

San Diego high-rise condo market goes from frenzy to fizzle



Thousands were built downtown in recent years, but many are unsold or in foreclosure and prices have plummeted. The upside is that those priced out of the area can afford them - if they can get loans.

By Peter Y. Hong
July 27, 2009

Drive through California's sprawling inland suburbs and you'll spot the familiar mileposts of a real estate bust: foreclosure signs, brown lawns and abandoned subdivisions.

To see the damage in downtown San Diego, walk a few blocks. Then look straight up.

There you'll see hundreds of unsold luxury condominiums stacked in vacant high-rises. Some units downtown are now selling for less than half what earlier buyers had paid during the market peak.

These see-through buildings, with names evoking European sophistication like Aria and Vantage Pointe, are the opulent spatter from the bursting of one of California's flashiest housing bubbles.

From 2001 through 2008, more than 8,000 condominium units were built in downtown San Diego. That's double the number of downtown units constructed over the same period in Los Angeles, a city three times its size. So while sales of urban high-rise units are convulsing elsewhere, nowhere is the collapse more dramatic than in downtown San Diego.


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Downtown San Diego, a 2.2-square-mile area, is now awash in condos. About 400 new and occupied ones are listed for sale, and more than 450 are in some stage of foreclosure and will eventually be put on the market. An additional 1,000 units that were under construction when the market soured are slated to be completed this year, adding to the glut and putting further downward pressure on prices.

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Canadian developers with little experience in Southern California, starting with Nat Bosa, a prominent Vancouver, Canada, condo builder, led the condo charge downtown, overestimating its potential, experts said. Buyers likewise bet too heavily on the urban revival triggered by the 2004 completion of the Petco Park baseball stadium, home to the San Diego Padres.

City policies encouraged multi-unit housing development in the lightly populated downtown area, where large projects could be built with little community resistance. Builders loved high-rise towers because they could sell more units on the same space.

But that almost exclusive focus on upscale high-rises was a mistake, said Howard Blackson, who heads a San Diego urban design firm. Towers aren't as attractive to families as other types of housing, such as row houses or smaller, walk-up buildings, Blackson said. Nor were they affordable for many. With some three-bedroom units priced at more than $1 million, the pool of purchasers was limited.

The lead time for construction of these buildings is measured in years. The developer spends a lot of time putting together the plans, permits and contracting for the job. The general contractor lines up various subs for each segment of the project. The subs hire workers in anticipation of several months of steady work. And when the finished product is market ready, you sort of hope there are buyers.

Even as little as three years ago, that was no problem. Now, you see these things going up, and you can't help but wonder who will live in such overpriced real estate? "Prices slashed", "financing available" and other signs on the side of the property let the discerning consumer know that it's a buyer's market if you're really interested. On the other hand, consumers are getting a smidgen smarter. I know from my own experience that I will see a newly-released DVD for a movie retailing for $20 and think "Wow, I'd really like to see that." And it's on the shelf . . . right next to a DVD going for $13 and that two months ago I thought, "Wow, I'd really like to see that." $400,000 condos attract a certain attention. $199,000 condos, the very same condos, don't command quite the same interest.

Today I ordered a bunch of fire/smoke dampers and architectural louvers for the mechanical sub-contractor on the Vantage Pointe project on a 3-day build for delivery next Monday.

EDITED TO ADD: In other words, work has not stopped.

Might be just a lot of low hanging dead inventory being offloaded by the banks but still a good number.

Thanks for the article. I am noticing a perceivable uptick in consumer activity around the LA South Bay, but the whole commercial and residential real estate market here has yet to hit bottom.

I wonder what the overall California landscape will look like in 6 months. I smell trouble ahead... worse than we've yet seen.