One Who’s Out and Wants In

A man walks into the lobby of a downtown sales office on Sixth Avenue and G Street on a Sunday morning, wheeling his young son in a stroller in front of him.

The glass and marble lobby has flat-screen televisions showing downtown views and condominium interiors and wall-sized photographs of construction sites. But the centerpiece is an architectural scale model of a building beneath a glass shell. The model is three by five by four feet high, detailed out to its balconies, with Matchbox cars and model people in the street.

The boy in the stroller points at the model building, wide-eyed, and says, “Whoa!!”

“Do you want to live in there?” the man asks his son, but the little boy’s face scrunches into a frown, and he says nothing. “Do you want to live in that building?” the boy’s father asks him again. Still no answer from the young skeptic.

The sales manager for the building, Donna Lutz, emerges from a nearby glass-enclosed office and laughs. “That’s not the real building,” she says to the little boy. “You don’t have to live in that. That’s a model. The real building will be a lot bigger.”

In fact, the real building for Vantage Pointe condominiums, when it reaches completion in late spring of next year, will be the largest residential development in downtown San Diego, with 679 condos and 25,000 feet of commercial space. The 40-story project, which encompasses the entire block between A and B streets and Ninth and Tenth avenues, entailed what real-estate analysts say is the largest private construction loan in San Diego County history: $210 million.

The man who’s visiting the sales center today is Scott Spick, and his two-year-old son’s name is Ian. Spick was one of the first people to put a deposit down at Vantage Pointe, back in 2004. His condo will be a two-bedroom, two-bath “K plan,” with north-facing views of Balboa Park from the 17th floor.

He’s visiting today because he has concerns and questions for Lutz.

“Any update on estimated status for completion on our unit?” Spick asks.

“We hope to start moving in our first buyers in April,” Lutz says. “Starting next month, we’ll be giving the construction company a punch list of things that need to be corrected, and then we’ll start walk-throughs after the first of the year.”

“I was reading about all this,” Spick begins, “and I’m wondering.…” His voice trails off. Spick is 33, a musician — “I’d like to say I’m a full-time musician” — but also works as a project manager at Nokia to help make ends meet. His wife Ana used to work for Qualcomm, but now she’s in interior design. Ian is their first child. Spick says now to Lutz, “I’m X amount of dollars into this for the down payment, and I’m wondering, is it better for me to move forward with this investment or to step back and take my money and try to invest it somewhere else? I personally think it’s still a great investment, but I’d like to know my options. Reading through the contracts, I see that there’s a clause that says that after 42 months from my signing on, if I don’t close escrow, then I can get out.”

Lutz says, “If your home is not deliverable by 42 months after signing, then, yes, you’re able to get out of it. But, I tell you, all hands are on deck to make that date.”

“And that is May 2009?”

“Yes, that’s May.”

Spick locked into his unit at a price of $419,000. He put five percent down on the property. “I wonder what it would appraise for right now,” he says.

“Oh,” says Lutz, “at that floor level, at that size — you’ve got 950 square feet — you’d be really hard-pressed to beat $419,000, even in today’s market. I know that because I’m buying a property here, too. I’m in the same boat that you are. And as long as you’re on the upper levels, you’re still very positive. That same home today, list price, would be about $600,000.”

Spick’s face brightens. “Is that at this stage right now?”

“Yes.”

“That’s why I want to try so hard to qualify for this,” Spick says. “And get as creative as possible. With my parents being real-estate agents, they’re saying, hey, you know, do what it takes. We’ll help you if need be.”

Spick explains that he used to live in Golden Hill. Then, in 2003, he and his wife started looking for an investment. They purchased a four-bedroom, 1700-square-foot home in Scripps Ranch. “We should have sold at the peak,” he says. “We have neighbors who sold really well, when we, like most people, were thinking, ‘Let’s wait a little bit and see if we can get a little more out of it.’ So I guess we got greedy and didn’t get out in time, and now we’re stuck there.”

“It’s nice that you got to keep it, at least.” Lutz is alluding to the hundreds of thousands of people in Spick’s situation who’ve been foreclosed on, or short-sold.

“I think, in the long run, if we can hold on to it, that’s the best decision,” Spick says.

“Well, for Vantage Pointe,” says Lutz, “we are allowing co-buyers. So if you do need to add your parents on, the builder is allowing you to do that. Your name still has to remain on the title at closing, but you can add a co-buyer for qualifying or down payment. And we’re going to have some seminars with Wells Fargo, and if you come to those — we’ll let you know when those are — you’ll learn that you can use gift money for a higher down payment.”

“And what about FHA? Does Vantage Pointe qualify?”

“We’re working on that. Right now, FHA has been changing their guidelines. And we wouldn’t qualify today. But we’ll know by the end of November, with the new guideline changes, whether we can proceed with the application.”

“So have they released all the units now?”

“We have pricing on all of the homes. The least expensive units, on the second floor, overlooking the courtyard, one bedroom, one bath, are in the low $300s. And it goes up to $1.3 million for the penthouses with the large terraces.”

“Okay,” says Spick. Ian is sitting quietly in the stroller. Lutz has given the boy a peppermint candy to occupy him while she talks to his father. “Now, I guess,” Spick continues, “there are some financial questions I have. Let’s say I’m scheduled to move in in May. When am I expected to close escrow?”

“It’ll be within a few days of move-in,” Lutz says.

“Okay. So it’s not expected months before.”

“No. We will probably do the walk-through and have the sign-off sheet done for your home by March. And then we’ll get you all processed and do all that within a couple weeks of actually giving you the keys.”

“Okay.” Spick crosses his arms. “Are there any concerns, with the recent market in the state it’s in, that the units may not appraise for loan approvals?”

“You’re phase one, right?” Lutz leans against a corner of the table where the Vantage Pointe model sits. Spick says yes, he was one of the first to lock into a place. Lutz says, “Well, I really think phase-one buyers, especially on the upper floors like you are, will be fine. The lower floors may be a challenge.”

“Right,” says Spick. “Is the builder prepared to do anything about that? Because I’m certain he doesn’t want any vacancies.”

The builder of Vantage Pointe is the Calgary-based development firm Pointe of View.

“No,” says Lutz. “That’s right. He’s really focused on closing as many of the loans as he can that we have under contract right now.”

“Why I’m asking is, it looks like I’m going to have to get creative. I went into my bank the other day, Wells Fargo, and I was anticipating being able to rent out the townhome and to use the rent to be able to qualify for this. But I guess there’s a new federal policy now that you can’t use your rent to count toward equity unless you’ve had that rent for two years.”

“Wow,” Lutz commiserates. “Do you have equity in the property?”

Spick shakes his head. “I’m pretty much right at.…” He flattens a hand and moves it horizontally in front of his chest.

“Well, see,” Lutz says, “and this is the trouble. Wells Fargo is going to hold a seminar for our buyers to bring us all up to speed on stuff like that. Because the rules are changing daily. And they’re going to change a hundred times more between now and closing.”

“Right. Right,” says Spick. “That’s my concern. Because I still feel like it’s a wonderful investment, but I am concerned that if there’s a lot of people who are unable to qualify, what is that going to do to the value of the property if we have a lot of vacancy?”

“I don’t know what’s going to happen,” Lutz says. “Whether we do a buy-down program, to give a lower interest rate to the buyers, or…whatever we do, we’re well aware of it. Big-time talks are going on right now to figure out something.”

Spick nods. “Well, what’s the vacancy rate at now?”

“We have 43 percent under contract. We’ve been holding pretty steady. We’ve actually seen a lot more interested people lately.”

“Yeah. All of America’s on sale right now.”

Back in 2004, Vantage Pointe reserved 337 units — 49 percent of capacity — in the first weekend they were made available to the public. So having 43 percent under contract represents a decline from initial figures. Compounding the troubles at Vantage Pointe is the fact that there are already so many unsold condos on the market. The supply could last for several years.

According to Russ Valone, CEO of Market Pointe Realty Advisors, almost 22,000 housing units exist in downtown San Diego. About a third of that (32 percent) is subsidized, or single-room occupancy. The rest of the housing stock breaks down into 3600 apartments and 11,350 condominiums. Prior to 1999, there were only about 1300 condos downtown, so that’s 10,036 new units in the past nine years. Currently, 6441 condos are built, sold, closed, and have individuals living in them, either owner-occupied or rented out, and 3595 units are either still being built or are actively selling.

Of those 3595 available units, 1549 are new, or not yet built. Over a quarter of those, 389, are in Vantage Pointe.

One Who’s In and Wants Out

“I’m not at all unhappy with the decision to move to downtown,” states 25-year-old Jordon Harlan. Harlan lives with his older brother Landon in Union Square, on the corner of 14th and Broadway, in the northern part of East Village. “It’s what I wanted. I wanted to be able to walk everywhere, I wanted to be next to the cultural events. I wanted to be able to go to bars and street fairs. And that’s how it is. I live where people park to go to the ballgames. I’m 10 blocks from House of Blues. I’m 20 blocks from the bay. I can run through Balboa Park from my house if I want to. And I’m also about 2 blocks from the freeway, although I don’t have any freeway noise.”

Union Square is made up of three mid-rise buildings of steel-frame/wood construction and was completed by Western Pacific Housing in 2004. According to the downtown real-estate specialists at 92101 Urban Living, Union Square “sits in the path of development…the idea being that prices per square foot will increase as development around the area matures…Union Square is for the investor who is willing to be on the edge of development over the next few years.”

Harlan and his brother bought their condo late in 2005, and the two have lived there since. The price was $531,000, and they did a “credit back,” so that their loan totaled $550,000. They used the extra money to paint the condo, buy furniture, and make sure they had a little buffer left over in case of hard times.

“We took out a one hundred percent loan to value,” Harlan says. “But our real-estate agent double-ended the deal. So the place had appraised at $550,000, and basically she cut us a check for half of her commission.”

The Harlans paid no money down. Their mortgage is around $2900 per month, homeowners’ association (HOA) fees are $378 per month, and taxes are another $450 — for a total payment of just over $3700 each month.

Their 1100-square-foot unit is on the sixth floor — the top floor — and it faces the tree-lined courtyard inside Union Square. It has two stories, with a 300-square-foot private deck, stainless-steel appliances, and granite countertops.

Their unit reappraised last year for $450,000. But now, Jordon Harlan says, the value is closer to $400,000, or maybe even $350,000.

“With the economic situation,” Harlan says, “it could take five years for my place to get back up to the value it had when I bought it. At that rate, with me paying the interest payments on it and not actually amortizing the loan at all, it doesn’t make any financial sense to stay in the place. For instance, we figure that over the next three years it’ll cost us about $133,000. We’d need to see an increase in value for that to be worth it. And it’s not likely to happen.”

Harlan and his brother are looking into loan solutions offered by the government, but they’re not finding relief there. “There’s an $8.5 billion settlement offered by Countrywide,” Harlan says, “although that applies to subprime loans and pay options, which is where you can make a minimum payment for less than the interest on the loan [resulting in negative amortization]. And this is basically predatory lending. So they’re allowing you to call Countrywide and just have your place refinanced. But they don’t have those programs for prime loans, which sucks, because my value’s being hit by the subprimes and the pay options and the foreclosures, but they don’t have any solutions for me. But I’m going to call in and try to work out something where either they refinance the value of my loan down to a fair-market value. Or I’d even be open to the lender renting it to me, with the option of buying it back a few years from now.”

Harlan is a second-year law student at USD, and he waits tables a couple of nights a week at Tapenade Restaurant in La Jolla. But mostly, he’s going into debt, paying school loans on top of his home loan, without much income.

Harlan’s brother is in the search-engine-optimization business.

Harlan learned about real estate by reading books such as Home Buying for Dummies and from spending hours on the phone with his real-estate agent.

“My loan is an 80/20,” Harlan says. “The first is a 5.75 percent interest rate, which is really reasonable. And it was full doc [fully documented], which means they got all my income and my brother’s income. The 20 percent is a home equity line of credit, and that fluctuates with the prime rate.”

A new possibility that the Harlans have put on the table is foreclosure. “I don’t want to sit in the house for six years,” Harlan says, “waiting for the value to come back. It doesn’t make any sense financially. At this point, I’m going to pay more to stay here than I’ll ever make from selling it. Not to mention that the adjustable rate I got was for seven years, which was, I thought, more than enough. So my loan could actually adjust, which I thought would be unheard of when I first bought it.

“You feel like a failure, you know,” he says. “Because you made such a huge investment, and you had your naysayers when you did it. And you had your supporters, too, people who backed you up, people you trusted. And you didn’t know who to believe or what to believe. And then to have to foreclose is to say that you made the wrong decision. To admit that you had poor judgment. And there’s the credit issue. Landon’s credit has rebounded from the 500s to over 700 now. Mine is bordering on 800. I’ve never been late for a payment in my life. So to have a foreclosure, it’s like, Jesus, I went through so much work to get my credit where it is.

“We had the income to finance a house this size. But 100 percent financing was a bad idea, from the bank’s perspective. When you’re looking at a half-million-dollar house, if you don’t have any equity in it, and it stops appreciating, then you have no reason to stay in it except for your credit. You have no equity.

“It’s a tough situation to figure out what to do, because, how do you price your credit score, you know? And it’s an interesting side note for me, because I’m going through a moral-character application for the California bar, where they evaluate your financial record. So essentially, a foreclosure could keep me from being admitted to the bar. I have to worry about what this whole housing situation might do to my career.”

From a Developer’s Point of View

“This isn’t particularly a bad time for us,” says Brian Stoddard, emphasizing the word us, “it’s a bad time for everyone.” Stoddard is the president and chief operating officer for Calgary-based Pointe of View, Vantage Pointe’s developer. “We’re not having any project-related issues, we’re having market-related issues. We continue to believe in that building, and we continue to believe in San Diego. We’re putting up a landmark in a world-class city.”

Stoddard says that Pointe of View hasn’t made the decision yet whether it’s going to offer properties for rent. “Am I going to rent out units, or reprice the units, just because we’re in a bad market?” Stoddard asks. “Or am I going to sit there and carry those units and sell them at a time when I think the market may be better, if I think that’s going to be months instead of years away? That’s a mathematical equation for me. And it’s the kind of thing we’ve done in the past. We’ve sat on units. I have no reason to fire-sale units. We are a large developer. We have thousands of units all over the continent. We have buildings in Ontario, Calgary, British Columbia, Arizona, Hawaii, Orange County, and we have another site in San Diego (at 11th and Broadway), just two blocks away from Vantage, which we haven’t begun to build on yet. Again, we believe in San Diego. Those units in Vantage Pointe are going to sell. Is it going to take 8 months, 10 months, 15 months to sell them? Maybe. I don’t know. But it’s not going to break us to sit there and carry that building for the next year. We know the market is going to come back, and someday, we’re going to have two big residential buildings in San Diego. At least two.”

One concern surrounding partially vacant residential buildings is that homeowners’ association fees on unoccupied units may not be paid. As a result, a building may go into disrepair, which can affect the value of all the units. “But,” says Stoddard, “if you look at the documentation for Vantage Pointe, we’ve posted something like six months’ worth of HOA fees for the entire building. So that shouldn’t be a problem.”

Stoddard says that his firm is also working closely with the bank to get Vantage Pointe approved for Federal Housing Administration (FHA) financing.

“I understand that much of the regulation around FHA is going to change,” he says. “We have Wells Fargo and our lawyers in San Diego currently exploring how we may get the building qualified for FHA purposes.” In the meantime, Pointe of View is “doing what we can for buyers. People were concerned that they wouldn’t have money to do upgrades. We’ve allowed people to go in and upgrade their units and put no additional money down at this time. We’ve paid for the upgrades, and the owners can pay for them when they close. I don’t know what the average is, but people are spending $10,000 and $20,000 to upgrade their flooring and their cabinets and their countertops. Obviously, these people believe in the project, and they’re trying to make their suites their suites, and we’ve allowed them to do that at no cost now.”

In the end, Stoddard says the building will speak for itself.

“That lobby is going to be absolutely stunning,” he says, with pride in his voice. “It’s huge. That building is going to make a statement. And I think when that building is up and people have the opportunity to see it, they’re going to say, ‘You know what, I want to live here.’ ”

Two Who Like It Down Here Just Fine, Thanks

Chris Schweighart, 34, works in commercial real estate and lives in Atria on Market, in a fourth-floor, one-bedroom, 700-square-foot condo with an east-facing view. He can see the Omni and the top of Petco Park and the Hilton. He moved in almost three years ago and paid “in the $400s.”

Schweighart’s place is a “long-term hold,” he says. “I was never planning to jump in and jump out. I moved from Encinitas, and it’s like night and day. Residential, family-oriented, versus lively, urban, mostly young people. I don’t know how long I’ll stay, but I like it here a lot.”

Atria is located on the city block between First, Second, Market, and Island in the marina district. The four-story building has 149 units and 11,400 square feet of commercial space. Atria was built in 2002 and fully renovated in 2004.

Schweighart pays $285 a month in homeowners’ association fees. “That’s on the low side, and that was one of the factors that lured me into Atria,” he says. “However, each year, there’s been a maximum raise in those fees. When I moved in, it was $200, and it’s gone up $40 a year. We’ve got a gym and barbecue patio area, which is actually pretty nice. The amenities aren’t bad. But the HOAs just keep going up, and when is it going to stop? I mean, the amenities aren’t getting any better, they’re just staying the same.”

Schweighart’s major issue with Atria stems from the large number of renters, relative to owners. “I would probably say that somewhere between a third or maybe even close to 50 percent of the building is filled with renters right now. The developer is renting out his units. He hasn’t been able to sell them all. And then there’s probably, I would guess, 10–20 percent of the original owners who are absentee owners. It’s not really a desirable situation. The argument is that renters don’t care as much about the place as owners do, and I believe that. They’re a lot noisier and messier. I think a lot of them are only here short-term. You know, they blow into downtown, and they go out and go crazy, and they come home and take it out on us.”

Repeated calls to Atria to confirm these figures were unreturned.

Besides the noise from his fellow tenants, there’s also the city noise to contend with. “There’s noise from the street,” Schweighart says, “and you have the trains, and if you’re a light sleeper, then it’s probably not a good place to be.” But all of that is offset by the fact that he can “pretty much walk everywhere. I don’t have to worry about drinking and driving pretty much ever, which is a nice bonus.”

Jennifer Carroll, 23, lives in Acqua Vista, which occupies a city block between Ash and Beech and Columbia and State streets, at the edge of Little Italy. She lives on the fifth floor but has no view to speak of. She looks out at some of the other 390 condos in the two towers of her 18-story complex.

She moved into Acqua Vista in March 2005, one year after the building was finished, and she paid $390,000 for her 830-square-foot, two-bedroom condo. Her mortgage is $2300, and the HOA fee is $521 a month. She rents out one of her rooms for $600.

“You can’t park your own car here,” Carroll says, “and that [the valet parking] goes into the HOA fees. I think some people like having their cars parked for them, or they get used to it, but to me it’s kind of a pain. I don’t like to have that interaction. I’d rather park my own car and be in charge of it. And if you forget something, then they have to pull it up, and if they’re busy, then your car doesn’t come right away. But some people like it, so.…”

Carroll, a recent USD graduate, works at her family’s hotel, the San Diego Downtown Lodge, on Tenth Avenue and A Street. Her father helped her afford her condo back in 2005.

Carroll doesn’t mind the mortgage and looks at her condo as a long-term investment. As such, she isn’t worried about the bad economy or what her place might be worth at the present time. The one cost she does find objectionable is the HOA fee.

A homeowners’ association is a legal entity that manages the common amenities of a real-estate development. Most HOAs are nonprofit corporations and are subject to state statutes that govern nonprofits. Typically, fees paid to HOAs represent the common ownership of a building by its residents.

These fees can, however, turn out to be very high, sometimes almost as much as the mortgage payments. Owners in Horizons (555 Front Street), Meridian (500 Harbor Island Drive), and Harbor Club (100 Harbor Drive) pay monthly HOA fees in the vicinity of $1000.

“I feel like that’s the part that’s kind of sucking money out of me,” Carroll says. “It’s definitely something to consider when you’re moving into a condo.”

He’s Not Just a Tenant, He’s Also a Broker

Derrick Gilliam, 45, lives in Horizons, a two-towered 25-story structure bordered by Market Street, Island Avenue, First Avenue, and Front Street. Built by Bosa Development, Horizons is luxury concrete construction and was completed in 2001.

But Gilliam isn’t just a tenant of a downtown condo, he’s also a real-estate broker who sells downtown condos.

“It’s really hard to find lenders right now,” he says. “They’re just a lot stricter now. There’s no more funky loans with stated income and 100 percent financing anymore. It’s all full doc, and really good credit, and you have to have a lot of cash on hand. Most lenders want 20 percent down now, at least. And another thing is how lenders have become really strict on appraisals. I mean, before, they were just appraising places for whatever the offer came in at. They were appraising for whatever a place would sell for. But now they realize that that wasn’t a good thing to do. Now they’re more realistic in their appraisals, and my understanding is they consider downtown a declining market, so they’re appraising places at 20 percent reductions right now. And there have been places that have come out of escrow because the appraisals are coming in for lower than what the accepted offer is. So the seller will either have to cut the price, or the deal won’t go through. I’ve seen all of this stuff lately. And there’s other buildings where the HOA is in litigation with the developer, and banks won’t cover loans on those places. For instance, at TREO (1240 India Street), they were going through litigation, and I sold a place there, but I had to go through a lot of lenders to find one who would cover a loan, because they had some issues with the developer because of some cracks in the garage area.”

Gilliam lives on the tenth floor in the north tower of Horizons, in a 1200-square-foot, two-bedroom condo. He has a view of the bay, looking out over the convention center and the Marriott. He’s lived in the unit for two years, but his mother bought the place from the developer in 2001 for $450,000. Gilliam took over the payments in 2006 when his mother moved to a bigger place in the Pinnacle (550 Front Street). He lives with his spouse and his dog.

“One deal I did recently was all cash for a condo downtown,” he says. “And another one was a seller carry-back at the Legend. The seller assumed the loan, instead of a bank. We couldn’t find a bank that would carry the loan, and the seller wanted to get out from under it, and my client had money to spend, so they worked it out.”

Gilliam sighs, then half-chuckles under his breath.

“It’s definitely a very challenging time to sell real estate,” he says.