While Phase One of Bosa’s Radiance at Mission Bay was never designed to stand alone, it will for a while longer. With lenders requiring “at least two-thirds of the units closed before the steel starts to rise on Phase Two,” Bosa has officially suspended construction.
Bosa completed all the piles for the 318-unit Phase Two before construction was halted in July. Serraglio said he is hoping sales will be far enough along to justify pouring concrete on phase two by spring of 2009, making the project about a year behind schedule.
“The construction lenders are a bit nervous in this market — they want to see where it’s going,” said Serraglio. “It is a tough market right now. Buyers are taking longer to make a purchase decision. We’re used to buyers coming in once or twice and then entering into a contract. Here we’re seeing them come back five or six times.”
As noted last month, just over half of the 99 units in Phase One have either closed or are in contract.
[Full Disclosure: Bosa Development recently started advertising on SocketSite.]
The owners of capital (lenders) are voting with their money and they are saying no mas.
This is actually a positive for SF in that many of these foolish projects are being nipped in the bud before the capital is (mis)allocated. The continued crunch should help SF weather the worst of the coming credit bloodbath, but it will still be very bad IMO for people who have a good portion of their wealth and hopes in overvalued SF real estate.
^^^And it’s bad for the long term health of the city, as much needed housing is not being built and outrageous prices are prolonged by developers intentionally limiting new supply coming on board.
anon: Lenders are limiting new supply by the pre sale conditions they are imposing, not developers.
Looks like the same story as Rincon Hill Tower Two except the sales office is not disclosing it. Trying to hide this while the try and unload all the condo fallouts doesn’t seem like a full and fair disclosure of material facts.
And I would feel Officially “Ripped Off” if I had purchased in phase 1. Same as ORH if they do not start to build that second tower soon.
5 people shot yesterday in the in 2 separate incidents. Could this be part of the reason SF real estate is faltering ?
‘And I would feel Officially “Ripped Off” if I had purchased in phase 1. Same as ORH if they do not start to build that second tower soon.”
I agree. Won’t this make it harder to sell the rest of the units in phase 1? Personally, this might tempt me to pull out if I was in the contract process.
that is, unless they drop prices substantially
anon: Lenders are limiting new supply by the pre sale conditions they are imposing, not developers.
You have some proof of this? Pre-sale conditions are determined in large part by the profit margins that developers are willing to accept. Lower the price, increase the number of pre-sales. There are many different things affecting this – yes, credit is tighter than it was in the past, but that’s not the whole story.
A constricted market like SF (constrictions from NIMBYs, government involvement, and geography) is very tasty for developers short and long term. If you were a developer feeling that you could make significantly more in a few years and the carrying costs aren’t too high, wouldn’t you delay development and blame it on “difficult” financing? (In order to prop up prices on your already for-sale development)
“If you were a developer feeling that you could make significantly more in a few years and the carrying costs aren’t too high, wouldn’t you delay development and blame it on “difficult” financing?”
What do you call a developer who delays development? Unemployed.
Developers build until someone cuts off their financing. Merced just approved a new 16,000 unit development even as foreclosures sit empty and fall into ruin.
I agree with Satchel that this is basically healthy for SF in the short term. Luckily we are not Las Vegas or Miami where there are tens of thousands of condos empty.
Yes, we have a constant undersupply of housing in this city, and hopefully construction will begin again soon, in at least a trickle. But the current over-supply in a dead credit market is killing everyone…developers, lenders, current owners. Not even helping buyers that much unless they have a big downpayment and sterling credit.
Looking forward to seeing Adam’s index one of these days. Hopefully with a time scale which lets us see all these units slip off the radar….
what oversupply? if there was a “real” oversupply the prices would be down significantly, and they really are not. There are price reductions starting, but things are still way too expensive for what you get.
“Interesting” comments seem to point to a believe that developers and lenders are either evil, or stupid. Strange way to view entrepreneurs. I believe people have this view because they simply do not understand the business of developers and lenders and that if they did, their perceptions might change.
Both are just in business to an adequate profit to compensate for the risk that they bear. The higher the risk, the more compensation entrepreneurs will want for bearing that risk. Developers bear a lot of risk in that they are often entitling the project and their money is first in and last out of a deal (ie. let me put in money now and get paid in 4-8 years, after I’ve paid everybody else). Lenders bear less risk because the property and building as it is constructed is collateral against the loan and they want the collateral value to stay ahead of the lent amount. So if lenders see collateral value trending downward, or are unclear in the direction it is trending, they may delay future phases. Also, if lenders can find a more profitable way to lend money, perhaps to a different industry with less risk, they will. Simple as that. Developers seeing the return from rents or sales will be less than their all in costs, will pull back as well. Why build to loose money? Want to make it easier to build housing or reduce the cost of housing? Reduce entitlement risk by making it easier to get projects approved by reducing entitlement timeframes and allowing more to be built – without burdensome inclusionary housing requirements and fees. Simple as that. Nothing evil. And nobody’s in business to loose money.
Dede…great points.
But if I can be a real nudge…there’s a difference between loose and lose. It’s a pet peeve of mine, sorry!
Great post Dede – very logically summarized
The problem is the type of inventory. Many of the units on the market could be offered with lesser finishings for significantly lower costs. Future markets might demand that. This building is likely to be built eventually, but the details and especially interior plans and finishings could end up being very different from what was expected or actually done next door. Is glass really needed to hold up the handrails or might some cheaper material work for that?
Developers are not stupid, but they do have a herd mentality just like everyone else. These are not the condos that buyers are looking for, and in the future it might be necessary to sell many units before raising any steel. Pressure to make actual sales always puts downward pressure on prices. Designs will compensate with size and finishings and common features.
“Why build to loose money?”
“And nobody’s in business to loose money.”
It’s LOSE, not LOOSE (sorry, it’s a pet peeve)
Now back to your regular programming….
I think a key point dede makes is, “lenders want the collateral value to stay ahead of the lent amount”.
Easy to do in an appreciating market, harder in a declining market. Builders/developers were probably taking equity out as the market went up. Now it’s time to ante up. Either that, or a slow death march to bankruptcies and restructurings.
“Why build to lose money?”
Well, it all depends on WHOSE money is being lost, doesn’t it? I agree, if it’s the developers’ OWN money on the line, then it makes sense to be scared of losses.
But if it’s just the banks’ money? Or, the taxpayers’ money? Ah, there’s the rub…
Who cares if you lose THEIR money? I mean, for as long as the project/boondoggle lasts, you can pay yourself salaries, siphon off perks, benefits, etc. Sounds like a pretty smart business proposition to me!
Too bad for the purchasers of phase 1, at least for now. But good news for the health of the market. No need for hundreds or thousands of new units to come online in the near future.
It’s going to be intersting to see how Infinity II sells, as that is probably the premier new condo right now….
Uh, perhaps you have never heard of the Millenium? And to be premier, Infinity II will have to upgrade the kitchens and bathrooms from the Infinity I model.
Looks like the same story as Rincon Hill Tower Two except the sales office is not disclosing it
conjecture. It is a huge possibility, and people keep repeating it, but to my knowledge there is no factual support of this statement. I’ve challenged folk on this point before, and nobody offers any proof.
repeating rumors don’t make them true.
and again, FWIW, I have predicted for over 1.5 years that tower II might not get built, and so I am not trying to “protect” that building.
Damn, both curmudgeon and anon got their knickers twisted over a spell check auto change. Thanks for the correction though curmudgeon was first, you’ll have to work faster next time anon.
As for Satchel’s comments, the developers money is in first and out last, so if a participant in the project (e.g. lender) loses money, then the developer’s money is wiped out. Now if you are talking a buyer, buyer’s lender, etc. that is a similar story. People make their own decisions. If a condo owner has to sell for whatever reason at a value below their loan balance or at their loan balance, the condo owner’s equity is wiped out first. As it should be.
Now if you’re talking about taxpayer bailouts in relation to the current credit debacle, then you are talking about what is fundamentally the source of the current credit crunch – poor underwriting standards and a misallocation of risk. What we have right now is fundamentally a financial system problem, credit problem. So when one point the finger at the ‘evil’ developer, the blame is fundamentally misplaced. If banks were required to suffer first loss if a loan went south, as opposed to selling that “appropriately and impartially rated” risk, then I believe we would simply not be in the situation we are in today. Blame financial innovation. Hopefully with the gradual adoption of covered bonds, this will begin to change and liquidity will slowly return to the lending market.
one rincon phase II is off. same as bosa.
the factual backup is there is absolutely nothing happening there.
does any one have any basis for saying orh is going ahead??
I wasn’t painting developers as “evil”, simply saying that with so few developers in this town with a decent number of units coming on line AND future development projects entitled – those developers have an incentive to protect the profits on their currently for sale units. That’s all. Doesn’t anyone think it’s possible that Bosa COULD get financing if they really wanted to, but would rather sell their first project first to lower their downside risk?
@ anon
I am sure Bosa could get financing, but it would be at a cost so prohibitively expensive as to put them upside down on the deal. Bosa is rightly waiting until the credit markets shake out.
^^^I guess I’d have to see some proof of that. I agree that Bosa is making the right business decision to wait, but knowing a little about what Bosa paid for the land to begin with, I have extreme doubts that the financing that they could obtain now would put them “upside down on the deal”.
Again, I wasn’t calling developers evil or even disagreeing with their reasons to put off projects, but bringing up the point that this is some of the reason that SF is so expensive – there are so few potential big projects that developers can pretty easily manipulate the market to keep their prices high.
Knowing how lenders are currently pricing debt on such large projects, especially multifamily for-sale product right now, the interest carry becomes a very significant part of the deal – and indeed put the developer upside down. Especially when considering projected slow absorption once the project is completed. Developers continue to pay interest during the sales period until the sales proceeds have paid of the loan. Slow sales cost a great deal of money. Because of current conditions there are deals out there that no longer pencil even when the land is donated and further subsidies are provided. So as market conditions change, developers will adjust to delay projects. Conversely, when developers see markets potentially peaking in the near future, they may spend extra money to speed construction to catch the market at the peak before it trends downward.
The idea that developers manipulate the market to keep prices high is misplaced. Developers have very little ability to move markets in SF and the Bay Area – unless they are creating whole communities from scratch (in which case they have a much different problem). It is rather all of the regulatory barriers in the entitlement and approval process, and the inclusionary housing requirements that artificially keep prices high. If entitlement timeframes were predictable, much shorter than they are now, and easier to obtain, there would be much less risk in development, and prices would be lower. Inclusionary housing requirements act as a huge hidden tax for market rate buyers.
RE/Max is the sales arm for Radiance Mission Bay? Nothing connects with luxury buyers like RE/MAX.
Seems like an odd selection…
Dede: all three of your posts hits reality dead-on. Great knowledge and accurate insights.
I agree with you wholeheartly.
Bought a unit and very happy with purchase. With down of market, I had quite a bit of apprehension during closing.
Handful including myself have moved in. Very attentive service of management staff. More “value” than anticipated.
Aside from feeling the duldrums of the RE marketplace, all the neighbors I have met seem happy with their units. Building is high quality. The front parkway is finally being landscaped after long delay.
Views can be more spectacular at night when AT&T and the Bay Bridge is lit. I envy those on the top floors with large deck. They have spectacular view. FYI: check out this week’s SF Business Times on an interview of several Radiance homeowners.
Radiance is surprisingly convenient to 101 and 280 freeway. Thankfully, Radiance far enough away from AT&T and Cal Trans. Place is a mix of peacefulness (when the fans are away)and excitement (when the fans are in town). Thankfully again, ballpark noise can be shut out with windows closed.
Honestly, haven’t really found too many big downsides.
Love all the speculation about how those who have bought must be feeling ripped off! Actually, those of us that have bought are enjoying our beautiful bay views, sun when the rest of the city sits in fog, amazing amenities, top of the line appliances and dark, quiet nights! I guess it might be a problem for those who bought with the intention of flipping their property, but that would be sort of dumb in today’s market anyways.
I don’t feel like I’m in the middle of nowhere as transit is steps away, Safeway is in walking distance and the Giants are literally next door. It’s an active person’s dream location. And no, I don’t work for Bosa. Just a happy condo owner. Keep on speculating folks while I sip my wine by the fire enjoying my bay view.
“…and the Giants are literally next door”
I’ve never understood why being next door to the Giants’ stadium makes for a good neighborhood amenity. Its not as if you would just pop out for a baseball game on a whim like you would to a retail store, restaurant, park, or pub.
The rest of nameme’s positives about the area make sense, but proximity to the stadium isn’t really much of a benefit even if you’re a hardcore Giants fan.
I see it as more of a huge block of the neighborhood that gets in the way when walking to other more readily available destinations.
Actually, I’m not much of a giants fan myself, but I enjoy the beauty of the stadium against the bay, and the excitement of these sorts of events. We have our own parking space, and take transit most everywhere, so the giants traffic doesn’t bother me. I have to say, I’m much more likely to go to a game now that they’re a neighbor!
I wouldn’t say Radiance is literally across from AT&T. Reality it’s about 5 to 6 city blocks away from the stadium. The ballpark traffic hasn’t bother me either. I picked this location over Berry St. side because I can circumvent ballpark traffic from the backway out to hwy 280 via Mariposa St. Neighbors have been very nice. There’s more hidden value that meets the eye.
Enough so, two acquaintances have bought here and another interested. (FYI, I’m not connected to sales) Since moving here, I’ve been biking and more active. There is a great almost uninterupted biking and jogging trail from the Radiance to the Golden Gate Bridge. The walk to Safeway and CalTrans is only 7-10 mins. Contrary to opinion we are very far from amenities.
The air quality is much cleaner here than my old hood; unexpectly my health has gotten better.
Last week was exciting, they closed Terry Francois Way for Sunday Streets. It enjoyed watching from the courtyard, people and family biking, walking and engaging in activities on the waterfront Traffic hardly was a problem. I hope they continue Sunday Streets.
corrections:
“Contrary to opinion we AREN’T very far from amenities”
“There is a great almost uninterupted biking and jogging trail from the Radiance to the Golden Gate Bridge.”
Really? Where?
“There is a great almost uninterupted biking and jogging trail from the Radiance to the Golden Gate Bridge.”
Really? Where?
Once you get to the AT&T Park or even King at 3rd, this is correct. Of course, you’ve got the Wharf mess and the streetcar rail tracks around Pier 39 that suck, but it’s a pretty nice ride to the bridge. You can go further West to Land’s End and Ocean Beach. A few interruptions and sharing the road w/cars along the way, but no biggie.
The “trail” from the ball park to the Golden Gate Bridge is more of a route than a trail. You’re on and off of various wide sidewalks and walking/jogging/skating/biking trails separated by some mellow street segments. Once you know the route it is fairly pleasant. Suitable for families.
It is faster and some would say safer to ride the Embarcadaro bike lanes rather than the broad sidewalk through that segment of the route.