A little more than a year ago, a dramatic showdown between embittered buyers and an embattled developer ended at a downtown condominium with a bombshell: The buyers got their deposits back.

Weighing in at 679 units, downtown’s biggest condo building, Vantage Pointe, has met with outsize trouble since 2004 when buyers first got in fistfights for the privilege of securing a unit.

The building’s trouble continues. The developers haven’t sold a single unit in the 14 months since returning deposits to the previous contracted buyers. About 40 buyers have signed contracts to buy there but can’t close the deals. More than 150 other units are being rented.

But that’s not enough to satisfy the project’s lenders behind its $210 million loan, the largest construction loan on a single residential building in San Diego history. Those lenders filed a notice of default in April, pushing the developers to the first stage of foreclosure.

Now the building’s being handled like a giant hot potato. While the rest of the downtown market shows signs of stabilizing, no one has yet found a way to make Vantage Pointe profitable enough. The developers have been trying for a couple of months to find a buyer for the whole project or to become a partner. But the bank separately stuck up its own for-sale sign seeking buyers for the mortgage.

It’s unlikely the developer’s offering will look more appealing to investors, because it would mean paying more for the loan and the money the developer has sunk into the project. The bank’s deal could mean the buyer snags a discount on the mortgage itself, then forecloses on the developers.

“That took a lot of wind out of our sails,” said Randy Klapstein, CEO of Pointe of View, the project’s developer.

The downtown condo market so far hasn’t had to deal with a real impact from Vantage Pointe. Depending what happens with the developer, lender and future investors, the market could be in for an influx of condos for sale.

Although the Vantage Pointe project has always been the bellwether, the shadow on the downtown market’s horizon, the rest of the condo market is plugging along. The number of homes for sale downtown continues to drop, a sign that supply and demand are much closer to being balanced than in recent years.

No new towers are under construction. And sales are picking up as government incentives and low-interest rates motivate buyers. The activity begets more activity, and downtown forecasters have begun to say the market is stabilizing — even downtown, where “glut” was former shorthand for the market’s situation.

“We’re groping along the bottom,” said local real estate analyst Gary London. “I think that we’re past the worst but not much.”

There are 560 new condos on the market downtown, according to MarketPointe Realty Advisors, a local firm. If sales continue at the same pace as the last six months, it would take less than 14 months to sell those 560 units.

That’s considerably higher than the six-month rule of thumb economists use to indicate a balanced, healthy market. But it used to be worse. Downtown last year had 37 months of supply, and in 2008, more than five years.

“Probably a lot of it has to do with government incentives,” said Robert Martinez, MarketPointe research director. “Government dollars haven’t been hurting at all.”

Besides snagging federal and state tax breaks for buying homes, more and more buyers have been using federal government-backed mortgages downtown. The loans are popular because their standards aren’t as picky as traditional mortgages, and they allow borrowers to put as little as three percent into a down payment for the home.

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In the second quarter of 2008, only 1.9 percent of the buyers downtown used the Federal Housing Administration loans. But this spring, 17 percent of buyers used them, according to preliminary second-quarter statistics from MDA DataQuick.

Though the buying fever could wane when the tax credits disappear, no new condo towers will be built for a while. London said it wouldn’t be feasible for a developer to propose a condo development for at least the next four years because prices have fallen too far.

Downtown broker Jim Abbott said it’s not yet sunny downtown, especially for sellers hoping to get close to what they paid a few years ago. Besides the 560 new condos available for sale, there are another 500 resale condos.

Prices in the top half of the market — condos priced higher than $700,000 — continue to fall. Foreclosures are still coming. Short sales are more common. In some buildings, the going price is about 50 percent of what the unit would’ve sold for at the peak.

Abbott used to own a condo at Meridian, near Horton Plaza. He sold it in 2004 for more than $1 million. The new buyers put $350,000 worth of renovations into the 2,100-square-foot unit, he said.

The bank foreclosed on it and the unit just sold for $699,000 — about half the former sales price plus the renovations.

“I think this is the new normal,” he said. “People who are waiting for a return to a market tempo like we had in 2004 or 2005, I think, are waiting in vain.”

Please contact Kelly Bennett directly at kelly.bennett@voiceofsandiego.org. Follow her on Twitter: @kellyrbennett.

Dagny Salas

Dagny Salas was web editor at Voice of San Diego from 2010 to 2013. She was an investigative fellow at VOSD from 2009 to 2010.

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