What will happen to all those empty condos?
Earlier this year, I wrote about the ambitious development firm Schnitzer West, which started constructing several massive residential buildings and office towers at the worst time in the real-estate market:
At Gallery in Belltown, which began presale in October 2006, deposits have been put down on fewer than half of the 233 condos, and King County tax records online show that buyers have closed on only 22 of those condos—less than 10 percent. Brix Condos on Capitol Hill, which has 141 units, also started preselling in fall 2006; so far, according to a sales representative, fewer than half have sold. And at the Equinox on Eastlake Avenue, a sales representative says people have signed contracts for fewer than 30 percent of the 204 condos in the building, which is still under construction. Meanwhile, Schnitzer’s Bravern, which is under the crane in Bellevue, has contracts on fewer than one-third of its 450 condos.
Schnitzer West basically had three options: They could sit on the empty condos and wait for the market to bounce back (all the while hemorrhaging money), they could convert the condos into apartments (renting them at prices far lower than a monthly mortgage), or they could just auction them at a price so low they fly out the door (while losing profit potential in large chunks).
As Slog tipper Claire notes and others have reported, Schnitzer is in auctioning off its condos at Brix in Capitol Hill and Gallery in Belltown, starting bids on some units at 62 percent of listed price. For instance, a $485,000 unit is starting at $185,000 on Sunday, Sept. 27 at 1:00 p.m in the Grand Hyatt.
Liquidating condo stock through auctions is still fairly new ’round these parts. But since last winter, condo developers have been auctioning their units, usually selling for about 80 percent of their listed price, left and right. But it’s interesting that Schnitzer—which is owned by the extremely wealthy Schnitzer family in Oregon, which also owns Schnitzer Steel—can’t hang on until the market improves.
Perhaps they see another market slide coming, perhaps after the stimulus economic afterglow wears off… and this is their best chance to cut their losses?
Remember when Bob Burkheimer held Capitol Hill hostage, boarding-up his properties and demanding that Broadway’s height limit be raised to 65 feet? How’s that working out for you, Bob?
Schnitzer seems to expect condo values to depreciate so much more that cutting their losses and clearing their balance sheet now is the best decision.
It’s good to see those condos come down so that low income earners can now buy condos in Seattle.
What? $185,000 and you still can’t afford it?
It would seem to me that all the low income housing gripers posting here over the last year, now have available options…
And if $185,000 is still too high for their budget(s), they might need to honestly analyze themselves and understand they are living in an area above their means.
So put up or shut up. Buy a condo now or shut up forever.
Schnitzer also owns a huge percentage of the shopping malls in the region, which have been taking massive hits. I’m sure they are desperate to raise some cash.
Most condo auctions are basically scams to make people think they are going to get amazing deals. They start the bidding low, but they usually go for no less to 10-20% off the original asking price. Some shadier developers employ ghost bidders to get the price up to a minimum level, as well.
http://www.calculatedriskblog.com/2008/0…
Looks like a good time to cut your losses.
@6:
Either that, or, as I’ve been given to understand, the banks financing the developments come in and scoop up the units thinking that it’s the only way they can guarantee recouping a large chunk of their loan. I would presume if that’s the case, that the bank would just sit on them, and eventually sell them to a real-estate broker or some such once the market stops tanking and they can get decent return on them.
In any case, nobody in their right mind should think they can get a $500K condo for a mere $185K. What’s the old saying about, “if it sounds too good to be true, it probably is”?
@4:
Unfortunately, it’s not JUST $185,000 (since, as @6 points out, it’s literally impossible to pick up a unit for the “starting price” at auction); there’s also closing costs, not to mention the monthly association fees, which can run $300 or $400 a month on top of the mortgage itself. So throw all that into the payment schedule, and most people could still looking at a couple thou a month easily.
As for “living in an area above their means”, well, why should I pay out that much for a gimcracked piece of crap that’s going to start falling apart before the ink is even wet on the paperwork, when I can rent a perfectly acceptable living space in the same general area for one-third that amount, and not put myself into perpetual debt in the process?
Or do you still believe the resale value of these things will just continue to go up! Up! UP! like the late-night hucksters were insisting they would – back in 2005 or so?
can anyone tell me what the fuck a bravern is?
The market is not going to improve. Read a bunch of posts on Irvine Housing Blog for fundamentals of real estate investment. The housing bubble was inflated by over-borrowing via suicide loans that are no longer available since they are now killing both the lenders and borrowers. Under any workable debt-to-income structure, housing prices are going to decline more, and only resume a SLOW upward increase if/when real household incomes increase. Boeing’s evident plans to move all it’s jobs to other states should help postpone THAT day.
Um, hello? Schnitzer West is NOT owned by the Schnitzer Family… Schnitzer West is an offshoot of an offshoot, and has very little affiliation with the family, and NO affiliation with Schnitzer Steel and the malls.
Also, Equinox is already going to apartments, announced last month I think. Actually, the auctions are kind of old news too… hmm.
@8: Brix and Gallery are not “gimcrack”.
I hope all y’all are throwing all their gimicky sandwich board signs away when you come across them on the sidewalk. They are litter and spread like cancer.
@12:
So, you’re saying electrical plugs WON’T start falling out of the wall outlets six months from now? Or that the mop boarding won’t start peeling off the walls eight months from now? ’cause I’ve seen that sort of thing happen quite a bit in “new construction” situations.
#6 is pretty right on. My girlfriend and I took a tour over the weekend and thought we might be able to squeeze into one of the larger 1 bedroom units that overlooks the south “courtyard.” They are too small–almost even for one person. The places are kinda dark with no windows in the bathrooms, no way to create decent cross-breezes, and no way to avoid the noise have ~200 units would cause. Wealthy foreigners will be grabbing them I am sure, along with the more dumbass wealthy seattle u students. Even if we could get one for $175K, the closing costs, Home Owners Dues (rather high I thought) make it approaching the cost of a larger condo with our own entrance, outdoor space approachable. these are essentially dorm rooms with a nice rooftop deck.
@15,
The smallest unit is still bigger than my apartment, but the original $360k asking price for a 640-square-foot condo is outrageous, especially on Capitol Hill and not in Belltown. You can get a house in farther flung neighborhoods for that much.
There must be a lot of suckers among the rich.
Real estate development is extremely capital intensive. Even those with the deepest pockets are typically very exposed right now, and many of those who made aggressive investments stand to lose everything.
Funny that the recession silenced all that Smart Growth talk from people. More like What Growth? This may put to rest some of the petri dish concepts about urban development… since without widespread growth, you’re probably not going to see it.