Nat Bosa, president of Downtown builder Bosa Development, isn’t worried about a downturn in Downtown. ‘I think we are just having a little breather,’ he says.

It was Mark Twain who said “The reports of my death have been greatly exaggerated.” Flash ahead a century and that could be Downtown’s home builders, talking about sales in their projects as the real estate market flattens. “Normal” is the word they and their marketing agents are using a lot. A few years ago, they note, buyers were anxious to buy because prices were rising so quickly they had to lock in quickly. Today’s attitude is more relaxed, allowing buyers to find perhaps a better match with what is available.

When Nat Bosa, the president of Bosa Development, hears of headlines crying the sky is falling on Downtown housing, he’s puzzled. “I think we are just having a little breather, which is healthy,” says Bosa. “I think we are ready to turn the corner again and it’s all part of the maturing process.”

Bosa would know. The pioneer of today’s urban building boom, he has developed six towers Downtown and is working on more. “Electra is under construction, so is The Legend and we are starting on Bayside,” he says. “There isn’t a ton of product available and we are ready for the next phase. A lot of things are happening Downtown. It’s busy and it is getting busier. I think the slowdown was very good and it’s better that it happened when it did than later on. The quicker that you can diagnose you are going too fast and can slow down a little bit, the quicker you can start running again.”

Look For A Busy Future

Available Downtown for purchase and immediate occupancy are about 388 units in seven conversion projects. Eight more conversions should be completed by summer 2007, adding another 567 units to the market. Nine new projects should be completed by the same time, offering 1,164 more units for move in before next summer.

Perhaps the biggest news on Downtown’s new home market is the departure of the quick-flip investor. “If you think about it, there is nothing that has changed in the dynamic of Downtown from two years ago, other than the speculators have left the marketplace,” says Russ Valone, president of MarketPointe Realty Advisors. “We saw them come. We knew they were there and that they would have an impact on the market. Now that we are realizing the impact, as opposed to saying the market went through a nice up-cycle fueled by both housing demand and speculative demand, we have all these people who have this desire to talk about Downtown as if it is some crumbling marketplace.

“What people need to get a perspective on is that during a five-year period, we’ve added six or seven thousand new units to the marketplace and that the Downtown marketplace readily accepted those units. Ergo, you would see a slowdown after such a phenomenal rise. But what we are seeing is people wanting to talk it down,” he says.

The market is settling onto a more even keel. “There has been no crash,” Valone says. “There has been a landing. It remains to be seen whether the landing is soft or hard.” While things settle, construction continues. It will be 2007 or 2008 before many new projects are completed and there is not as much need to hurry up and sell.

Profiling Buyers

So who are the new-home clientele? Downtown buyers are baby boomers looking to downsize their lives and young people still looking for their first home, says Sherm Harmer, chair of the Downtown Residential Master Marketing Program. “The baby boomer market is expanding dramatically. Those people are anxious to get a smaller home and more dramatic environment to live. More maintenance-free, carefree. The young professionals all want to live Downtown because it is so much fun. You’ve got more than 200 restaurants to pick from, over 20 clubs, the ballpark. You compare that to living in suburbia and suburbia is pretty boring.”

A DRMMA study found the waterfront, Balboa Park, walkability and restaurants are the most attractive elements to Downtown living. The most preferred neighborhood is Little Italy for being most complete and for its cultural charisma. “About one-third of the county’s 3 million residents would consider moving to Downtown San Diego at some point in the future,” says the survey, commissioned by the Downtown Residential Marketing Alliance and Centre City Development Corp. Of the 800 people countywide questioned about their thoughts and perceptions on Downtown, more than half said they thought buying real estate Downtown was a stable or good investment.

“We are still seeing a good, steady interest in people moving Downtown,” Harmer says. A large amount of traffic and interest by out-of-town buyers, particularly from Arizona, Las Vegas, Los Angeles and Palm Springs. Not many families with young children are seeking the neighborhoods, but sellers expect many of these young professionals to grow into families of their own and say they won’t be surprised if they remain as Downtown is completed with many parks. “There is an awful lot of good news with the waterfront development, quiet zone and plan for new parks,” Harmer says. So Downtown is still continuing to generate a lot of interest.

As for those stories about the slow market, “It is kind of ironic,” Harmer says. “Everyone is comparing our market today against the high point of the last five years. We are back to selling at the rates we sold at in 2002 and 2003. To compare today against 2005, yes, the market is down 30 percent. But 2005 was a historic high. It’s a skewed analogy.”

In the meantime, new projects are moving ahead. Intergulf Development broke ground on Breeza in January and will add 158 condos Downtown within three building a block from the water in the historic Parren Hall building. Prices range from $345,000 to $1.9 million. With move-ins scheduled in June 2008, one quarter of the units are sold. From empty nesters to first-time buyers, “we are going straight to contract with 10 percent down,” says sales agent Stephen McAdaragh. “With investors gone, we are looking at people who are going to buy the home and live in it or use it as a second home.”

McAdaragh voices frustration about news reports exaggerating the slowdown. “A lot of people now are in a holding pattern as they see what the market does,” he says. “The media haven’t helped us. (Headlines) freak people out. There was a huge headline, ‘Housing Hangover.’” “People see that on the front page on the newsstand and a lot of people don’t get past that. They don’t read the article, and really the article wasn’t that bad.

“If you own a home and sell now you will make 3 percent to 8 percent return. That’s normal. You are not going to make 50 percent on your home right now. That’s not normal. People are having to adjust because over the last five years the market was so hot, prices were low and people were making a ridiculous amount of money on their homes that just wasn’t normal. People saw record-level low interest rates and now they’ve bumped up, but they are still at a historical low. People have to adjust to it. I think once that happens, people will get caught up with the market and come out of that holding pattern to buy again. Actually I’ve already seen a jump. A little spark here. We’ve been getting a lot of traffic. There is no hangover, just a decline in sales,” says McAdaragh.

Normal Includes A Little Interest

Pointe of View’s Vantage Pointe will house 679 condominiums when it opens to residents in late 2008. Nearly 300 units in the complex - Downtown’s largest - have been sold.

Donna Lutz at Vantage Pointe doesn’t want to hear complaints about interest rates. Lutz has been selling homes since the early 80s, when interest rates were 18 percent. “I don’t have any empathy for people who get concerned about interest rates reaching 7 percent,” she says. “If we stay under 10, we’re good.” While more resales are competing for the attention of buyers, Lutz reports a return to a normal sales pace. “Within a few years, we will be back to our normal San Diego appreciation rates,” she says.

At 679 units, Vantage Pointe is the largest project so far in Downtown. Prices start at $344,000 and climb to $1.3 million with move-ins expected in late 2008. Lutz reports sales of 54 units so far this year. Overall, 277 units have been sold since November 2005. “Just last week, we had two sales and two reservations and we are converting the reservations to sale right now.” she says. Depending on the length of time between reservation to contract, about 64 percent of reservations get to contract. Lutz says the disappearing investor market hasn’t made much of an impact on her project. “We weren’t even offering sales to flippers,” she says. “They had to qualify as their primary residence or a second home.”

Vantage Pointe is owned by Pointe of View, which also owns Pacific Pointe. The second project is still in the design phase but is expected to contain 403 condominiums.

Legitimate Buyers Keep Things Consistent

Intracorp too is seeing only buyers who are interested in becoming residents. “Speculators have declined and so it is really legitimate buyers for occupancy of some sort,” says Bill Nichol, Intracorp chief operating officer. “Most of the people who come Downtown look at what projects are available. (Our buyers) are looking in our range, which tend to be smaller units at 700 to 1,000 square feet; and in our price range, $300,000 to $800,000. The market is slow, but it’s slow because of the press. People are waiting and they are looking for a deal. They want a little bit of a discount, but there is still activity. I think it’s just a wait and see attitude. The prices are holding. The discounts are relatively small and there is a slowness in the number of units absorbed every week. But there are still buyers in the market.”

Intracorp is working on 223 condominiums at Park Terrace and waiting for entitlement on Strata, which will add another 213 condominiums to the market.

Wrap It Up

K. Hovnanian Communities recently finished Cortez Blu and expects in the next 30 to 60 days to wrap up work on Gaslamp Square. Gaslamp is a five-story townhome/condominium project with 103 units over ground-floor retail with prices beginning in the low $300,000s. About 25 units remain available. The project is seeing mostly local and second home buyers, with the second home buyers selecting it for its proximity to the ballpark and a desire to live in the heart of Downtown. Cortez Blu is a 20-story high-rise with about 20 of its 67 condominiums remaining.

With the relaxed market, condo buyers are waiting to tour finished units before purchase, says K. Hovnanian’s Angela Merrill. ‘Buyers are not necessarily as willing as they were before to buy off of blueprint.’ (lambertphoto.com)

Angela Merrill, director of land acquisition and project manager for both communities, is optimistic about the Downtown market based on sales volume. “We are seeing a few cancellations,” she says. “But we think there are some values coming on the market now. We’ve been selling, in our Downtown communities, two to three homes a week at our current prices.” Some cancellations came as interest rates increased and buyers grew skeptical of the market.

Merrill says they were able to save many of those cancellations simply by communicating with buyers. One thing K. Hovnanian has going for it is nearness to completion. “We’re finding buyers really want to see,” Merrill says. “They don’t want to wait as long for condominiums and they want to see what they are going to get. Buyers are not necessarily as willing as they were before to buy off of blueprint. They like seeing the product they are going to be purchasing. Two or three years ago, people saw there was a huge increase in prices on a consistent basis. People were more eager to purchase without having to see the units.”

Many of those previous buyers were speculators and Merrill views their departure as a positive. “It’s good for Downtown,” she says. Hovnanian has no other Downtown projects planned but is looking for possibilities.

And More, And More

One developer who seemingly can’t get enough of San Diego and continues to outdo himself with each new project is Bosa. “We are quite confident in San Diego,” Bosa says. “There is no room for arrogance or cockiness. The next project we come out with is going to be, by far, the highest quality project we’ve ever done, if not the highest quality project in Downtown San Diego. That is the market we are going after. We think the market is ready and San Diego is ready for that kind of product.”

Bosa promises Bayside will be the most luxurious project he has developed in California. Prices for one of the 232 swanky condos in 37 stories with a view of the bay begin at $750,000 and top out around $12.5 million. “The units will have fabulous Italian-style kitchens, great appliances and great common areas,” Bosa says. “We are moving up the ladder quite a bit. San Diego is ready for it now.” Bosa says buyers include many who have purchased units in his earlier projects and are ready to move up. He doesn’t expect this product to move as fast as previous sales but he says the market today is more mature and ready to buy upscale housing. Bosa and others are continuing to look for more opportunities in San Diego.

“I think what people will realize is that the sky isn’t falling and the world isn’t going to end,” McAdaragh says. “San Diego has a couple things going for it: the economy is strong and we still have a strong job growth. With those two in hand, the market is going to be fine.”