The West End Condo Auction Liquidation Sale

The West End condos auction

The second Terrazzo style condo auction has been booked as predicted, but this one is a little bit more surprising. I am not necessarily shocked that it is the West End building, but I am totally floored by the number of condos being auctioned…45. The December 5th auction will include 5 one-bedroom units, 25 two-bedroom units and 15 three-bedroom units. The retail value of the condos range between $385,000 and $948,000.

Let me first reiterate what I have been saying about the West End condo building for the past 3 years – this is an excellent quality building built by a group of local developers led by John Coleman Hayes, but the individual condos were built too large for this market averaging over 2,100 square feet. The interior feels more like a home than a trendy condo offering buyers a different product in a different location, but it turns out that few wanted to trade in their 4,000 square foot homes for a 3,000 square foot condo that costs twice as much. Perhaps more condo buyers did, but could not sell their home in this market.

The West End is a 12 story, 72 unit, luxury condo tower that only has sold a half dozen condos to discerning buyers. Why didn’t more of these condos sell? The answer is simple. This building is a victim of the real estate perfect storm plus developer/sales team mistakes.

1) The developer built this building without pre-selling the condos
2) The economy then turned sharply downward
3) The sales team had a poor marketing effort that was slow to tell the public about the building
4) The developer and sales team failed to create a “want and need” for this product in Midtown
5) The condos where larger than the market demanded

The auction is the next chapter

Jerrold Pedigo Realty and Auction has been tapped to run the auction, wait a second, who? Jerrold Pedigo that’s who. When I Googled “Jerrold Pedigo Realty“, I was also shocked that a company website did not come up in the first 20 search results. A LinkedIn profile containing 1 connection did appear though.

Who is this Jerrold Pedigo fellow and why did John Coleman Hayes choose this outsider to auction these condos? Well, I actually have no earthly idea, which is a problem. As most of you know, I am a partner in a real estate auction company called RealtyTrust and I have never once run across Pedigo in any of my dealings, conversations or research. Not that I know everything, but wouldn’t you want a proven company with specific area knowledge and expertise to run the show? I sure as heck would.

West End Condos making similar mistakes?

As with preconstruction decisions, there are several mistakes being made right out of the starting gate in the auction. I covered the first possible mistake in choosing the auction company above, but let’s talk about the auction and auction announcement.

1) The auction has been officially announced and none of the details are finalized. The only firm information is that there will be an auction of 45 condos on December 5th, 2009. We do not know if this is an absolute auction, if there are minimum bids, reserve prices, what time the auction starts or even what type of auction it will be – oral outcry, bidder’s choice, sealed bid, etc.
2) There is a website for the auction, but most of the pages say “page temporarily unavailable”. In other words, there is no complete information available. Is anyone else starting to see the issues?
3) During the time that the building has been for sale, three different real estate companies provided representation. Pilkerton, Worth and finally Zeiltin. I fear that a similar game a music chairs may break out with the auction entities involved.
4) Attempting to auction 45 condos in a single day is overreaching in my opinion. There is no way there are 45 luxury condo buyers who are currently in the market to buy an expensive condo by the end of the year. The Terrazzo was going to just squeak by with their 30 condos, but 75 less than 2 weeks apart is unrealistic for this mid cap market.

Clearly, I don’t have all of the details or have all of the back story, but I am not getting a good feeling. More to come as I analyze the effect of the West End auction on the Terrazzo auction and vice versa.

BTW – I am calling this auction a liquidation as they are selling more than half of the 72 unit building. A true auction would aspire to obtain the highest and best price for the seller. This is a bank REO-esque liquidation sale.

October 2009 Nashville Real Estate Market Analysis

October 2009 Market Change

The Middle Tennessee MLS (Realtracs) just released October 2009 stats. The adjacent graph and analysis are based upon the residential single family homes and condos market only. As you may recall in September, the number of closings and pending transactions took a hit, but inventory did burn off. Did October begin a trend of real estate market deterioration or is Nashville back on track?

Total Inventory (Good, Getting Better)
Inventory levels continued to decrease in October, down 2.4 percent from September, and now just slightly up 4.02 percent since January. There were a total of 16,575 active homes and condos in Nashville last month, compared to October 2008 when there were 17,169 on the market, a respectable year over year drop of 3.58 percent (I am aware that shadow inventory does exist, but am not factoring into these ‘hard’ MLS numbers).

Pending Sales (Very Good, Holding)
Pending sales in Nashville are up rather significantly in 2009. Since January, pending sales have vaulted 60.87 percent higher. Also, for the third consecutive month, total pending sales are higher than their levels a year ago. October 2009 levels are a full 40 percent higher than October 2008 when 1,504 total properties were pending. This is very, very encouraging news as it represents a new 2009 benchmark high in addition to bucking our usual seasonal dip (thank you first time homebuyer tax credit).

Closed Sales (Great, Rebounding)
After 2 straight months of falling closings, total closings rebounded rather significantly as buyers took advantage of their Federal tax credit. Since January closings have risen 123.48 percent. This number represents an 11.34 percent gain over September. Compared to the same period in 2008, year over year closings have now increased an eye raising 19.61 percent when 1,660 properties closed. The gain in closings can be directly attributed to the first time home buyers credit. That being said, just 3 months ago the Nashville market was 9.07 percent worse than the recorded closings in 2008, now we are 19.61 percent better…I would say that a 28.68 percent year over year turnaround over 3 months is pretty outstanding.

Median Prices (Low, Stable)
After 2 months of accelerated decreases, October pricing appears to have stabilized at $157,761. This median price represents a 0.05 percent decrease from September’s median price of $157,863. A portion of this drop can be attributed to first time home buyers and distressed foreclosures, but as more primary residence buyers find higher quality distressed property, the prices have stabilized. The median price is down 6.41 percent compared to October 2008 when the median price was $167,870.

Months of Inventory (Decent, Getting Better)
Based on October’s closed sales, it would take 8.03 months to sell all existing inventory. Based on pending sales (contracts accepted but not closed yet) it would only take 7.87 months. Our absorption rate has been steadily increasing in every month of 2009 except for September and for the first time in 2009, we are better off than 2008. In fact, in October 2008, Nashville had 10.32 months of inventory on the market compared with 8.03 in 2009.

Just as I predicted in August, every single indicator on the graph above is better than 2008 except for the median price which is only running 6.41 percent behind the 2008 benchmark. As I also predicted in August, median prices will to continue to bottom feed for the remainder of the year and probably well into 2010 due to the combination of first time buyers and less $1 mil+ transactions.

I am beginning to see light at the end of the tunnel when comparing year over year numbers. I realize that it is way too early to call, but I am going to do it anyway: The Nashville real estate market officially bottomed out in late August/early September 2009. Bold, I know. But, with the federal tax credit having been not only extended, but expanded coupled with the treasury’s willingness to keep mortgage rates artificially low, it’s hard to see a regression in the short term. Perhaps this is a dead cat bounce until May or June 2010, but it will certainly represent a period of turnaround despite lowering prices (we still have not given back all of the price gains since January 2006, but we should by the beginning of 2010).

Nashville Riverfront Renovations Have Begun

The consulting firm that came up with Nashville’s riverfront master plan three years ago will be returning to town to design $30 million worth of downtown projects on both banks of the Cumberland River.

The Metro Development and Housing Agency voted Tuesday to hire Hargreaves Associates for up to $2,126,000. Ed Owens, MDHA’s waterfront development director, said he hopes the landscape architecture firm can start work by the end of the month on six projects Mayor Karl Dean and the Metro Council decided to build earlier this year, as well as an additional dozen in the city’s longer-term plans.

nashville riverfront renovation plan

The first phase of the plan includes a $12.5 million adventure play park on the east bank. Construction of the adventure park, based on Hargreaves’ full designs, should start next summer, Owens said. The park could open in 2011.

If you recall, Hargreaves is the company who is responsible for the dramatic riverfront turnarounds in Chattanooga, Louisville and Knoxville. In addition, Hargreaves was taped to work on ultimate projects like the Abu Dhabi Beaches in the UAE and the giant Singapore Marina.

Hargreaves, working with at least 13 local firms, also will prepare schematic designs for 17 other projects. Five of those, including an overlook at First Avenue and Broadway and an east bank river lawn, are in the riverfront plan’s first phase.

Perhaps once the first phase is complete, Nashville will come to value one of its greatest resources, the Cumberland River. Let’s not forget that real estate developers have all but ignored the East side of the river for decades. This will surely change over the next decade.

First Time Homebuyer Tax Credit Extended & Expanded

If you feel like the first time homebuyer tax credit was a sweet deal that you missed out on, you’ll now have another shot, the program has now been extended through April 30, 2010.

The Tax Credit was also amended to include move-up buyers who’ve been in their current home 5 consecutive years over the past 8 years. Those eligible buyers will receive a $6,500 credit, as opposed to the $8,000 for first timers. Eligibility will be limited to an income of $125,000 for individuals and $225,000 for married couples. There is also a limit on the price of the home you can buy, $800,000, which was not the case before. This increase has included an additional 14% of the population that were not eligible under the previous program.

More good news for the real estate market, FHA has amended the condo qualification standards to be more lenient and accessible to condo buyers effective December 7th, 2009 through February 1st, 2010.

The original first-time homebuyer tax credit jump-started the housing market, driving home sales to the highest level in more than two years. The National Association Realtors reported sales jumped 9.4 percent to a seasonally adjusted annual rate of 5.57 million units in September and are 9.2 percent higher than the 5.10 million-unit pace in September 2008.

2010 Tax Credit

Terrazzo Auction Will Impact Nashville Condos

Terrazzo Auction Annoucement

This article entitled “Terrazzo auction will impact condo prices across Nashville” appeared in the Nashville Business Journal on November the 6th, 2009. The author is Eric Snyder:

Velocity, the last new condo project that will come to the downtown Nashville market for several years, has officially opened its doors. Meanwhile, Terrazzo, one of downtown’s more luxurious condo towers, is poised to slash its prices by as much as half at an upcoming auction.

The stage appears set to at least create momentum to move units. What’s less clear is whether that momentum will come as a result of severely discounted prices – not just at Terrazzo, which is selling 30 of its 117 units for up to 50 percent off original asking prices, but across the market.

Grant Hammond, a buyer’s broker who specializes in condos, said the Nov. 21 auction will serve as a “crystal ball.”

“This should tell everyone exactly where the market is for downtown living,” said Hammond, who will represent two potential buyers at the auction. Hammond said the auction will determine whether the downtown market is viable, or whether it’s moving toward or away from viability.

Hammond will set his compass by final sales prices, adding that auction prices of $250 a square foot will represent a viable market. Read Eric Snyder’s full Nashville Business Journal article.

I have to admit that I was pretty offended by this auction when I learned of it a week ago. It seemed that the Terrazzo owners had skipped a couple of logical steps in the sale process. As I have learned more about this particular sale, I am actually coming around in this particular situation. However, I will say this: If there are any developers who try to do a similar auction in 2009, they will get killed. Copycats always get killed. Just call the developers of the Aqua condo tower in Atlanta who tried to copy an earlier Accelerated Marketing Partners sale.

It appears that auction attendance is going to far exceed everyone’s expectations and that there really are quite a few end using condo buyers that exist in the Nashville market. While the lack of sales in the Terrazzo shouldn’t be an indication of past demand, the renewed interest in this class A building in a class C location is quite encouraging for a number of reasons.

When you break down the available condo inventory in downtown, you find that the numbers aren’t as bad as you may have been led to believe. What does appear to be at odds however, are the wishes of current condo owners and condo developers who want to build again. Owners are hoping for prices to remain stable during the next 1-3 years of inventory burn-off whereas developers would rather see prices fall to the point where 100% of the inventory burns off in one year.

I see the arguments from both sides and each has a valid point, what I have not determined is the perfect solution for both owners and developers. What I am sure off is the fact that the Gulch does have legs. The Icon has been selling very well during a recession and once Velocity gets a little more serious about their prices, it will be the most affordable entry property in the downtown market. The Gulch is quickly becoming a ‘see and be seen’ neighborhood in Nashville as certain celebrities tend to slink in and out of 2 restaurants in particular.

See all condos for sale in The Terrazzo

Senate Debates Extending First Time Buyer Credit reports that the Obama administration endorsed plans to extend an $8,000 tax credit for first-time homebuyers, saying it is helping stabilize the nation’s housing market. Senate Democrats have announced plans to extend the credit until April 30, 2010, while expanding it to include higher-income Americans and some who already own homes.

Senate Finance Committee Chairman Max Baucus said today the new plan would offer a $6,500 credit for homebuyers who have lived in their prior residence for at least five years. Couples earning up to $225,000 and individuals up to $125,000 would qualify for the break, Baucus said. That’s up from the current $75,000 limit for individuals and $150,000 for couples.

“The success of the American economy is closely tied to the success of the housing market; by helping to stabilize the housing market, the homebuyer tax credit has helped to shore up the economy as it begins to recover,” said Baucus, a Montana Democrat. “This would enable an even greater number of potential homebuyers to take the credit.”

Lawmakers said they want to prevent home sales from slipping as the economy struggles to recover from the worst drop in home prices since the Great Depression. More than 1.2 million borrowers have claimed $8.5 billion of the $13.6 billion set aside for the homebuyer tax credits this year, according to the Treasury Department.

The Democrats’ proposal would extend the credit to home purchases under contract by April 30, 2010 so long as they close the sale within 60 days. Those buying homes worth more than $800,000 wouldn’t be eligible for the credit, said Baucus. Lawmakers also said they won’t extend the break beyond the new April 30, 2010 deadline.

The current tax credit is set to expire on November 30, 2009. The Senate could vote on this new bill as early as tomorrow.

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