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Changed Live/Work Definition Will Take Time to Affect Downtown Condo Market

By Eric Richardson
Published: Friday, March 12, 2010, at 11:50AM
Santee Village Eric Richardson [Flickr]

The Cornell Building, part of the Santee Village complex, is one of the projects that could benefit from changes to the city's definition of live/work units.

A code change that could make Downtown condos easier to finance passed City Council today, but it isn't clear exactly how soon the market could see a bounce from the move.

The change in the definition of live/work units is designed to allow Downtown units to qualify for loans insured by the Federal Housing Authority (FHA), which come with much lower down payments. While today's change is widely praised in the housing market, updated FHA rules and a reclassification process for existing buildings will keep it from having an immediate impact.

The stakes are high. FHA loans require only 4% down, compared to 10-20% for uninsured loans. For a $300,000 condo, that's the difference between a $10,500 down payment, and one of $30,000 to $60,000.

"It makes a huge difference," said realtor David Kean of the John Aaroe Group. "First time buyers, unless they've happened to save $100,000, are screwed. They're people who are young and have good income and credit, but are locked out of the market."

The issue arises because Downtown's condos are primarily live/work units, a classification that allows both residential and commercial uses. When the city first defined live/work, though, it did so as 2/3 commercial and only 1/3 residential. That doesn't work for FHA, which won't insure loans for a building that isn't primarily residential.

The changed ordinance defines two tiers of live/work, one that has 75% residential and one that has the two uses evenly split. A developer can choose which of the definitions that wish to use.

Existing condo buildings must apply to the city's Building and Safety department for re-certification to be eligible under the new rules.

"Everything on file now shows it with two-thirds commercial and one-third residential," explained Allen Bell of the Planning Department. "A lot of it is going to be dependent on how quick the architects and the developers can put together new plans."

For buildings where the developer is sold out, the HOA would need to make the application. Where FHA previously allowed the buyer of a single unit to apply for spot-approval, now the whole building must be certified. The building must also be in good financial standing, with less than a certain percentage of owners behind on their dues.

Bill Cooper, President of the Downtown Real Estate Association, said that his group is planning to meet with HOAs to help guide them through the process.

The passed ordinance now goes to the Mayor for approval, and then becomes law 30 days after it is published.

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