When the SkyVue Lofts condominium portion of Smart Corner began sales in 2004, the residential real estate market was hot.
Home values were appreciating at rapid rates and loans were easy to come by.
It was before full documentation was needed for loan approval and buyers were lining up for condos downtown.
However, when Smart Corner opened its doors to residents in September 2007, the real estate market looked very different.
Since it opened, building developer partners have closed only 55 sales on 276 total units.
While 121 of those units have been converted to apartments, Smart Corner has begun a lease-to-own program this week in hopes of filling vacant units.
The challenges in closing sales have been numerous, said Sherm Harmer, principal of Urban Housing Partners, one of the development partners of Smart Corner.
The building was designed for first-time homebuyers and others in the downtown workforce, but the lending slowdown and economic downturn has left those buyers "particularly hurt."
"While those buyers used to qualify for a loan with zero to 5 percent down, the average loan today requires 10 to 20 percent down," he said.
This means buyers who qualified for loans in 2004, could not close their deals.
While Harmer said subprime loans with no documentation were dangerous for lenders, he said with full documentation of income, employment and credit scores, loans with a smaller percentage down could help the condo market downtown.
The lease-to-own program gives potential homebuyers the opportunity to purchase a condo, even if they would not qualify for a traditional mortgage.
The way the program works is tenants sign a long-term lease with Smart Corner.
During that lease, tenants are encouraged to pay a little above their rent and that extra money goes into an escrow account as down payment funds.
Smart Corner would then match the tenant's contribution to increase the size of the down payment.
The program is available for amore than half of the complex's condos, including the apartment conversions.
It excludes the 55 condos that have already been purchased, as well as 25 affordable housing units in the building.
The lease-to-own condos range in size and price across the board, Harmer said.
"It was our way of trying to help first time homebuyers get a down payment," he said.
Getting the units filled is a priority to the development partners who include Lankford & Associates, Canyon-Johnson Urban Fund, Trammer & Associates, Urban Housing Partners and Centre City Development Corp. (CCDC), as they are responsible for paying the HOA fees for all the vacant units, according to guidelines set by the California Department of Real Estate.
While Harmer would not quantify that amount, with 100 units empty, the minimum cost would be $40,000 a month.
HOA fees for the units vary from $400 to $600 according to a survey conducted by MarketPointe Realty Advisors.
Smart Corner includes two other elements besides the residential tower.
The property, bisected by the San Diego Trolley, has a 20,749-square-foot, five-story office building across the tracks and 7,660 square feet of ground floor retail space on both sides.
Smart Corner is not the only development that has seen trouble in getting loans closed.
Nearby downtown behemoth Vantage Pointe, with its 679 units, is expected to open its doors to residents within a few months and has not closed one of its 288 sales.
Compounding its problems are that lenders like Bank of America (NYSE: BAC) will not loan on buildings that are not 70 percent sold and 70 percent owner-occupied.