Fall Real Estate 2005

Publication Date: Wednesday, October 12, 2005

East Palo Alto plays catch-up
Home prices edging out middle-class

by Mary T. Fortney

East Palo Alto, the little city that couldn't match its affluent neighbors for so many years, is making its mark in the Bay Area's pricey housing market.

Commuters driving down University Avenue see the cosmetic changes: The Ravenswood 101 Retail Center, the huge complex just east of Hwy. 101, which includes Ikea, Home Depot and CompUSA/Good Guys, the high-rise office buildings of University Circle and the 200-room Four Seasons Hotel, scheduled to open in December. Look a little deeper, and one finds a city not only resurrecting itself, but one rapidly approaching a make-over demographically that threatens not only its low-income population, but the middle class as well.

The least expensive home on the market in East Palo Alto in September was at 2217 Addison Ave., offered for $470,000. It featured one bedroom and one bath, and 540 square feet.

There still are elements of the isolated, low-income, violence- and drug-plagued city of the past. But, gentrification -- pushed by the real estate boom and redevelopment projects -- has changed the looks of the city and who can afford to live there, with more construction on the horizon.

The East Palo Alto real estate market is "incredibly hot," Mayor David Woods, a real estate broker said.

New projects are popping throughout the city. Already completed are University Commons, a 30-unit condominium on University Avenue and the Rose Garden development, 28 houses built on Beech Street.

Two separate projects of 70 and 52 single-family homes on Weeks Street and Pulgas Avenue have been proposed. And redevelopment projects up for consideration include 55 townhomes on Weeks Street, 78 live/work (loft) units and an 8,800-square-foot industrial condominium on Pulgas Avenue, according to redevelopment director Carlos Ramirez.

Near the median, offered at $585,000 in September, was this East Palo Alto home at 2709 Fordham St.

New buyers expecting a bargain in East Palo Alto will need to compete in an expensive market, however. Multiple Listing Service figures on house sales for 1998 through August 2005, comparing the growth of house prices in Palo Alto, Menlo Park and East Palo Alto, showed the median price in Palo Alto increased by 109 percent, and in Menlo Park by 94 percent. But median prices in East Palo Alto rose by a striking 183 percent, according to Coldwell Banker agent Don Diltz.

When the University Square project behind Ravenswood 101 opened in 2000, some of the homes were priced as low as $540,900. But a house in the development at 956 Baines St. closed for $832,000 on Sept. 2, which included a $3,000 bid above the asking price of $829,000, according to Gina Serrato, an agent with Alain Pinel who closed the sale.

At the top of the East Palo Alto market in September was this six-bedroom, four-bath home on Xavier Street, offered for $1,050,000.

In fact, East Palo Alto houses listed in the $500,000 range, once a rate considered high in the city, are increasingly difficult to find. The lowest-cost house in East Palo Alto, listed in early September, by Fireside Realty, was at 2217 Addison St. At $470,000 it features a one bedroom, one bath house with 540 square feet. Listings of larger homes are in the high $600,000s, $700,000s and $800,000s, according to real estate agents.

And, a surprise to some, East Palo Alto has two $1 million homes. One, listed in January 2005 house sales, is at 717 Donohoe St. The second, at 2724 Xavier St. and listed at $1,050,00, has been on the market since May, said DeLois Henderson of RE/Max Pioneer realty company. The two-story remodel has six bedrooms and four baths and 4,050 square feet -- almost twice as much house as one could find in Palo Alto at the same price. But even a bargain isn't quick to move.

"There have been quite a number of calls and people at open houses. I did have an offer but it fell through. The problem is that people who were interested couldn't qualify for loans,'' she said.

"How I look at it, is that 101 divides Palo Alto and East Palo Alto. Palo Alto is for rich people ... doctors, attorneys, professionals, and East Palo Alto is for trades people, unskilled workers and a handful of professionals," said Jack Sharma, the broker/owner of EZ Homes Real Estate Inc., located in the city.

Sharma opened his office in 1995, and "prices started going up, by $100,000, again by $100,000 and again by $100,000. The prices are killing the middle class,'' he said. "The only place for people to go is the East Bay, and Hayward prices are going up, too.''

Despite the displacement of lower- and middle-class families, Sharma expects East Palo Alto's housing prices to continue to rise.

The East Palo Alto boom, coming after the city hadn't grown in about 20 years, is not without problems, Mayor Woods said. The last census set the city's population at 32,000; now Woods estimates it's closer to 40,000.

"The difficult part is that with the increased population, we need better services -- police, fire, schools. We are trying to allow growth, and to increase the tax base,'' he said.

He predicts that in five to 10 years East Palo Alto will be able to revitalize the Ravenswood industrial area, generating more income and providing better services. The city still doesn't have a full-service supermarket, which sparked some residents to hold prayer rallies to emphasize their plight.

There is also some tension between newcomers and early residents, said City Council member Patricia Foster, as demographics shift from a predominantly African-American community to Latino, Pacific Islander, Indian and Asian.

Many people rented their homes, sometimes for 10 or 15 years. When the housing market picked up steam, owners of the rental homes sold them, displacing long-time residents of the community, Foster said.

Because the land values are so "fantastic,'' people are holding back selling their homes because they think they can get more from developers, Sharma said. The East Palo Alto Realtor also believes some sellers, impressed by the rising market, are setting unrealistic prices, but he doubts those houses will move very fast.

News of crime activity in East Palo Alto can also slow sales. A recent rise in crime caused one buyer pause, according to Paul Cornajo, with Alain Pinel. But not for long. The two-bedroom townhouse in a gated community on Mission Drive, on the highly-coveted west of the freeway, was on the market just one day. The buyer paid 6 percent over the asking price of $475,000, he said.