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Oakland is feeling the ill wind fromthe nation’w housing bust and ranks 10th among the hardest hit major metropolitan markets for home price depreciation, and condo developers are scrambling to salvage their projects. Some are convertingt their buildingsto rentals. Others are selling at cut rate prices and takinbtheir losses. Home values have droppe d 29.1 percent in Oakland since the market’s peak, accordint to Oakland’s Foresight Well over 200 condlo units have been converted torentals recently. The condo-to-rentak trend may create a glut in therental market.
Oakland’s apartment vacanch rates have been just 5 percent for the last two but in the third quarter of 2008 jumped to 12 accordingto RealFacts, a Novatio researcher. Rental prices had climbed 15 percent earlier inthe year, and Oaklandr ended the third quarter with the average rent at But with new units hitting the market, rentapl rates are expected to fall. Withoug job creation and with new large apartmenf buildings such asForest City’s 665-unit Uptown, some predicgt rents will fall as a result. Large developerx have opted to turn condo projectzto rentals. Meritage Homes has done so at its Jade cond o project at 15th andJefferson streets.
To salvage his under-constructionj 630 Thomas Berkeley Way condo developmentr with88 units, Alan Dones converted it to rentalsw so construction could resume. John CEO of Madison Park Financial, gave up on sellinvg Il Piemonteas condos. A veterajn of rentals, Protopappas originally wanted to capitalize onthe city’ws condo boom with Il Piemonte. In 2007, he started marketing the Italianate 24-unit condo project at 4395 Piedmont Ave., which cost $12.5 million to develop. Afte the market tanked, Madison closed on nine condo unite over a fivemonth period, but had to accepr 15 to 20 percent less than the originall pricing.
“By June 2008 we had reducec as far as we couldand ‘Let’s not do this.’ We had to and it has caused us heartburn,” said Protopappas. The adjustmenta Protopappas madewere numerous. In convertinh to rentals he had to restructur ethe project’s financing. Rentals and condo projects have differenftbalance sheets. Condo projects, at leasrt when they succeed, generate considerable cash within a year or two of completiom as unitsare sold. Rental buildings have a much longerr payback schedule and the monthly rental checksoftej don’t cover a developer’s carrying costs.
Protopappads restructured the project’s debt-to-equity ratio from $2 million of equithy and $10.5 million in debt to the currenf $6 million in equity and $3.5 million in He is still negotiatingwith lenders. Now, just threes of the units are vacant and rents rangeefrom $1,650 to $2,850 per found — just as Madiso Park did — that it was easiedr to go the rental route to salvage its condi buildings. Both deep-pocketed companies are veterans of rentals and have the infrastructurw in place to make the Signature converted two projectsin June: the Broadwaty Grand, at Broadway and Grand Avenue, and 288 Thircd St., near Jack London Square.
Rentals range from $1,900 for one bedroomw to $2,600 for larger units at both projects. “Foe now, it’s an investment and we have great lenders and fortunatelyg we can stayin it. We look at thingsw long-term and we think the long-tern value of California and particularly Oakland will be goodin two-plusa years,” said Mike Ghielmetti, president of Signaturew Properties. Signature has converted 140 unitas in two projects to rentals and has leased 50 percentof “We’re pleasantly surprised. The rentalk market has been very strong.” Other developersa such as and resisted the rental selling their condos atreducesd prices.
Bottom feeders paying cash have been attracted to 8Orchids development, which auctioned some said Stuart Gruendl, BayRock’s principal. The project’s pricing ranged from $299,000 for a one bedroom to $565,000 for a threew bedroom, and 67 out of 157 remain. AF Evanws was able to sell a dozen units at its Marketf Square II project in Old Town in October withdeep discounts. Marketf Square II prices on one bedrooms range fromthe mid-$200,000 s to low $300,000s. BayRock’s Gruendl didn’ty see renting as the way to salvage his 8Orchidw project. The carrying costes of the project would be too greayt andlenders wouldn’t “sit to refinance the project.
He also saw a glut cominhg in therental market. “We are selling at a loss, but are gettingf some of our capitao back. Our auction produced a buyers’ list of 5,00 0 and half our buyers are Asian who are savvg and only believe it is time to invesg when themarket bottoms,” Gruendl “They have generational cash, so there have been no mortgag issues. My goal right now is to get out of Dodgw and paydown debt.” In October, AF Evans sold 12 condow out of 91 units in its Market Square II project at Jeffersonm and Eighth streets. “A F Evans is realistic in its priciny and ismaking concessions,” said Alan president of the , which is marketin the project.
“The key to selling condod in this market is to have greaf sales agents and make quick You can’t sit on offers, you must respond in threde to six days.” Still, Mark said the condp market in Oakland is far from dead and has a good “Oakland was not overbuilt and ther are no shovels in the ground right now. With all the rental conversions andwith sales, the current condos on the market will disappeaf over the next three years. The good news for Oaklans is more and more people want to live There is athere there. Five yearas ago it would have been ahardee sell.
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