Wednesday, Aug. 12, 2009 | The city of El Cajon loudly proclaimed its love for condo conversions this decade, wooing developers to convert about 10 percent of its housing stock from rental housing to units for sale.
Now the city’s streets, especially near downtown, are replete with new project after new project, recognizable by the fresh stucco on the outside and the obligatory granite countertops on the inside. The city OK’d close to 3,250 units to be converted during the boom, though some projects stalled in various stages of construction.
The phenomenon — a literal metamorphosis from for-rent to for-sale housing — betrays the fundamental credo here: El Cajon wants you to be a homeowner.
Most of the storylines in El Cajon’s housing market these days are shared by San Diego County’s inland, moderately priced neighborhoods. Prices have fallen between 20 and 50 percent compared to the peak a few years ago. The number of listings now is about half what it was last year. Bidding wars have erupted on the lowest priced listings, pitting potential homeowners against investors. Foreclosures and short sales comprise the majority of the homes for sale.
But what does stand out in El Cajon, in the contrast between the rubble of some failed condo conversions and the success of others, is the strong governmental push in the housing market.
In the three years since the market bust, the county’s housing markets have recently started to heat up in buying and selling activity. When examined from a countywide level, those realities are difficult to gauge with much precision. A neighborhood market’s health may have as much to do with its nearby school district as with the age or style of the homes there.
For its part, El Cajon has long been known for a slower pace and family-centered neighborhoods and amenities. In the boom, those condo conversions — inflated prices though they had — were some of the most affordable real estate in the county. In this market bust it is becoming a bastion of housing that is actually affordable for homebuyers without crazy financing.
“All of a sudden, affordable housing has been reborn in San Diego,” said Travis Lyon, a commercial real estate agent with Sperry Van Ness who brokers bulk sales of foreclosed condo conversion complexes.
The city is a market of contrasts — these condo conversions and some rundown apartment buildings next to neighborhoods of single-family detached homes, many that were built in El Cajon’s first population explosion in the 1950s and 1960s. There are some foreclosures to deal with, and some pockets where savvy investors are dropping cash to realize some startling returns.
The market in El Cajon, at least as measured by buying activity, is beginning to recover as more buyers decide they’re going to enter the market.
Sales totals took a big dive at the beginning of 2008. But since September, when more than twice as many homes sold as sold the year before, sales counts have been climbing by double-digits year-over-year, according to MDA DataQuick.
Prices have continued to fall. The median buyers paid per square foot for a resale condo in El Cajon in June was $126 — that’s down 60.75 percent from the peak of $322 in September 2005, according to MDA DataQuick. That price was down about 19.4 percent compared to the same month in 2008.
On the resale detached side, the median price buyers paid per square foot in June was $194, down about 43 percent from the peak of $342 in June 2006. Year-over-year, the detached prices were down about 18 percent.
‘Greed Killed a Lot of These Projects’
Two conversions across the street from each other on Graves Avenue, south of Interstate 8, tell the story of different outcomes for developers of condo conversions.
The developer at 549 Graves Ave. paid $3.16 million in October 2004 for a 25-apartment complex to convert into condos, transforming carports to garages and splitting bedrooms in two to push the value of the units higher. By the time the units were ready for sale, it was October 2006, and the developer was asking between $389,000 and $415,000 for each unit.
Eight sales closed for $399,000 in 2007, but seven owners have walked away — leaving foreclosure listings in the complex that have been selling for less than $100,000.
Unit 10, for example, is a two-bedroom, two-bathroom condo that sold for $399,000 in October 2007. It sold again at the end of June to an investors group for $85,000.
The other 17 units didn’t ever find buyers and have gone back to the bank straight from the developer, which has them listed for a bulk sale, Lyon said.
Many developers missed the market with timing or price, said Jim Taylor, senior vice president at Sperry Van Ness, who sat on the city’s condo conversion committee and who’s personally eyeing and buying some discounted condos to rent out. Now, the city’s goal of improving its housing stock has been accomplished — with new floors, counters, kitchens, roofs, plumbing. Some didn’t turn any profit after that.
“Greed killed a lot of these projects,” Taylor said.
Across the street, the developer of 550 Graves Ave. dropped prices on the 28-unit conversion, closed the sales, and got out. Still, the $250,000-range prices paid by those buyers in 2006 are starkly different than the asking prices on current listings there — $130,000 and $89,900.
The end result for the neighborhood is the same, with deep discounts on foreclosures spawning more deep discounts for neighboring properties. But for the developers who converted the units from apartments to condos, the outcome is stark between success and failure.
While foreclosures are affecting the market in El Cajon just as they are nearly everywhere in the county, the city is far from the worst market for distressed property.
ZIP codes 92020 in the west of El Cajon and 92021 in the northeast rank 21st and 24th respectively among county ZIP codes for foreclosures per 1,000 homes, according to second quarter data from MDA DataQuick.
The eastern part of El Cajon, 92019, ranked 40th of 84 ZIP codes.
Downtown and the condo conversion market are certainly not the whole story of El Cajon real estate. Families move to El Cajon seeking good schools and community sports leagues for their kids. Blue-collar workers find more affordable housing than in nearby cities and wealthy people find large acreages and estates, said broker Susan Botticelli.
Botticelli said that the list prices on El Cajon homes are serving as loose guidelines to be bid up. That makes her call “bottom” in some parts of the market, she said.
“I don’t know that values have really been rebounding; the banks are still foreclosing on properties en masse,” she said. “But people are paying multiples of thousands of dollars over bid. A client of mine just wrote an offer where he actually bid $100,000 over what the bank is asking.”
The majority of the listings are distressed, a scenario shared by many markets in the county. Botticelli said the market is probably about 35 to 40 percent short sales, 40 percent bank-owned foreclosures, and 20 percent regular third-party sales.
She expects a flood of bank-owned properties as banks work through a backlog of foreclosures.
‘We’ve Got the Cash’
El Cajon Councilman Bob McClellan wants the city to buy individual condos or distressed complexes in bulk, then sell those to first-time buyers. At a time in the market when first-time buyers waiting for mortgages are beat in bidding wars by investors with cash, the city would act to fight to keep those units available for homeowners instead of the renters whom investors would place in the condos.
“They’re ready to write a check,” said David Cooksy, the city’s director of redevelopment and housing, of the investors. “The Redevelopment Agency has that same ability. We’ve got the cash. We can hold it, and get the qualified buyer in there.”
Where other cities have shifted to spending their required set-aside money to help working class households afford housing in rental properties, El Cajon has focused its attention on affordable for-sale housing — an effort it exerts with homebuyer assistance funds, the construction of new affordable homes for sale and policies like encouraging condo conversion. And that’s not going to change, Cooksy said.
“We don’t even talk about that,” he said. “Our goal is to reduce apartment units and create homeownership. It’s a philosophy.”