Awfully Quiet in Downtown San Jose
April 22, 2009
We know sales have been slow at the condo towers in Downtown San Jose. The question is where do the developers go from here? Do they keep hanging on, or is one of them going to succumb to the market soon?
The three major new “San Jose highrise” developments are Tower 88, 360 Residences, and the Axis. Barry Swenson has a fourth, City Heights.
These units range, on a price per square foot basis, from the $300’s to over $1,000 per square foot. What the developers are cutting deals at I don’t know, but what I do know is that they will be hard pressed to sell very many units in today’s market at the prices they are asking, and essentially none at above $600-700 psf.
In fact, at City Heights, a 2bd/2ba short sale showed up on the market yesterday at $331 psf.
The question developers have to answer is: do we hang on, or cut our losses and take advantage of the market elsewhere. I think we are getting close to the point where we are going to start seeing some of the developers cutting projects loose. In the case of Downtown San Jose, if you had intended on selling units for $700 psf, and the market is at $350, then as a developer, you have a long time to wait for prices to rebound. And when you consider the cost basis of some of these projects, a) it makes very little financial sense to sell units at $350 psf, and; b) doesn’t even justify as a conversion to rentals.
The opportunity cost of holding onto these dogs is becoming increasingly great which makes it doubtful that the developers of these projects can continue to justify hanging onto indefinitely.
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Tags: 360 Residences, Axis, City Heights, Downtown San Jose, Residential, Tower 88
Every one of these projects was overpriced to begin with. $700 psf in San Jose made little sense. With poorly designed floor plans, tiny closets in most units, inadequate kitchen space, etc. its clear these developers thought they could fool the buyers into thinking they were really getting upper-end space when what they were really getting was a glorified apartment in a lifeless downtown.
I looked seriously at buying into one of these projects and I have to agree with the comment above. The sellers would not go below $500 psf for a place that felt much smaller than the 1127 sq ft it was supposed to be (and this was on a lower floor with very little in the way of a view). It would have taken another $40,000 or so to make the place look as nice as the rest of the building.
However, I was also told that this same property is not listing their sales publicly, so it’s impossible to say how many they’ve sold and what price. (I do notice that a few sales from “38 North Almaden Blvd” have appeared in the Mercury News, so that would appear to be the Axis.)