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Renters Start Filling Vacant Condos Glutting the Market

Renters who are interested in moving into brand-new space downtown can thank the overstocked condominium market, which has begun to offer up some of its inventory for rent to recoup building costs and pay debts.

Park Terrace, a 223-unit, 14-story condominium complex located next to Petco Park in the East Village, is renting 75 of its newly built units for sale in an effort to bring people in. Of those, 48 units have already been rented, according to the developer. Rents range from about $1,000 for a studio apartment to about $2,700 for a two-bedroom apartment.

“We just had a very high demand and decided that seemed like a good alternative given that absorption was so slow,” said Bill Nichol, president of Intracorp San Diego/Hawaii, a development company that has 22 employees and is based in downtown San Diego.

While other high-rise condominium complexes downtown have reduced their sales prices by as much as 40 percent, Nichol said Intracorp decided it would rent the Park Terrace properties as it waited for the market to pick up.

Nearby in the East Village, Smart Corner is offering up 120 of its 301 units for rent. Tenants also have the option of rent-to-own. Rental prices range between $1,300 for a studio apartment and $2,600 for a two-bedroom unit.

Smart Corner has been hailed as the epitome of smart, urban development; it combines retail, office and residential space with a trolley stop at its front doorstep.

But sales there have been tough. Only 61 of its 301 units have sold so far, according to Weston Harmer, vice president of San Diego-based Urban Real Estate Services Inc., which is facilitating sales at Smart Corner.

In about four months, Harmer said Smart Corner has rented 80 of its units.


Maximizing Profits

Renting out newly built units is a fairly common strategy in today’s marketplace, where sales have slowed and the number of units for sale has increased, according to Bob Pinnegar, executive director of the San Diego County Apartment Association.

“A lot of these developers don’t really have much of a choice because they have banks to answer to,” he said. “It’s a matter, in some cases, of cutting their losses and getting out of the deal.”

Developers who have already paid off their building debts are also taking the rental approach to reap any profits they might be unable to through sales, according to real estate economist Gary London.

“It’s one of the alternative strategies that are available to developers that are down in sales pace right now,” said London, who is president of The London Group Realty Advisors Inc.

Park Terrace is offering three- to six-month corporate leases, and regular lease options for six months to a year. If a unit is sold during that time, Nichol said renters would have to vacate the property in 90 days.

Nichol said he was unsure whether Park Terrace would offer up additional units for rent in the future if the market continues as it has.

“The real estate market has just slowed significantly and absorption has just slowed along with it,” he said.

London said the condominium projects just coming to market or recently completed will provide enough inventory for at least the next six years, making new growth an unwise business decision for condominium developers.

“What’s going to happen is the downtown development cycle will come to a halt when these cranes come down,” he said. “Generally speaking, the projects just coming to market now are in the weakest position.”

After Vantage Pointe and Bayside at the Embarcadero come to the market in 2009, there are no new condominium projects scheduled for development in the downtown area.

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