Could condominiums be key to the downtown Fresno population boom city leaders are hoping for?
Downtown developers say it has been difficult obtaining the financing they need to start building apartments in the area. But a bill proposed in California’s legislature would make it more feasible for developers to build condominiums, commonly called condos — the for-sale apartment-style homes that have long been considered an affordable option for first-time homebuyers.
The bill, AB 1406, would allow condo developers to better leverage buyers’ pre-sale deposits to secure financing from lenders by guaranteeing those lenders at least 6% of that deposit if a buyer defaults on a purchase. The California Assembly has approved the bill, and it is now in the state Senate.
Opponents say the bill would increase a buyer’s risk of losing their money. Supporters say it would make lenders more likely to finance condo construction and keep developers from having to seek more expensive options.
For revitalization efforts in downtown Fresno, making condos easier to build is “one piece of the puzzle,” said Michael Lane, a supporter of the bill and state policy director for the San Francisco Bay Area Planning and Urban Research Association. Lane is originally from the San Joaquin Valley and previously served on the Visalia City Council.
A downtown condo that offers homeownership near restaurants and nightlife — “that could be a very attractive lifestyle,” Lane said.
UC Berkeley’s Terner Center for Housing Innovation reports construction of condos has fallen 90% in the state’s major population centers in the past 20 years. Policy experts have blamed regulations, including the cap on how much lenders can recover from buyers’ deposits and also construction defect liability rules that encourage homeowners to sue and drive up developers’ insurance costs. A recent addition to a California bill filed in February, AB 1903, aims to reduce those lengthy lawsuits.
“We need the pre-sale reform, and the construction defect reform as part of a package for affordable homeownership,” Lane said, “particularly with this type of building (condos) in our downtowns.”
The iconic Fresno postage stamp mural by late Fresno muralist FranCisco Vargas faces north with downtown Fresno behind it on Tuesday, May 30, 2023. CRAIG KOHLRUSS ckohlruss@fresnobee.com CA bill would allow lender to keep 6% of defaulted condo buyer’s deposit
Pre-sale deposits from prospective buyers help developers obtain financing for homes they want to build because they show the market has interest in the project.
Today, California law allows lenders to collect 3% of a deposit if a buyer defaults on a condo sale. Increasign that penalty to 6%, reduces the lender’s risk, Lane said.
“If people begin to back out, that creates jeopardy for the project,” he said.
Among the bill’s opponents is the California Association of Realtors.
“It dismantles strong, long-standing consumer protections for buyers, putting their savings, life-changing sums of money at risk to finance the condominium projects,” the organization says on its website.
The organization’s Fresno chapter did not respond to a request for comment about the bill.
But Lane said the 3% cap on what lenders can recover from defaulted buyers’ deposits is “so low that it can encourage speculation.” He said 6% is “closer to the industry standard.” In New York, state law allows a 10% cap as long as the recovery of deposits is not done punitively, he said.
Downtown Fresno including Chukchansi Park stadium photographed in this drone image on Monday, Oct. 30, 2023. CRAIG KOHLRUSS ckohlruss@fresnobee.com Downtown Fresno short on ownership options, City Councilmember says
Downtown Fresno City Councilmember Miguel Arias told The Bee that downtown condos, including those on Huntington Boulevard and R Street, have brought professionals to live in the area in the past.
Government employees, lawyers and medical professionals who work downtown have bought condos in those complexes, which he said have been around for decades and are still very well-maintained.
“Condominiums have been a critical component of downtown Fresno,” he said.
Local officials are hoping downtown’s population will triple to 10,000 residents as a result of its revitalization efforts. In recent months, the city has started loaning money it received from the state to developers whose apartment projects have stalled for years. Builders have said it’s been difficult to fill the gaps in their financing for apartments in downtown Fresno, where rent prices often do not justify construction costs.
The loan should help at least one project that promises 174 apartments next to Chukchansi Park break ground this year.
“But we need a variety of new housing,” Arias said.
He said there are a lot of people living in Fresno who come from larger areas and want to “live, work and play in the same neighborhood.”
“Downtowns allow that, but we don’t have enough homeownership opportunities in downtown yet,” he said. “We are going to have to provide it if we want to create that permanent residency in our downtown.”
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Erik is a graduate of the Missouri School of Journalism, where he helped launch an effort to better meet the news needs of Spanish-speaking immigrants. Before that, he served as editor-in-chief of his community college student newspaper, Riverside City College Viewpoints, where he covered the impacts of the Salton Sea’s decline on its adjacent farm worker communities in the Southern California desert. Erik’s work is supported through the California Local News Fellowship program.