For the next year and a half, the Downtown condominium market is going to be a very interesting place. Most of the new product coming online is already sold. That means for the next 18 months or so the resale market will have to take full responsibility for housing folks who would like to live in one of America’s most vibrant downtowns.

The active pipeline contains 4,510 new and converted condominiums, but only 1,057 units (23.4 percent) remain to be sold. Of the new units that remain to be delivered in 2005, only 40 remain to be sold.

In 2006 deliveries, we count 327 units still to be sold and for 2007, 400 units to be sold. Of the 13 conversion projects now selling, a grand total of 290 units are set to be sold. We anticipate that most of those 290 units will be sold by year-end 2005.

By comparison, in 2004, a MarketPointe Realty Advisors tally accounted for more than 2,500 units sold in buildings under construction or being converted. From an historic standpoint, we have been selling more than 1,000 new or conversion units annually (on average) Downtown. And that doesn’t include the resale market.

The resale market Downtown is a relatively new beast. In 2000, the modern resale projects were limited to Harbor Club and Meridian. That’s about it. About 30 agents were selling Downtown.

Today, the inventory of condominiums is nearing 5,000 and more than 300 real estate agents are working 92101’s territory. Prudential California Realty (now located in the former Pat & Oscar’s) has assembled a force of 90 agents and in the past year has glommed onto one-third of the Downtown business. Raye Scott and Francine Finn, development officers of the firm, joke much of the business has actually been created by persons who went in to buy ribs, but were subjected to bait and switch.

Last year at this time, the number of listings Downtown was negligible as inventory under construction greatly exceeded inventory completed. This year, the situation is changing rapidly. Listings total a bit more than 400, but that’s against an inventory of almost 5,000 units. Typically, at any given time, in San Diego County, 8 percent or so of the inventory is listed and sold, so Downtown is right on target.

Sales this year are ebullient. It is likely that as many as 700 resale units will change hands. So far, through June, a total of 447 units have been sold, compared to 290 units in the same period last year. Tisha McMurry of Vertical Village Realty senses that we have now reached a critical mass of product Downtown, a situation that provides a substantial breadth of market interest.

A major portion of those sales have been in the eight newly completed projects in which there were large numbers of “spec” purchases that went on the market simultaneously with completion.

This expansion of the resale market is a function of five factors:

• There is a strong variety in product type, price range and locational opportunities -– and that wasn’t true one to two years ago.
  
  
• Downtown is a growing attraction to the young professional market which finds no suitable attached product in the suburbs.
  
  
• The empty nester/retiree market is strengthening as folks who have bought Downtown are inviting their friends to do the same.
  
  
• The market is opening to the outside world. The out-of-town market is gradually growing as a result of such factors as expanding cruise business (634,000 passengers this year and growing), more national convention business, growing international visits and the inevitable cumulative impact of the Super Bowl and San Diego Buick Open. In addition, there appears to be an exponential increase in national publicity about the success of Downtown San Diego.
  
  
• We are the poster child for modern urban development.

In total, Downtown resale buyers in the past year are a mix of full-time residents (60 percent to 70 percent), second home buyers (20 percent to 30 percent) and investors (10 percent). The “flippers” (short-term hold buyers) have almost disappeared from the market. An estimated 30 percent to 40 percent of all buyers are from North County.

Downtown Pricing

Let’s talk about pricing. In midsummer 2004, when listings were scarce and the market super hot, listing prices rose substantially. Buyers reacted to those high listing prices by backing off. It took three to four months for the listing prices to settle back to a normalized range and they have remained that way ever since. Last year’s adventurous price rises were not sustainable.

Prices on resale properties in June 2005 averaged $580 per square foot. That is up from $567 in June 2004. Note that the average price in the comparison period declined from $744,000 to $603,250 as the units sold include far more smaller units in the newest buildings. And that’s good for the market.

We should also note a fairly strong market developing in the $1 million-plus units. Once again, in the past only a modicum of available units were worthy of that heady price range. Now at least a dozen projects can demand a million dollars or more. They include The Metropolitan, Grand at Santa Fe, Pinnacle and The Mark. Also in that category remain the Harbor Club, Meridian and CityFront Terrace.

In 2004, 68 condominiums units closed escrow Downtown for more than $1 million and of those 18 units were over $1.5 million. In the first half of 2005, 45 units sold for more than $1 million and 14 closed escrow at more than $1.5 million. Of those 14, six were more than $2 million. Sources report none used FHA or VA financing.

It also is worth mentioning that the quality of the upscale units has improved dramatically in the past two years, with the Metropolitan and Pinnacle leading the way in opulence.

Can It Last?

The big question: will the market continue to blossom in the coming year? I say yes, not just because I’m a perpetual optimist, but because the motivation to buy is there. John Stenberg of Intero Real Estate believes that the market and the product lines are now broad enough to sustain a strong and enduring Downtown real estate market. I concur.

Alan N. Nevin is director of economic research with MarketPointe Realty Advisors (marketpointe.com), a consultancy providing real estate and demographic statistics, feasibility studies and litigation support to the California land use industry and legal professions. Nevin can be reached by e-mail at anevin@sandiegometro.com.