The signs are up and the ads are running as 360 South Bay is giving it another try. The trees are bigger, the models are a year older and there is a new entrance sign, but not much else has changed since I was last here in March of 2008 when 360 South Bay closed the gates. Prices will not be publicly available until the project officially re-opens in February 2010 but they should be a lot less then the prices the developer sought back in July of 2007 when the project first hit the market. Expectations of getting almost a million dollars for units near the 405 Freeway were not very good back in '07 and are even worse today. Hopefully the builder has learned a few lessons about location, location, location.
There have been a lot of changes in the South Bay real estate market since this project officially opened in July 2007 and quietly closed up shop in March 2008. Prices have declined across the board in all the South Bay cities but especially in the communities east of Manhattan Beach, Hermosa, Redondo and El Segundo. Financing is now far more difficult to obtain then it was in the summer of 2007. In fact unless William Lyon homes has made arrangements for in-house financing, that is not dependent on FHA, Fannie Mae or Freddie Mac underwriting, they may find it will take a long time to sell out the project..
One of the biggest casualities in the housing market has been condominium financing. While obtaining a jumbo loan can be difficult, obtaining financing on a new condominium project is even tougher. A large part of the losses lenders had in the Nevada and Florida markets were in condominium developments. With these losses in mind FHA along with Fannie Mae and Freddie Mac have issued some tough rules about loans issued on condominium projects. The recent changes in guidelines by FHA and conventional lenders backed by Fannie Mae and Freddie Mac are going to have an impact on the project as prices should fall within the conventional loan range of $729,750 or less.
Having a project FHA approved allows the developer to tap a larger pool of buyers as the down payment requirement is less for FHA loans then conventional loans. However recent changes issued by FHA in October 2009 have made it more difficult to obtain FHA financing on large new projects.
1. There will be NO more spot approvals after February 1, 2010
2. All development not considered primarily residential are out.
For instance, a development with more than 25% of the total floor area dedicated to commercial business use is out.
**3. Noise issues is a new concern, so any development within 1,000 feet of a highway, freeway, or heavily traveled road, 3,000 feet of a railroad, 1 mile of an airport, or 5 miles of a military airfield will become ineligible for approval.
4. If the property has an “unobstructed view , or is located within 2000 feet of any facility handling or storing explosive or fire prone materials, it is not insurable - we're not talking just fireworks factories here. A gas station 2 blocks away can disqualify this development.
5. Any property located within 3000 feet of a dump, landfill, or superfund site, is ineligible.
6. No more than 10% of the properties can be owned by a single investor, including builders or developers who are renting out or have not yet sold vacant units. For 2-3 unit developments, no one can own more than one unit.
7. No more than 15% of the homeowners can be more than 30 days late on their homeowner dues.
8. For new developments, at least 30% of the units must be sold prior to applying for FHA approval (valid presales include those with purchase agreement and lender validation of an approved loan in process)
9. A minimum of 50% of the units must be owner occupied or sold to owners who intend to occupy as their principal residence.
10. Projects in designated wetland and flood zones will not qualify.
11. All current condominium project approvals will be invalid (with the exception of projects approved on or after October 1, 2008) and projects must be re-approved under the new options available. Going forward, all projects will require recertification every two years.
Conventional Condominium Loan Guidelines:
In addition to changes in the general guidelines issued in the summer by Fannie and Freddie, there are additional guidelines for condominium projects seeking loans of $729,750 or less:
1. For new construction and converted new condo developments, 70% of the units must be pre-sold (closed or under contract). This is a tough requirement for most projects.
2. No more than 15% of a condo project units can be more than 30 days delinquent on HOA dues. This is an existing guideline that is now being applied to new condo projects. The calculation was also changed from being 15% of HOA fee payments to 15% of total units.
3. Fidelity insurance will be required for condos with 20 or more units, ensuring that homeowner association funds are protected. Presently, this requirement applies to new projects and is now being extended to include established condos.
4. A requirement that borrowers must now obtain a condo-owners insurance policy unless the master policy provides interior unit coverage; coverage may not be less than 20% of the assessed value. A condo-owners policy, known as an HO-6 policy, covers personal property, personal liability, and the physical unit from the studs and in. Many policies also include special assessment coverage or the option to include a special assessment coverage rider.
5. No more than 10% of a project can be owned by a single entity.
6. No more than 20% of a project can consist of non-residential space.
7. The homeowners association must have at least 10% of its budgeted income designated for replacement reserves and adequate funds budgeted for the insurance deductible.
8. Buyers without at least a 25% down payment will have to pay closing cost fees equal to 0.75% of their loan, regardless of the borrower's credit score. Buyers with 20% down will need a credit score of 620 or more with a total overall debt ratio 45% or less of gross monthly income. The FICO required for the best rates has increased to 750 from 720. Depending on your FICO score there are additional fees that can be as high at 3.5% of the loan.
Pricing is going to be a huge factor. Last time around the development was priced well above market value based on the location. This time around prices have declined enough in the Beach Cities that buyers may not be willing to pay a high price for new construction in a less then desirable location near the freeway. Beach close is not Aviation and El Segundo Blvd. While there are many buyers who will exchange new construction for location, in the long run location remains the #1 factor in sustaining home value. The last new development in out area was Fusion on Aviation and Marine. Fusion remains a popular community as it is very close to Manhattan and Hermosa but prices are significantly less then in the Beach Cities.
The project is technically in El Segundo but the school district is Wiseburn and Hawthorne not El Segundo. While the development is being pitched to young singles looking for a Beach lifestyle rather then families, the school district is still of major importance in establishing value. Time is fleeting and it might not be long before the young singles find themselves married with a growing family. Wiseburn schools are good at the elementary/middle school level, but once children reach High School then students go to Hawthorne High School although if Wiseburn has a choice there will be a Charter School for High School students.
There are going to be a lot of nice amenities at 360 South Bay including a full gym, pools and lots of recreation choices. Large new construction developments are something we don't have much of in the South Bay as the bigger parcels of land were built out long ago. Inventory is low in most of the South Bay communities and especially in the Beach Cities. I suspect that this time around there will be more interest in the project providing it is priced right. Today's buyers are very cautious and smart about the housing market. Many have been following the real estate market closely for a long time. They know how much they will and won't spend on a home purchase. Glitzy ads proclaiming beach close won't have much effect on savvy buyers who know exactly where the beach is in the South Bay. .
** Item # 3 on the list above may be the deal breaker for FHA financing approval on the project which means that all potential buyers will need large down payments and will be paying an additional 3/4 of a point in interest.
*** As of today I couldn't find 360 South Bay included on the list of Fannie Mae approved projects. It may mean that the development is still under review.