Why don’t condos in Oakland sell?

Okay, so something I’m tired of hearing is people talk about the “thousands” of empty condos all over downtown. As we all know, the condo market has suffered along with the rest of the real estate industry, and sales at new downtown buildings have not been particularly speedy. But as regular readers know, I love numbers and hate hyperbole, and the fact is that there are simply not thousands of empty condos wasting away downtown, or anywhere. In fact, according to Friday’s San Francisco Business Times (citing a report from the Mark Company), there are between 1,500 and 1,600 condos for sale in Oakland right now, and another 300 under construction.

As for the units that aren’t selling, Signature Properties is putting 30 units at 288 Third Street and 100 at Broadway Grand out for rent, and Meritage is doing the same with the 11 unsold units left at the Jade at 15th and Jefferson:

Ghielmetti said he would rather hold on to his properties and put them back on the market when home prices increase.

“We think the market will get better and we think the area will get better,” he said. “We are basically going to turn into long-term investors…We’re better off waiting than giving up now and auctioning those things off.”

The rental rates are out of my price range, ($1,900/month for a 1-bedroom at Broadway Grand), but I do hope they fill up.

Dan Lindheim, naturally, continues his relentless mission to be crowned Oakland’s worst-ever cheerleader, a title for which he is already by far the leading candidate. He really doesn’t need to try so hard.

The projects may struggle to attract tenants as much as they did to attract buyers, said Dan Lindheim, director of Oakland’s Community and Economic Development Agency. Oakland has a significant rental market – about 60 percent of housing units are rentals – but affordability often becomes a barrier to renting or buying.

“The council has a policy that they want to encourage home ownership to the extent possible,” Lindheim said. “But given the prices and given the income structure in Oakland, it’s not going to be happening anytime soon. People can’t afford the prices that developers want to sell units for.”

Okay. The issue of housing affordability for the low-income residents of Oakland is a separate one (which I hope to write at length about during recess), and should not be confused with the struggles selling market-rate condos. This myth that people just can’t afford to buy condos in Oakland is something Sean Sullivan talked about a lot during his campaign. Over at Brooklyn Avenue, David pointed out this weekend that not only does Oakland have by far the lowest median home sale price of our neighboring cities, but we’re also the only city where housing prices are continuing to fall.

Why aren’t more people taking advantage of the incredible bargains on the market in Oakland right now? There’s a reason that people are buying condos in Emeryville at higher prices, but won’t buy cheaper ones in Oakland, and I doubt it has anything to do with easy access to dinner at P.F. Chang’s. I would posit that the major barrier is crime. A friend of mine who has lived in Oakland for the last 15 years just bought a condo in Contra Costa County. I nearly cried when he called me after signing the papers. But I couldn’t really fault his decision. He and his wife had been talking about buying for like two years, and originally started looking out in the suburbs after deciding that they just couldn’t afford to buy in Oakland (the taxes there are a lot lower out there as well as the sale prices). But over the last few months, I’ve been pushing them to try looking at Oakland again, what with all the bargains out there. They thought about it and looked at a few places and seemed, to me anyway, genuinely thrilled about not having to leave Oakland. Then, for the third time in five years, their apartment got broken into.

They don’t live in a crappy neighborhood. One break-in happened in Jack London Square, the other two in Adams Point. Their buildings always seemed nice enough to me, certainly a lot nicer than mine. They’d resigned themselves to the fact that enjoying all the wonderful things Oakland has to offer also means just accepting that sometimes she was going to be mugged, and that they’d get their car windows smashed and stereo stolen every so often, and once in a while, someone might break into their apartment and steal the DVD player. They adapted to the situation, giving up on having a radio in the car (unfortunately, this didn’t entirely stop the window smashing) and keeping their possessions of real value (like her two items of nice jewelry) in a safe deposit box at the bank. They have renter’s insurance, so they’re not on the hook for the costs of replacing their computer or TV. But after it happened again in April, they decided that they’d just had enough, and switched their condo search hunt back out of Oakland and ended up buying a very cute little 2-bedroom place in CoCo. When I asked him why, he responded that he’s just tired of having to replace all his suits every few years, and that they want a kid, and want to be able to send it to a decent school. It’s pretty hard to argue with that.

22 thoughts on “Why don’t condos in Oakland sell?

  1. Max Allstadt

    $1900 for a 1 bed at Broadway Grand?

    I live 4 blocks away from there and I pay $25 more for a 2500 square foot space with 12 foot ceilings. Good luck renting those.

    Also, crime wise, I’m less likely to get robbed in front of my place, which is just past the 980, on the “wrong” side”. People rob JLS and Adams Point for the same reason John Dillinger robbed banks: That’s where the money is.

  2. dto510

    Max, you know very well that Uptown is a completely different neighborhood than Ghosttown. And never underestimate the appeal of “mod cons.” These are big units, they’ll get some interest.

  3. Chris Kidd

    $1200 for a 3 story 1 BR loft in Jingletown. The crime we’ve got is usually gang-on-gang and rarely spreads to the residents. There’s a small amount of car breakins and larceny, but I’ve never once been targeted or even felt unsafe.

    Maybe I’ve just got a high-threshold tolerance for this type of thing having grown up here, but I feel like people that skip out of town just aren’t looking hard enough.

  4. Max Allstadt

    dto-

    you’re right, it is a different ‘hood.
    my ‘hood is poor, so no one would bother robbing near my house.
    uptown isn’t poor, but it’s right next to poor neighborhoods. Can you say “easy target?”

    I’m sure mod appeal will do some good. But when you consider what apartments rent for in victorians within a block of B’way Grand, rather than my circumstance, I think it’s another story.

    You can get a two bed in Northgate for $1000.

    Is B’way Grand even in uptown? What do you call the neighborhood between Broadway, Northgate, Grand and 27th? That area is still WAY WAY under $1900 for a one bed.

  5. Farrah

    There are buyers out there in the market for a condo in Oakland, especially people who can’t afford to buy in SF or who want to invest in a reasonably priced property that might appreciate over time as JLS and downtown Oakland develop. From what I can tell, what’s stopping all of these vacant units from being snapped up is that the developers don’t want to lower their prices. When a short sale (when the seller is trying to avoid foreclosure) or bank owned condo comes on the market at a reasonable price, the offers come flying in. Market Square and Eight Orchids are willing to lower their prices and buyers are responding. 200 2nd and Broadway Grand would rather rent out their vacant units until the market turns around.

    Of course crime plays a role in people’s perception but for people who are familiar with the areas, those developments are as secure as any in SOMA with underground parking, intercoms, etc.

  6. Farrah

    I think Broadway Grand is technically in Uptown. I agree that those rents are high but they might work for someone who makes a decent living with no plans on buying anytime soon. There are tons of people who want to buy but haven’t saved the down payment but I don’t understand why they would throw all of their money away on rent if they could save for a while and buy witha monthly payment at just a bit higher than a B-way Grand rental.

  7. masb

    I’ve lived very near Broadway/Grand (two blocks west) for 15 years and never been mugged or robbed – knock on wood. I like the neighborhood.

  8. V Smoothe Post author

    Max –

    I’ve been looking at crime maps (you can play around with them yourself at Crimespotting), and the data doesn’t seem to back up that assertion. A casual perusal suggests to my that there are more robberies, thefts, burglaries, and vehicle thefts reported in Oakland’s poorer neighborhoods than wealthy ones. Ghosttown, for example, seems to have at least as many, if not more, of this sort of crime reported than Uptown.

  9. Joanna/OnTheGoJo

    I have a different perspective on why units in the area aren’t selling. People come in and ask me about the neighborhood all the time and I ask them what they’re looking for. (Should have been a realtor…)

    Most are looking for more than 800 square feet. Most of the units that are still on the market are smaller units or units with absolutely zero view or zero charm. A unit in my building (Tower Lofts) went up for sale recently and I honestly thought it was way overpriced. But it sold quickly and I’m told that the winning bidder paid a great price. Why? Because our building has charm. It also has significantly lower HOA fees than the newer ones. When you add $500+ to your monthly costs, these new condos are EXPENSIVE. In comparison, we pay closer to $300/mo. No, we don’t have a concierge – well, neither does 288 Third – but we both have nice roof gardens (they do have heaters, so snaps for them). We have higher ceilings. They have forced air.

    There are lots of trade-offs.

    But the size and charm of the unit is what I’m hearing are major factors for people not being interested in a lot of the units that are left.

  10. Max Allstadt

    V -

    If the data backs you up V, I buy it. I will chalk my luck up to the fact that I have a cop mustache about 6 months out of the year.

    Ultimately, when I look at the crime map, it’s very block by block. When I moved to 2441 Peralta in ’04, I checked the crime map and saw an oasis of peace surrounded by mayhem on three sides.

  11. oakie

    Well, I love numbers, too. And I follow all those ‘white papers’ being generated by Ron Oz. They are available through the forums section of rockridgeresidents.org. He is using US Census data, not the source you are using. But the comparison between 2000 and 2006 are dramatic:

    1. Overall population of the city declined by over 22,000 people, more than 5% decline in a time when the overall Bay Area population was growing significantly.

    2. Although the number of owner occupied units increased slightly, by 832 (a 1.3% increase), rental units declined by more than 7,000 units (about 7.8% decline). Compare that number to 141 units now coming on the market and making front page news. Big deal: it’s a drop in the bucket, temporary, and clearly not what they really want to do.

    3. Vacant housing units increased by an astounding 187% to a total of more than 19,000 units vacant in 2006. About 4,600 new housing units were built in that time period.

    To me, the astounding numbers that are most relevant is the overall decrease in population and the dramatic decrease in rental units while there is a dramatic increase in the number of vacant units. To me, there are 2 causes: crime makes other places more attractive, and rent control policies are making this a very unattractive place to be a landlord. None of this is good news about our city. And, to my view, these are both self inflicted wounds. When I moved to California 30 years ago next month, I had no trouble finding a place to live, and my agreement with the landlord was done with a handshake (rent, however, was definitely higher than the rest of the country, and I did not find that unexpected for a great place to live–it was worth it to me). I have a 10 year old child, and if you take the trajectory of an 8% reduction in available rental units and project that to the time my child is ready to go to college–maybe Cal, there is very little prospect for her to find an available rental unit, and with crime not being dealt with, it clearly will not be a safe place for her to live either.

  12. ralph

    V – glad someone is setting the record straight.

    what farrah says makes a lot of sense. at some point, it simply makes no sense to rent and if you can afford an apt in JLS which start at $1500, then you should probably think about buying. There is no reason why you should not be able to buy a $400K condo, save for maybe bad credit, lack of viable loan product. And if you can’t find a $400K condo then either you aren’t looking or simply don’t want to move. if you do, i can hook you up with a good agent.

    as to crime, it happens across the country Oakland is not alone, but the press would have you believe it out of control. perps broke into my car 5 times 2x in NW DC by AU – car parked under a street lamp with nothing visible inside, 1x in boad daylight on 16th St NW, 1x in Roland Park and 1x Pine and Montgomery. an hr after i left a party in SF a guy was gunned downed at 5 am in the entrance to the bldg – NONE of the this was Oakland.

  13. Nancy Rieser

    V: I am speechless. The Mark Company “research” that downplays the vast number empty condos up and down the Broadway corridor is actually a condo development company – just look at it’s own “portfolio” page on its website: large SF condo developments (most South of Market), Silicon Valley, Los Angeles and even a condo project in Old Oakland (Market Square on Ninth). These guys pimp feel-good research for developers. No wonder Mark Company numbers and those reported by the Trib are off by a few thousand.

    Christ-o-mighty, V: read their own “research” window-dressing on their website:

    “As the industry leader in producing customized research, we offer a unique balance of internal and external analysis assessing not only development specific attributes, but also overall market conditions. Fundamental to our approach is the use of proprietary data to bring key information to life and create relevant marketing and sales strategies. By providing ongoing study throughout the life of a development, we empower our partners with the tools necessary to successfully navigate through the competitive landscape.”

    So speaketh a company that has ZERO investment in letting the world know about the “glutted” condo market ( SF Business Times term used in the article you referenced earlier.) Thy have an economic interest in the Oakland condo market. They are not researchers. They are not objective reporters.

    They wear two hats: developers and marketers.

    Do you really think they are going to shout it from the rooftops that there are CITY BLOCKS OF NEW EMPTY CONDOS? That 3 large developments have been halted mid-way and are SHRINK-WRAPPED to protect their innards from the elements?

    Of course not.

    V – here is a weird suggestion. Humor me for a second – I feel a stroke of genius coming on.

    Okay: in the pursuit of truth, get a list from the Planning Department of all the Condos “online” ready to sell, and those that are shrink wrapped or in construction and all of those in the planning department pipeline. THEN…let’s rent a van, bring cell phones, maps and digital cameras, invite all the guest bloggers to pile in and take a tour. Call the sale office numbers listed on the banners and billboards and REALLY find out how many condos are our there, flappin’ in the wind and otherwise, just waiting for humans to buy.

    Maybe we can be of some service. The emptiness and solitude of condos devoid of human habitation does give the over-all effect of ghost town. I drive by those buildings and, honest to God, I get the creeps. I just can’t get out of my car, and I, my friend, am morbidly curious about the subject.

    Who in the hell wants to even get a brochure, let alone make an appointment with a sales office representative for one of those places? SO. I am thinking…what if a bunch of regular folks do a Condo Tour …and write about it and publish in the Chronicle’s weekend magazine or the new “Oakbook”?

    We could generate some interest and some wacky, slighty weird sales buzz. Mix and match condos reviews with the local cafes and bars. Start off with the Grand Broadway condos…walk across to Luka’s and type out some quick notes on a laptop between mussels and beer from Brussels. Dart in the art galleries across the street on “First Friday” sip some wine, get some culture… duck into the YMCA a block away, watch people sweat in a spinning class, then pile in the van and head down Broadway to assess the rest.

    Do it with total honesty and integrity – no shilliing for the developers. Have a blast, be brutally honest and give props when props are due. Put the “Truth” in back into “Truth in Advertising” AND have some fun.

    If a condo block is absolutely DEVOID of any street stores or restaurants – which many are — let’s walk down the middle of the street and suggest some stuff…shouting ideas that echo through the lonely streets.

    Zinnie Abraham –– grab your camera and Phil Tagami, hop the van with us and put us all on You Tube.

    Waddya say , Comrades?

    Max, if there is enough room in the van, you can bring your big base and pluck some strings to soothe our souls. I can bring my therapy pet dog so condo sales representatives can pet her and lower their blood pressure while they put up with us clowns.

  14. V Smoothe Post author

    Nancy -

    I’ve actually done, somewhat informally, what you’re suggesting, and what I came up with was not that different from the numbers reported in the SFBT. That’s what I find frustrating about the “thousands” of empty condos comments – if you take any time at all to look into it, it’s just totally blindingly obvious that it’s wrong.

    I would also warn that your dismissal of market reports simply because you don’t like what they say is somewhat frightening. Everyone, even developers, has an interest in accurate market data. There’s no reason – well, no logical reason, anyway – to assume anyone would fabricate market information – nobody is served by that.

  15. californio

    It may be that the high rent on these vacant condos indicates an ambivalence on the part of the owners to rent at all. Since the IRS allows landlords to deduct expenses on units that are “held for rental” (not just rented), the potential tax savings here are enormous, probably more than the rent amount. And there are no tenants to mess up the condos, which can then be sold as “new” when the market rebounds.

  16. V Smoothe Post author

    oakie –

    I think Ron Oz makes many interesting points, and I agree with much of what he has to say. However, when it comes to his demographic analysis, he’s just completely wrong. Oakland’s population has increased since 2000. Oz is comparing the numbers from the Decennial Census and the American Community Survey, two products of the Census Bureau that do not measure the same populations, and really are not intended to be compared. I’ve attempted to explain this to Mr. Oz repeatedly, but he is obstinate and unwilling to listen to anything that doesn’t support his theories. More here.

  17. Farrah

    Wow Nancy, hyperbole much? As someone who has clients who have purchased condos in these buildings and who visits them regularly, I know that whole buildings aren’t sitting there empty. I believe that Market Square sold all of it’s first phase condos and is slowly selling off the rest of its inventory by reducing prices and offering incentives. The surrounding area is a colorful mix of farmers markets, small businesses and new trendy restaurants and nightspots. Jade sold nearly ALL of its units in an auction. Eight Orchids has sold over 51% of it’s units by auctions and traditional sales (I actually really like the units although the ones facing the freeway are much less attractive). Eight Orchids is in the middle of bustling Chinatown and just across the street from up and coming Old Oakland. A few stubborn developers (ie b-way grand) are refusing to reduce the price (a condo priced right WILL SELL) but I wouldn’t characterize the situation in the way that you do.

  18. Joanna/OnTheGoJo

    I haven’t done it in ages, but a few times in the past few years I have gone through every building in our District and listed the number of units. Then I go to the “Major Projects” listing on the Oakland.net site and compare the numbers. I have a feeling that when someone says that there are “thousands” of empty condos, they may be referring to ones that have been approved, but not built. And/or those that are under construction but do not have a Certificate of Occupancy.

    288 Third Street hasn’t sold 51% yet. But if you go into the Sales Office, most likely you will be told that they only have “a few units left” until you forcefully push the issue by asking about the control of the HOA. Another way the developers/sellers get out of saying the “proper” number, is that some units may have been specifically taken off the market because of their perceived value when the market rebounds. You can say that is unfinished and not get a TCO (temp cert of occup) for specific units.

    I was not aware that 8 Orchids had past the 51% mark. I was told by someone supposedly in the know that they had left certain units (floors?) unfinished and they do not have an overall certificat of occupancy.

    I only heard about the developer at 14th & Franklin abandoning that project last month. I am not aware of another project that has been abandoned at this point.

    I have noticed a major slowdown at the Ellington (2nd/3rd & Broadway) and they say that it is because they are making aesthetic changes based on market demand, which is why they are taking so long. They were supposed to have started selling in Nov/Dec for Apr/May move-in. At this point not a single unit has been sold. They haven’t released any to be sold.

    The Jade took a bunch of units off the market and are renting them out just like 288 Third.

    Loans aren’t so easy to get right now, no matter how good your credit. You’ve got to have a pretty hefty down payment these days. I’ve seen several friends struggle in getting loans that seemed like a no-brainer. Both had more than 20% down and it still took 45 days instead of the 15 they were told up front.

  19. Nancy Rieser

    V: with all due respect, I would like to see the numbers from the planning department, NOT from a company with an economic interest in marketing its data to potential investors.

    We need to be just as wary about analyzing data coming from developers as we are about analyzing data from drug companies which claim that their medicines have no side effects and can raise Lazarus from the dead…and make them a lot of money.

    The planning department — despite being asked for that number (of vacant condos and those in the pipline) at many public meetings — its stafft always answered “We have no idea” or have completely avoided the question.

    THAT’S A BIG RED FLAG.

    It’s not because they don’t know. I believe that this is most likely the case: if the City gave us the info people asked for, the public would realize that the problem is not due just to the mortgage crisis. It’s because the City overbuilt — it allowed too many condos to be built at the same time in the same neighborhoods.

    The City should tell the truth . Further, developers should be satisfied that they made a bundle on the General Plan Gravy Train over the past few decades. The General Plan policies bought their families affluent lifestyles in suburban communities that now squat on land that once was farmland, orchards, ranches and open space.

    A few decades ago, developers followed the White Flight from the urban centers. They hopped on the General Plan Choo-Choo and chugged out to the last Bay Area building frontier, Antioch and Brentwood. They spent their wad out there and now the train is looping back to Oakland. The development frenzy just has a new moniker:

    “Smart Development.”

    Contra Costa ranch and farm land is a thing of the past..and now for us, it’s good bye views, parking, ambient light and a historical sense of place.

  20. V Smoothe Post author

    Nancy –

    Why on earth would the Planning Department have any idea how many units are sold or not sold?

    Your paranoid reaction to information you don’t like is extremely naive. It is ridiculous to assume that developers don’t want accurate data about the market. Everyone, even people with interests you disagree with, benefits from reliable information.

    I see no evidence of overbuilding downtown or in the rest of Oakland. Your claims about all the empty buildings are, as people have pointed out, patently untrue. As a downtown resident, I delight in the renewed vibrancy I’ve seen in my neighborhood with the addition of so many new residents.

  21. Chris Kidd

    I have to take issue with the “everyone benefits from reliable information” train of though. All that other stuff: I don’t live down there, so I ain’t touchin’ it.

    Yes, it’s true that everyone benefits from reliable information. It’s also equally true that limited parties can hugely benefit from skewed and spun information. One being true doesn’t negate the truth of the other. It’s like claiming (picking out the most cliche and overblown comparison possible) that nobody should have worried about Enron pre-off-balance-sheet collapse because it behooves them and the market in general to use transparent accounting practices. People will try to game the system if they think it will benefit them. That’s true when I cheat at video games or when a research group tweaks satistics to paint a rosy picture.

    Publicly known high-vacancy rates are useful to a condo development company in that it helps them shape their business plan, but it sure doesn’t help them with their investors, creditors and stockholders. If you’re trying to ride out the economic storm and hoping for greener pastures at a later date, you certainly don’t want jumpy creditors demanding liquidation because they’re trying to cut their losses.

    Oy, I just threw a box of lighter fluid on top of the pile didn’t I? Feel free to rip my naivete and failure to understand economics…

  22. West Oakland Native

    Ok for those of you who say, why rent when you can buy for the same price? Where do you suppose we live while we wait to save for a down payment? In a homeless shelter? People need to rent somewhere to live. Even decent tiny rentals in Oakland will cost 1400-1900 a month. This is not Kansas, it’s expensive here. Not sure why people think you can just live free and save up 50K-80k for a down payment and ignore all other expenses.