Saturday, December 26, 2009

360 South Bay... Opening February 2010




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.  

FHA Guidelines: 

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.





11 comments:

Anonymous said...

Really Kaye, you think there will be increased interest if the price is right? Isn't that true with anything in RE?

Why don't you stick your neck out a bit and say exactly where you think they should be priced. After all you are a real estate "professional".

Kaye said...

Anon 8:05- Wow the Christmas spirit doesn't last long...

In answer to your question.. of course properties that are priced right generate more interest and sell quicker... but as we all know that isn't what always happens.

They paid a lot of money for the site which is why it was overpriced in '07 in an attempt to recoup their investment... that number hasn't changed although it seems they have scaled back the composition of the units being offered for sale.

2-3 bedroom units at Fusion between 1100-1700 square feet are closing escrow from $420,000 to $550,000. Add a premium for new and a discount for location and my thought is that prices should be $275,000 for the one bedrooms in least desirable location to about$625,000+/- for 3 bedroom 1900 sq ft units.

My guess is that they are going to put them on the market around $400,000-$799,000 +/- and see what happens. As far as I can tell, with all the fencing still up, they have yet to break ground for anything other then the models that were built a few years ago. This gives them the flexibility to adjust how many units for each floor plan they build.

As the units are not completed they will only be selling reservations for units and a lot can change over the course of the 6-8 months it will take to complete construction.

Anonymous said...

Great post, very thoughtful

Kaye said...

Anon 3:59,
Thank you

Diane said...

Hi Kaye,

I am not a Real Estate expert, but I do live in South Bay and work very close to the 360 Development.

I would love to live there, as I'm single and would like to have a place of my own close to work and in a neighborhood I'm familiar with.

However, I'm still outpriced at $400K+. And I have a 'good' job!

I'm not sure what the 'lifestyle' William Lyon is marketing really matches who they should be targeting. As you said, people in South Bay know where the beach is.

Two things they could have done that would have saved them a lot of time and money:

1) Negotiated an agreement with the Air Force to build base housing; currently base housing is in San Pedro. It would be a stable, win-win situation for all.

2) Market the community for the younger engineers working for the defense contractors in the area. I know quite a few who are hungering for a place of their own but are in the same situation as me: they have the salary but it will take us 10-15 years at least to save up for a 20% downpayment, on top of paying off college loans.

Kaye said...

Diane,
I couldn't have said it better... I have a client who works at the based who had to go to Corona to find a home in his price range that would consider a VA loan. It would be nice if these units were priced agressively... We should know soon.

stan said...

Hi Kaye. I appreciate your comments on 360 South Bay. As a first time home buyer interested in this community, I'm not sure if am feeling excitement or anxiety. Do you have any thoughts now that they have released pricing and they have secured an in-house lender? They have released phase 1 for sale (which i am considering), but they seem to have a long way to go. Do you have any thoughts considering the info that is available now? Thank you for any input.

Kaye said...

Stan,

I think they are looking at releasing a different phase each year for the next 3-4 years. So you will have a lot of things going on over a fairly long term.

This could be good if prices stabilize but could be a real issue if they undercut prices next year below current price levels to get them sold.

This could happen in any large development that is building in phases over a long term. I think much will depend on how well the community fits your lifestyle and your budget.


I think you have to look at this as a 5-7 year investment. If you are willing to stay there that long then you should be OK.

However if you plan to move in a shorter time frame then be advised that you will be in competition with the new phases in the development if you have to sell. New usually sells faster then old and with a premium.

If you have children that will be school age in 3-4 years then you want to take a good look at the school they might be attending at that time.

No matter which way you go there will always be something you could have/should have done differently. Your biggest decision is whether you are ready to take the plunge as a homeowner. Every person who has ever purchased a home has had to grapple with the same issues. I know you will make the decision that is right for you...

Ann said...

Hi Kaye - I found this article extremely helpful as my husband and I are seriously considering putting down a deposit this week for a unit in the 360 South Bay properties. Your post raised concerns with respect to the 70% pre-sale requirement for conventional lending (I know that William Lyon has not sold 70% of the lots). Additionally, this development is still not on the list of Fannie Mae's approved projects. What do these discrepancies mean? What's the associated risk? Now that Phase 1 & 2 has opened, what's your assessment of the property? Your feedback would be greatly appreciated!

Kaye said...

Ann,

I don't believe the development will qualify for FHA so you will be dealing with conventional financing... which means that until they have a large number in escrow there will not be any units closing.

If you have to be in a place by a certain date this might not work for you unless they are renting to people until they get the magic number in escrow and can start closing escrows.

One of the issues that can occur is that you buy at one price and then folks who buy later get a cheaper price or sometimes no cost upgrades so you will need to watch that aspect of things.

These units are new and very nice but the location is not an "A" location and it is in Hawthorne not one of the Beach Cities. However if you want new and are in this price range this is the only game in town.

If you don't have children or if your children are young then Wiseburn is a good school district.. however if you have older children then you will be dealing with Hawthorne schools which can be an issue for some folks.

The other thing to be aware of if you purchase in the community is unit location.. resale on units that front on the street or are near the freeway will be very difficult so go for an interior unit if possible.

It is really a matter of personal preference.. you have to decide what works best for you... a new unit in a marginal location or an older unit in a better location

condominium philippines said...

Thanks for sharing the "Conventional Condominium Loan Guidelines".

Deirdre G