After a short
comeback when housing prices peaked, condominiums and town houses have
lost their allure as an affordable alternative to conventional
single-family homes. The reason is a flood of competition from
foreclosed, detached homes at prices that new attached housing can't
beat.
Three years ago when Jeffrey Homes set out to build
Villa de Madrid, a 98-unit condominium project in Hemet, Inland home
prices were breaking records monthly. Condominiums were welcomed by
local builders as the only way left to provide affordable homes to
first-time buyers.
Not only were new condominium projects
sprouting up, but apartments were being converted to for-sale
condominiums to fill what seemed to be an unquenchable demand from
buyers.
Since then,
condominiums and town houses have been on the leading edge of a
plummeting housing market. Sales and prices of all for-sale housing
have fallen, causing some developers to stop conversions of apartments
to condominiums. Still others are redrafting plans for new projects
from condos to apartments on land zoned for multi-family housing.
In 2005, when first-time homebuyers were being priced out of the
market, Jeffrey Homes' plans for the Villa de Madrid condo project
looked like a smart business venture.
"We thought having
a product offered in the city at about $300,000 was going to be very
well-received," said Jeff Holbrook, chief financial officer for Jeffrey
Homes.
At the time, new single-family homes were selling
in the $350,000 range. Today, he said the company would have to price
the condos below $200,000 to sell, and that's less than they paid to
build them.
So Jeffrey Homes stopped construction earlier
this year after finishing the first 20 high-end condos at Villa de
Madrid, Holbrook said, adding that the company will rent the completed
units to defray the cost of keeping them.
Mick Pattinson,
chief executive of Barratt American, said his company was building
about 140 condominiums and town houses in French Valley, but shut that
project down at the end of 2007 after building only the models because
the homes couldn't be sold at prices high enough to break even. He said
Barratt has no plans to build additional condominiums.
"Foreclosures are the name of the game right now. It is what people are
buying," Pattinson said. "It is impossible to compete with foreclosures
when you have all the costs associated with new home construction."
Condominium developers were caught by surprise, said Borre Winckel,
executive officer of the Riverside County chapter of the Building
Industry Association of Southern California.
"I don't
think any builder of a condo project ever thought they would face a
market where it is no more expensive, if not cheaper, to buy a
single-family detached house," he said.
Some developers
are revising site plans from condominiums to apartments. "For those who
are renters it is a terrific opportunity," Winckel noted.
Mulligan-Allen Associates last month got approval from the city of
Corona to build 442 apartments on about 20 acres overlooking Highway 91
and west of McKinley Street that was previously planned for large
luxury town houses.
Jeff Allen, a partner in the
development firm, said the apartments will be smaller than the formerly
planned town houses and priced below the rents on the many houses and
luxury town houses that streamed into the rental market as the for-sale
market cooled.
Buyers waiting for the market to hit
bottom or unable to qualify under tighter lending standards will be
attracted to the apartments, he said. In many cases, he thinks they may
be the same people who a couple years ago would have bought town
houses.
Drop in Value
Among the condo buyers with regrets is Candy Canlas, 30, who bought a
small, one-bedroom condo in Corona two years ago for $194,000. Since
then its value has dropped about $24,000, according to current sales
prices.
"When I got
it, I thought it was a little expensive. But it was the only thing I
could afford and so I went for it," said Canlas, who works as a nanny.
Canlas said now she feels trapped because she can't sell the condo to
recover her down payment and pay off her mortgage. If she had to do it
over, she said, she would have rented.
Canlas lives in
Siena in Corona Hills, a gated community on McKinley Street where 107
of 296 apartments have been converted to condos, according to Christine
Cordova, a sales agent at the project. Cordova said earlier this year
qualified buyers grew scarce and no more apartments are being upgraded
for sale. Unconverted units continue to be occupied by renters.
Cordova said the condos are currently priced from $170,000 for a
554-square-foot, one-bedroom home to $234,000 for the 1,230-square-
foot, two-bedroom model. Although prices on the condos have been
lowered, she said, they can't match the foreclosures.
"We
see foreclosures going for $220,000 for a three-bedroom, single-family
detached home in the Corona area," she said.
Some
condominium developers forging ahead with long-planned projects say
price is not the only selling point for higher-density, attached
housing. They hope to sell prospective buyers on a low-maintenance
lifestyle and such amenities as swimming pools and fitness centers.
Condos and town houses planned in urban centers like downtown Ontario
and Riverside are also touting shopping, restaurants, entertainment and
employment within walking distance.
Forging Ahead
Mark Rubin, chief executive and principal shareholder in Regional
Properties, said the 141-unit condominium project called Raincross
Promenade he is developing in downtown Riverside, with prices starting
at about $275,000 for a 900-square- foot, one-bedroom unit, will have a
gym, spa, swimming pool and upgraded kitchens. Sales are scheduled to
start in June 2009. Rubin said he is determined to keep his word to the
city that he will build for-sale condos but as a last resort he would
rent them out.
Sales also are expected to begin soon at M
Solè on Market Street in downtown Riverside. Developer Alan Mruvka,
founder of the E! Entertainment cable network, is offering 10 units
that combine downstairs business offices or retail spaces with upstairs
luxury homes. Prices for the live/work units will start in the
$500,000s, according to the sales director.
Mruvka said
"the $64,000 question" is whether he can still make a profit on the
units, which previously were advertised with prices "starting from the
mid-$600,000s."
Interest has picked up recently, he said,
and he is counting on the looks of the completed live/work units to
drive sales.
However a second phase of M Solè ,
originally slated for 109 condominiums, has been redrawn for 132
apartments, Mruvka said.
Mruvka said he figures the
housing market will begin to revive eight months from now when
construction would start, but it is impossible to get financing to
build new condominium units. So he said he will build apartments with
high enough quality so they can be converted at some future date to
condos.
Jerry Snyder, managing partner with J.H. Snyder
Co., developer of Ontario's Town Square project that includes 140
townhomes to open in August, said he is looking for buyers who prefer
not to mow a lawn or to live in a neighborhood of single-family homes
that's blighted with foreclosures.
Still, Snyder said he
doesn't know what the demand will be. The second phase of the downtown
development was planned for 108 condominiums that he has redesigned for
153 apartments because he also said with the glut of deeply discounted
for-sale homes currently on the market there is no one willing to
finance a new condominium project.
Reach Leslie Berkman at lberkman@PE.com or 951-368-9423.\
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