Berkeley City Council members seem to think that there’s an infinite demand for brand new condo bunkers, despite numerous warnings over the years about the housing bubble.
While Berkeley’s fine old homes on tree-lined streets (part of the reason people desire to live here), are still selling pretty well, new condos seem to have hit a wall. Two massive projects opened around the beginning of this year, both on “transit corridors,” at 1801 Shattuck Ave. and 2700 San Pablo Ave.
During construction, a large sign announced that 1801 Shattuck would be condominiums. The website for Premium Properties & Development still boasts that it will be “the first major Condo development in the Gourmet Ghetto in over a decade”.
The project opened without fanfare in early spring—as rentals. The apartments are being advertised with great enthusiasm: “1 Month FREE—HURRY—Rent Special! Hurry Ends Sunday!” (This ad has been running for weeks, so I surmise that the special offer expires on Sunday and is revived on Monday).
The project at 2700 San Pablo is another story. Newspaper ads for the condos began in December 2007 with a catchy new project name: “Avenue West is just steps away from the shops and restaurants of Berkeley’s exciting Left Bank!” When I attended an open house tour, only two units seemed to be complete.
In late February 2008, mechanics’ liens against the property began appearing at the Alameda County Recorder’s Office, eventually totaling 49 liens filed. The amount still owed to contractors is approximately $1,036,468.
The two completed units at 2700 San Pablo, 210 and 406, were advertised vigorously until early May, when advertising ceased. Number of condominium sales recorded: Zero. Property transfer tax added to city coffers: Zero.
On June 2 a Notice of Default was filed at the Recorder’s Office. The construction loan of approximately $9.5 million appears to be in arrears.
What will become of “Avenue West”—a featureless stucco box in financial trouble? It’s difficult to imagine someone buying and completing it—there’s no sign of a thriving rental market on San Pablo Avenue, and the market for new condos is dead.
Despite the condo meltdown, our City Council has been risking city revenue in anticipation of future condo sales. In December 2007, Councilmembers Linda Maio and Laurie Capitelli (up for re-election this November) requested a fee deferral for yet another project, at 1800 San Pablo Ave., because the developer was “unable to cover building permit fees until point of sale of the condo units.“
The council was warned about deferring the $315,588 in fees, including $99,990 in sewer connection fees (which are not allowed to be deferred according to Berkeley Municipal Code). Obviously, if the condos fail to sell (see 2700 San Pablo), there is a problem.
City Council went one (unprecedented) step further to benefit the developer of 1800 San Pablo. He was allowed to build the project without any “affordable” units, because he will (in theory) contribute in-lieu fees to the Housing Trust Fund when the condos sell.
I certainly hope no one is counting on any of those fees to materialize. The fact that a charming building—a part of our pre-World War II Japanese American history—was destroyed for this project renders the Council’s act of fiscal irresponsibility reprehensible.
Why are the councilmembers so condo-crazed? All I can figure is that they are following their leader, Mayor Bates, whose campaign contributors include a long list of developers (and their wives and employees). It is rumored that the only job Bates has ever held other than politician was—commercial real estate broker.
By encouraging developers to begin new projects despite a falling market— on the heels of the largest housing/lending bubble in history—the City Council is not doing them any favors. With the mortgage industry in deep trouble, the condo carnage has only begun (I sure hope the banking system survives).
Gale Garcia has been reading about the housing and mortgage bubble for years, and highly recommends www.patrick.net and www.thehousingbubbleblog.com.