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Wednesday, Feb. 13, 2008 | In a market that has long craved buyers, the elevators in downtown San Diego condo towers are beginning to fill up on the weekends with gawkers. Some seem ready to write up an offer that very day. Others bring pens and paper and scribble notes about floor plans and amenities.
In parts of downtown, prices have slipped — in some buildings, plunged — to levels not seen in years. Foreclosure trouble has plagued some units and created new lows for surrounding units’ values. As new condos have combined with resale condos up for sale, the number of units on the market has spiked.
And though many understand prices could continue to fall, they’re tired of waiting. In a market that has slumped amid a greater economy that seems poised for recession, these are the bargain-hunters.
They are the El Centro businessman who avoided the downtown market in its overheated days who now expects to close on his second home in the next two months. They are Arizonans driving west for the weekends. They are suburban San Diegans looking to buy condos and rent them out. They are retirees seizing on recent interest rate cuts and finding reason to downsize now. And, out there looking with them, is the guy who expects a downtown condo will be his first real estate investment ever.
But even downtown’s real estate professionals admit their audience is murky.
“I think we’re trying to figure out who the buyer is ourselves,” said Dan Webb, a real estate agent with the Coshow Real Estate Group in Hillcrest, which runs two Repo Express bus tours every weekend for buyers looking for deals on distressed properties.
And though some units are priced at significant discounts from their previous selling prices, many analysts have vehemently predicted further price drops for the region’s real estate market. Agents are eager, like buyers, to find the bottom of the downtown market. Some buyers are itching to buy something anyway. But more of the same trouble that affected much of the hefty price drops could be coming, analysts caution.
Carla Coshow, Webb’s broker, admitted as much to the buyers on the bus on Saturday.
“All the air has gone out of the market, but it still may have more to go,” she said. “Who knows? No crystal balls up here.”
Patrick Jelsema rode the bus on Saturday’s downtown condo tour. Jelsema, an urban planner, works in Little Italy and rents in Hillcrest and is looking for a condo priced below $300,000.
Jelsema grew up on a cul-de-sac in Michigan.
“You couldn’t walk anywhere,” he said. “It was a textbook urban planning disaster.”
He’s lived in San Diego on and off since 1990 and sees buying a downtown unit as uniting his desire to own his own place and his affinity for walkable environments. He stayed out of the market during the real estate heyday, but remembers the region’s preoccupation with investing in housing. Now he wants to take his time to research and decide on a unit he really wants. And if prices come down further in the meantime, that’s all the better, he said.
“It was always a topic of conversation — you could pick up snippets of conversation on the street about prices, how fast they were rising, how much people were making,” he said of the boom days. “I just noticed the frenzy. I just looked at where I was in my life and there was just no way I would feel comfortable with getting into something.”
Saturday’s tour thrust Jelsema into a group of about 20 people to look at six units in Bankers Hill and Little Italy. As they milled through the units in the two-hour tour, husbands and wives whispered to each other and made notes. And they asked the question, several of them in each unit on the tour — “How much would this rent for?”
Jelsema drew a stark line between himself and the ones asking that question.
“I’m a middle-class guy, I have a great job, I think I make a good salary,” he said. “But then you look at the prices, and you see all those investors. Where’s the normal guys like me that just want to live in an urban environment?”
A downtown developer, Sherm Harmer is the chairman of the Downtown Residential Marketing Alliance and an indefatigable proponent of downtown condos. He said his anecdotal understanding of the makeup of the buyer pool, gleaned from meetings with the downtown builders and stakeholders, is that about 65 percent of the buyers in downtown buy to live in the condos themselves.
They’re joined by bargain hunters, “bottom-feeders” as Harmer called them, who are “out looking for a steal and they’re obviously going to rent their homes,” he said.
And another group is the second home buyers, who “have always been attracted to downtown,” he said.
Aaron Popejoy falls in that group. He’s an El Centro businessman, on the board of that city’s Chamber of Commerce. And he’s been looking for a downtown San Diego condo for a weekend home for years.
Popejoy started looking downtown a few years ago, right before the peak of the market, and soon decided the frenzy muddled the ability to make a reasoned purchase.
“In talking with some of our colleagues here, pretty much everyone decided it would be terrible for a while, with everyone using the interest-only loans,” he said. “We expected some sort of a bubble burst, and when it did, we’d be ready to pounce — we’d wait a few years. It happened a little sooner than we thought it would.”
Now Popejoy expects to close a deal on one of a couple of units he’s looked at in Little Italy within the next couple of months.
Second-home buying in San Diego has long been a magnet for Imperial Valley residents, Popejoy said. Where wealthy farmers in the agricultural community once favored second homes in Birdrock, they’re attracted to the maintenance-free living in a downtown building.
Anthony Napoli is president of the Anthony Napoli Real Estate Group in Little Italy, and works as Popejoy’s agent. Napoli said the last three weeks have been his busiest in three years.
“The traffic has increased and buyers are realizing the prices are not going to go down to zero,” he said. “Owners are not just going to come up to them to give them a key. I have seen an incredible change in attitude.”
Napoli and most of the downtown agents interviewed for this story said they still draw a line at equating all downtown units with the others.
“Just because you can find great deals in inferior buildings, is it a great deal if nobody wants it when it comes time for you to sell it?” Napoli said. “Price is long forgotten but the quality will last.”
And even on desirable units, buyers see the ball in their court.
John and Janice Davis, other clients of Napoli’s, just bought a unit in the Renaissance, after a long negotiation process of eight offers and counteroffers that brought an asking price of $649,000 down to $605,000. The previous owner, Napoli said, bought two-and-a-half years ago for $740,000.
The Davises are moving downtown for their retirement.
“It’s easy living,” Janice Davis said. “And in 10, 20 years, it’ll still be just as easy for us.”
While he said the share of first-time buyers in the buyer pool has dropped from 50 percent in 2005 to 25 percent now, Harmer said there’s no comprehensive list of who’s doing the buying in downtown.
“What I know is that traffic in sales offices have doubled since Christmas,” he said. “I couldn’t figure a better time in the last seven years for someone who wants to own a home.”
Still, Jelsema says the neighborhood has growing to do. In his job, Jelsema is sometimes involved in the environmental studies for downtown projects. Personally, he wonders how downtown will develop if investors and second-home buyers continue to snatch up units for occasional living.
“That may affect some of us that want to try to live downtown,” he said. “Who wants to live in a building where all of the units are sold but three-quarters of the people don’t live there?”