Downtown Condo Flipping

[GRDadof3]

The test is a challenge. With Signature Tower, investors had to disclose that they were investors. And the limit was 10%. Obviously that can't be policed so now we see more than 20%. Other projects I don't believe have those limits here. In one case, Adelicia, a midtown project, the developer set the deposit at 20% to discourage investors.

Here, I think our midtown area will get overbuilt before the downtown area. There's been more room and some projects have already fallen by the wayside. Downtown, particularly the core Central Business District, the barriers to entry are high -- meaning land prices are high. Giarratana has had the Sig Tower property for awhile and controlled the Viridian site as well before building. He works with a local landowner who is the same as the one involved with TG's Belle Meade project, a guy name Kermit Stengel, something of a patron, if you will. There are some projects on the periphery of downtown that won't be near the square foot price of Sig Tower or Viridian or Encore. One condo proposal had already gone away to a large extent -- the ones next to the proposed Sounds ballpark -- because they saw the market getting saturated. They switched over to apartments which are lacking. That deal fell through for reasons unrelated to market economics on apartments or anything else. Right now, Sig Tower is the only proposed tower in the core.

A little history -- for decades the Central Business District's zoning didn't allow residential. TG got that change to build Cumberland Apartments a decade ago. His first condo proposal on the Sig Tower site fell through because there was more interest in the lower priced units than the pricey ones. That two was about 10 years ago. It wouldn't be until just a few years ago with some smaller conversions of old buildings that the condo market began to rise. Then came Viridian in the past couple of years. I think there's something like 2500 people living downtown.

One project on the periphery that could cause a little trouble for others is Icon. Supposedly, that is investor heavy. The question is will it harm downtown or just other projects around it. There are two -- Velocity, same developer as Icon -- and Terrazzo. The latter had to reprice -- I think that's right -- because the developer was pushing the high end of the market.

[Jeeper12]

Speaking of the ICON and condo flipping: I have been told that ICON had only 2 years to deliver it's units to buyers from the original date of contract. And I've read a blank ICON contract that a friend was given at the opening and it states the same thing. This would be consistent with the federal prohibition of exceeding a contract duration of 2 years that we heard about for the ST. Anyone know if Bristol can require any of their 400 buyers to close if they fail to deliver the units by next April. They're clearly not going to be done by then and I've heard they're already telling people that they'll need another 18 months to finish. So, absent them going back to all their buyers and seeking an extension of time how might this effect the market in general if all these folks have an out ? Not that $5,000 was ever much of a reason to close if things turned bad anyway.

Anyone have an opinion or some knowledge ?

[Jeeper12]

^ Coincidentally, there is a front page article in the WSJ today headlined: As Market Cools, Home Buyers Seek a Way Out.

It's pretty deep and informative about the nature of these type of contracts and how some around the country have retained counsel to terminate and get their money back. Interestingly, it also discusses the specific performance clauses that I saw in the Bristol contracts. Most developers simply accept that if a buyer walks away they can do so provided they are willing to forego their deposit. I guess Bristol figured that since they were only requiring such a minimal deposit they needed more leverage to ensure a closing. But I've always been kind of skeptical that they'd really try to enforce that. In any event, I think their apparent inability to meet their contractual delivery deadlines may make that moot creating the sort of opportunity for nervous buyers to "walk" that is pretty well covered in this article. Happy reading.

[Richard Lawson]

^ Coincidentally, there is a front page article in the WSJ today headlined: As Market Cools, Home Buyers Seek a Way Out.

It's pretty deep and informative about the nature of these type of contracts and how some around the country have retained counsel to terminate and get their money back. Interestingly, it also discusses the specific performance clauses that I saw in the Bristol contracts. Most developers simply accept that if a buyer walks away they can do so provided they are willing to forego their deposit. I guess Bristol figured that since they were only requiring such a minimal deposit they needed more leverage to ensure a closing. But I've always been kind of skeptical that they'd really try to enforce that. In any event, I think their apparent inability to meet their contractual delivery deadlines may make that moot creating the sort of opportunity for nervous buyers to "walk" that is pretty well covered in this article. Happy reading.

[splash]

Thanks ... That's the first I've heard about Icon not being able to deliver on time. I'll have to check on that. I know the Kress building downtown had trouble with that and it only meant more money for the developer as buyers withdrew and got their deposits back. The developer then resold the units at higher prices. It would be interesting to see if the same happens with Icon.

[Jeeper12]

I know the Kress building downtown had trouble with that and it only meant more money for the developer as buyers withdrew and got their deposits back. The developer then resold the units at higher prices. It would be interesting to see if the same happens with Icon.

[Richard Lawson]

So, this could be a strategic move by Bristol to improve their profit on the project!?!?

[Jeeper12]

QUOTE(Jeeper12 @ Apr 25 2007, 02:25 PM)

Producer, as of 4/9 there were 73 active listings averaging $378/sf compared with 61 units available on 2/26 averaging 382/sf. You seem to have a bead on the market for these and other units. How much do you think those sellers would have to drop their prices to completely sell out of all those units in a month ? I assume that given the downtown demand figures you have referenced you believe (as I do) that there is clearly immediate demand for these units at a fair price. If you owned all 73 and were charged with selling them all in 30 days at the highest possible price how would you price them ?

I'm not sure what happened to producer. Anyone else have an opinion as to what it would take (price below $378/sf) to sell the 73 Viridian units in 30 days ? Remember, most of these have no been on the market for almost 6 months. I'm curious what the consensus is on the board. Come on, it doesn't cost to play and you don't have to disclose what you do for a living (IMG: ) I say $325/ sf. The best part about this is after another 3 or 4 months I think the market is going to tell us the answer. It would be fun to have a bunch of us on the record so to speak.

[it's just dave]

The little bird said,

Units in any building would have to be sold based upon current market conditions. If the Encore is selling comparable units at $310-$325 per square foot then the units at the Viridian would probably need to be in the same range. As a buyer why would I pay more if there is other similar product available at lesser price? I think having sold 200+ units at Encore has really set the market in the area more than the resale

[Jeeper12]

^ It's also worth pointing out that the Encore units won't close for about another year. So, in order to be within your range of Encore pricing ($320/sf) on a V purchase you'd need to get it a little cheaper than that (like, say $300/sf) to allow for the 6% appreciation you'd expect over the next year.

In other words, if you paid $300/sf for a V unit today you'd expect it to appreciate 6% to get you to about $320/sf around the time the Encore units are closing for about the same price.

[Jeeper12]

Anyone see the WSJ article today headlined Animal House Meets the Empty Nest ? It was a very unflattering piece on how the lifestyle promise of some developments don't necessarily live up to expectations. Animal House is how one unhappy Viridian resident described the pool scene. They even had a photo of a twenty-somthing guy chugging a beer next to the pool. I don't think this will be very helpful to the Encore or those folks still trying to resell.

[ATLBrain]

Did some surfing and came up with this from a recent Channel 5 News segment. Not having been to NSH since December, I enjoyed the videos with "birds eye" views of some of the bigger projects. All I can say about Icon is, "Damn, that's a huge footprint!".

http://www.newschannel5.com/global/story.asp?s=6499277

[Wild Style]

Just did a search on one of the online MLS systems, and it showed that there are 61 units for sale at the Viridian. One of the articles I found originally announcing the Viridian said that there were to be 305 units, and if that stayed true, there are now 20% of the units back on the market. They range in price from $600,000 (1,468 sq ft, 2 BR/2 BA) down to $228,900 (618 sq ft, 1/1)

A few weeks ago, I remember reading postings that stated something like "Well, I'm relieved to see only 10% of the units at the Viridian are coming back on the market." Well, does seeing 20% of the units becoming available make anyone uncomfortable? Is it all ok, regardless? Let the market take care of things?

I am not one who advocates government intervention, nor do I think onerous penalties or restrictions limiting resalre are the answer. I just wonder what all this churning does to the overall market, as I await the building of my already-under-contract townhouse @ 5th and Main in early 2008.

Look forward to people's thoughts and perspectives.

[Jeeper12]

Anyone see the WSJ article today headlined Animal House Meets the Empty Nest ? It was a very unflattering piece on how the lifestyle promise of some developments don't necessarily live up to expectations. Animal House is how one unhappy Viridian resident described the pool scene. They even had a photo of a twenty-somthing guy chugging a beer next to the pool. I don't think this will be very helpful to the Encore or those folks still trying to resell.

[Richard Lawson]

There is a free link to the story now: //www.realestatejournal.com/buysell/markettrends/20070514-casselman.htmlw on wsjonline: