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

  • aynrand2009

    I agree the Terrazzo auction is likely to be well-attended. However, unless someone spikes the punch, I don't believe you'll see bids significantly exceeding the published reserve. Why? Simply put, $250 a square foot far exceeds the present market value. The Gulch may have legs, but not at those prices. Moreover, lenders are likely to compel developers to lower prices to move product and avoid foreclosure. If these units sell near the published reserve, I predict all the developers will lower prices unless they have the financial wherewithal to hold onto the unsold units until the market rebounds, which might take five to ten years. And by the way, what's the status of the lawsuit the glass contractor filed against Terrazzo, its builder, AND ALL OWNERS? Are bidders going to be buying into that lawsuit?

  • aynrand2009

    I agree the Terrazzo auction is likely to be well-attended. However, unless someone spikes the punch, I don't believe you'll see bids significantly exceeding the published reserve. Why? Simply put, $250 a square foot far exceeds the present market value. The Gulch may have legs, but not at those prices. Moreover, lenders are likely to compel developers to lower prices to move product and avoid foreclosure. If these units sell near the published reserve, I predict all the developers will lower prices unless they have the financial wherewithal to hold onto the unsold units until the market rebounds, which might take five to ten years. And by the way, what's the status of the lawsuit the glass contractor filed against Terrazzo, its builder, AND ALL OWNERS? Are bidders going to be buying into that lawsuit?

  • Devils Advocate

    How many people missed the part about this event being an AUCTION? Sounds like they already have a lot of folks interested, which means prices will probably get bid up from the bait & switch lures they put in the brochure. They definitely won't get their original asking prices, but this won't turn into a fire sale either.

  • http://www.granthammond.com/ GrantHammond

    It is my understanding that they have bonded off the lien from Baker Glass much like the Velocity bonded their lien off from Doster Construction. These types of liens are an inevitable part of the developer/builder/sub-contractor relationship. It’s almost become a rite of passage for high-rise developers.

  • http://www.granthammond.com/ GrantHammond

    I don't think that they'll have to resort to the ole bait and switch. It looks as though there are more condo buyers in the market than assumed. An auction is a great way to get those buyers off the fence and into the market. The truth is that the Terrazzo is a Class A building that is offering 30 people the chance to buy in below replacement cost. There is no way that the developer has less than $280/ft in just the land, materials, labor and carry.

  • aynrand2009

    From the same issue of the Nashville Business Journal, this tidbit: Carolina First Bank has foreclosed on Gulch property Crosland Inc. planned to develop into a 280,000 square-foot mixed use development called Griffin Plaza. According to the substitute trustee sale notice, this property will be sold at auction on 11/30/2009. The proposed development, located at 1111A Laurel St. and 300 and 3004 12th Ave. South, was to include 140 apartments in a 10-story tower and 32,000 square feet of ground-floor retail space. According to the article, about two weeks later, the decision was made to auction the 30 Terrazzo units. Is there a connection between these two events? What do you Gulch experts make of this development, which to an outsider, appears ominous? Apparently, work on this project never commenced and, with the foreclosure, is unlikely to ever commence. The question must be asked: Are lenders, if not the developers, giving up on developing the Gulch?

  • http://www.granthammond.com/ GrantHammond

    I think that there is a little more going on behind the scenes that we may not fully understand. While Crosland did begin the Terrazzo, an urban investment fund, Canyon Johnson, stepped in and reduced Crosland's financial liability a couple of years ago. Some time just prior to that Crosland also acquired the Griffin Plaza land in the Gulch as well as land on Charlotte that many consider to be a premature purchase.

    I am not an expert on the Crosland books, but I believe that the foreclosure of the Griffin Plaza site is mostly a result of overreaching on the Charlotte land. In that same breath, I also believe that Canyon Johnson has very similar pressure as I read that the fund is trying to raise significant capital prior to the end of the year.

    Developers are certainly not giving up on the Gulch, in fact, I think that the Gulch is the most viable future downtown neighborhood in Nashville. MarketStreet Capital will mostly likely purchase the Griffin Plaza land and add the site to their increasing large piece of the Gulch land puzzle. I am not so sure that MarketStreet won't still build Griffin Plaza in the future, just with a different development partner…perhaps Eakin and Hensler? If I was choosing, that is the team I would put on the field.

  • Hooper11

    from what ive read this foreclosure speaks more to crosland's difficulties at the company level. according to recent articles they are losing 2 or 3 other nc properties to the same bank. dont think these foeclosures have much to do with the charlotte ave purchases since those were bought with a land fund w an insurance co that crosland created a couple yrs ago. it was never a part of the griffin project.

    developers and banks will favor the gulch at some point but i think it will be years before they turn dirt again. burning off the excess inventory in the gulch and elsewhere will come at the expense of pricing and i think it will be 2013-2014 before we see consistent sales in the gulch at or above $300 per foot again. and even that wont be enough to get developers and banks excited about risking life and limb. maybe some apartments can fill the void but i think half of the gulch condos will end up rental anyway.

    as for charlotte avenue…i agree with grant. see you in 2020.

  • Hooper11

    i think the auction will be a great opportunity for those needing a condo as a primary residence…just not sure there are 30 peeps in nashville that immediately fit this bill and favor the style of living the terrazzo offers. after the users fill their orders i think investors will be much less willing to crack the $200 per foot ceiling regardless of the replacement cost argument. grant, do you know how many units can be leased at this point? ive heard half of the 12-13 that closed already have tenants. investors will be even stingier if they cant rent the units until the storm passes. the leasing factor could also influence pricing on the next round of sales assuming all 30 go. if they quench the user demand and sell any remaining units that can be leased to investors, then what? at that point they can only sell to users, which may slow things down again….unless the $185 per foot pricing continues to be available. thoughts?

  • John_23

    I'm not on the development side of things, but does anyone else think it was strange to build a “luxury” condo with a railroad in the back and a large interstate next door? If you're in the luxury market wouldn't you be a savy / picky enough buyer to chose not to live next door to either a RR or highway?

  • http://www.granthammond.com/ GrantHammond

    I am not aware of how many current owners have tenants nor am I aware of how many additional lease permits that may be available to auction condo buyers. Helping the auction is the news that the first time buyers credit has not only been extended, but also expanded to include a higher tax bracket. In addition, the new FHA accreditation rules that take effect on Dec. 7th should allow lenders to write FHA insured loans in this building.

  • John_23

    I talked with several people who initially expressed great interest in the auction. When you get down to it, the association fees have killed the bargain for all of them. Are there any non agents / or non mortgage brokers that honestly think this is a good deal? There will be a lot of “interest” in the auction from people initially wanting to make a steal. Lots of people will register for the website simply out of curiosity. How many people will actually go through all the auction legalese, get the cashiers check, have financing lined up, and be ready to bid above min price? I wouldn't touch these places at the min bid. The real deals will come later. You'll probably be able to buy a bunch of units in the Velocity for dirt cheap and rent those apartment dwellings out!

    A week ago, I actually heard a broker say that the auction had actually been a great thing for the velocity because it had drummed up so much interest in the Gulch! Talk about trying to make a turd shine!

  • Hooper11

    i agree the fees are very high considering the bite sized amenities offered but that may not be the worst of it. a broker i talked to yesterday told me that the owner of the commercial space will control just under 49% of the voting rights for the association. if true, this means that all future decisions about budgets and building policies will effectively be determined by someone other than the residents. not good.

    despite all this i think they will sell most of em close to the minimum. even with all the ticks and flaws i think the quality will help them move them.

  • anyrand2009

    The Nashville condo market is imploding. The Nashville Business Journal published a story on its website today indicating the luxury 72-unit West End condo development by John Coleman Hayes is auctioning off 45 units on 12/5/2009, 2 weeks after Terrazzo offers 31 units at auction. The terms of the sale, e.g., reserve or absolute, are not final as now. If you've ever been interested in buying a Nashville condo at a REASONABLE PRICE, you may be able to do so within the next few weeks. Both developments appear to be high quality and appeal to a slightly different audience. The website for the West End auction is up, with a few tabs still under construction.

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  • Hooper11

    i think great bargains are coming but there are still traps buyers can fall into. i would never bid on the first third of the units offered due to the monkey business that can go on during this time. its not unusual for undisclosed representatives of the developer to bid up prices with the initial units to try and artificially raise the “floor”. if they get burned doing this early and end up “buying” too many of their own units they will be forced to the sidelines. better to wait for the bargains at the end.

  • Devils Advocate

    Someone like Grant would be able to pick these sock puppets out easily since he's probably met everyone interested in these units by now. A sudden slew of unfamiliar faces too interested in paying MORE would raise a big red flag, right Grant?

  • http://www.granthammond.com/ GrantHammond

    Most of these type of auctions have plants in the audience that participate in the bidding in order to drive up the price. I am always a tad bit skeptical of bidders who bid before the auctioneer begins to count down the auction.

    I typically try to get to these auctions about 45 minutes ahead of time and look for casually dressed, clean cut people who don't appear to be inspecting the property. If I see one of those guys bid prior to a count down, I take it with a grain of salt. Always study the people.

  • Falcon2

    I think it will be hard to do that at this auction. I think they will have a packed house at that ballroom but I also think it will mostly be spectators curious about the outcome. The pace at these things moves very quickly and you usually can't even see some of the bidders…easy for “plants” to blend in. I still think it's safer to avoid bidding in the first 2 quarters of the auction. And even then, its dangerous to get swept up in the heat of bidding. Do your homework ahead of time and walk away if things seem overheated. This is likely to be just the opening kickoff of a long game to sell unsold condos in Nashville.

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  • Falcon2

    Grant, will the owner of the commercial space really dominate board decisions this way ? That seems like a real lose lose for the residents. And not just where budgets are concerned. If true, the rules and regs will probably also favor the commercial tenants as well.

  • http://www.granthammond.com/ GrantHammond

    Ever since I saw the last comment above, I have been trying to get my hands on the CC&R's…I would expect that there would be two separate HOA's essentially; one for the residential owners and the other for the commercial tenants.

  • Falcon2

    Yes, I would expect to different sub-HOA's but the owners in each of these would normally be given voting rights in the master HOA. And in a mixed-use building the master HOA is really the controlling party for the property since budgets and uses tend to overlap so much. I'm really suprised that Crosland hasn't made all the CC&R's available on-line ahead of the auction. That's been standard operating procedure at the other recent condo auctions. Who would buy without carefully reviewing these?

  • Falcon2

    Yes, I would expect to different sub-HOA's but the owners in each of these would normally be given voting rights in the master HOA. And in a mixed-use building the master HOA is really the controlling party for the property since budgets and uses tend to overlap so much. I'm really suprised that Crosland hasn't made all the CC&R's available on-line ahead of the auction. That's been standard operating procedure at the other recent condo auctions. Who would buy without carefully reviewing these?

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