Downtown Condo Development Lacks Financing

SAN DIEGO—Few developers are building condos out of the gate in Downtown San Diego because financing for this emerging market hasn't been available yet, JLL's EVP Darcy Miramontes tells GlobeSt.com. As we reported recently, Miramontes, along with JLL managing directors Lynn LaChapelle and Bob Prendergast and VP Kip Malo, represented sellers JMI and Lennar in Greystar's purchase of Ballpark Village Parcel C2, a development site that is part of a larger master-planned development located in downtown San Diego. The site is slated for a 37-story, 446-unit multifamily tower that will stand 400 feet. We spoke with Miramontes exclusively about developers' view of multifamily development in Downtown San Diego, how it compares to condo development and which amenities are most important to apartment renters in this market.

GlobeSt.com: How are developers looking at multifamily development in Downtown San Diego?

Miramontes: Downtown San Diego is a hotbed for multifamily development right now. Much of the available land for multifamily development is on the East Village side of town, although there are some infill sites available. It's really the last frontier, which is why you're seeing so much development over there. There are a number of different developments going on Downtown and in the East Village—either under construction, planned or proposed—and there are others further down the line—and they're being phased in fairly gradually over time in the next several years.

Multifamily has strong fundamentals Downtown. Vacancy rates are 5% or less, concessions are intermittent depending on the lease-up periods and rental rates are on the rise. A lot of multifamily developers think it's a great time to build in Downtown. Some expressed concern about the fundamentals, questioning if it will stay strong amidst the ongoing pipeline of properties coming to market. But site-specifically, each one rolls out over the next several years, and there's no big influx of units—no big glut in the market. They're also representative of a variety of product types offering different amenities, so there are a lot of choices.

GlobeSt.com: Which amenities are most important to apartment rents in this submarket?

Miramontes: With the slightly smaller unit sizes that you see today as compared to 10 years ago, the number-one most-important amenity that developers should build to accommodate tenants is common-area spaces—open, community spaces and gathering areas. That space is an addition to whatever units the tenant rents, whether it's a rooftop deck, a gathering are near the mailboxes, or it could mean an open-air kitchen where you can host parties. You have to have that open, airy space that incorporates light and has a good feel to it. That's important to renters today, and that's what we're seeing in a lot of the developments Downtown.

GlobeSt.com: How does apartment development compare to condo development in that submarket?

Miramontes: The desire for Millennials to seek out homeownership remains elusive—who knows when it will occur? And who knows if the generation after the Millennials will want to rent? It's not as if Millennials are the last generation ever. Right now, we're seeing mostly apartment development—not condo—but any savvy developer will make sure their product is condominium quality, and it may or may not have a condo application. Currently, there are not a lot of developers building condos out of the gate because the financing has not been there for condos. It's an emerging market—it's coming back, but it's not there yet.

GlobeSt.com: What else should our readers know about multifamily development Downtown?

Miramontes: The lease-ups of the most recent developments to hit the rental markets have been very strong and continue to meet a demand for housing Downtown. It will be important going forward for the City and community groups to welcome new businesses Downtown as well as to create a very urban, walkable environment.