Velocity in the Gulch Condo Sales Update

It has been tough sledding for the 265 unit Velocity in the Gulch condo project located next door to the Icon. For a project whose presales numbered in the hundreds, having 9 total closings (3.4%) in the first 3 months since opening does not seem impressive. Even less impressive is the over $325 a foot price point for what amounts to an urban apartment dwelling.

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More confusing is the fact that recent sales in the luxury Icon high-rise are averaging around $300/foot. Is the Velocity actually a loss leader for the Icon?? Actually, that could be true (and smart) since the Icon’s construction loan is much older, for a much larger amount and due sooner.

So what has happened to the over 100 pre-construction contracts? They are waiting for the developer to bring prices down, much like what they did in the Icon over the past 6 months. Since the Bristol Group lowered prices in the Icon 4.5 months ago, they have closed an astonishing 42 condos; one is left to believe that this same plan would behoove the Velocity as well.

The Gulch district is 1 of only 4 LEED certified neighborhoods in the world and is fast becoming a radiant and much desired part of Nashville. More retail stores have opened in the Gulch district in the past 12 months than all of the central business district + midtown district combined.

Regardless of what the master plan is or is not, here are the closed sales in the Velocity:

Date Name Unit Price
6/17/2009 Nashville Urban Ventures, LLC 247 $190,400.00
7/14/2009 P. Copeland 112 $203,950.00
8/3/2009 J. Williams 337 $137,500.00
8/4/2009 D. Lee 301 $144,000.00
8/5/2009 B. Frazier 108 $208,400.00
8/18/2009 M. Abdallah 327 $273,700.00
8/31/2009 J. Osborne 103 $134,900.00
9/1/2009 J. Johnson III 428 $231,900.00
9/8/2009 R. Canos 114 $309,900.00
       
  Average Price Paid   $203,850.00

 

See all condos for sale in the Velocity in the Gulch

  • John_23

    How does Velocity have FHA approval? They are 263 units. 17 have sold and only 10 of those were owner occupied. 6 of the purchases appear to be for second homes and one appears to be an investor unit. The initially got FHA funding based on contract sales, but I believe they had to get recertified. My understanding is that banks aren't doing FHA there. Citi-Lending is providing financing, but I don't think it's actually FHA. Any thoughts? What is going on here?

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

    FHA has never done a recertification and actually may never do a recertification as it appears that FHA won't be making it tougher to qualify for a condo loan after all. The Velocity has kept its FHA certification on the strength of their presales contracts which are all still in place. CityLife is still able to do loans in the building and I am hoping that Jamie Duncan from CityLife might comment on this as well.

  • John_23

    If you include all their closed sales in addition to those under contract, they have less than 80 owner-occupied units closed and/or under contract. That is 80 out of 263. My understanding is that FHA requires 51% owner occupancy. They are at roughly 30% assuming every single one of their contracted units goes to sale. How does this fly with FHA?

  • Falcon2

    Considering the 80% vacancy in the Gulch can you imagine how catastrophic it would be for Velocity if it lost its FHA approval due to a policy shift or pause ? Grant, are buyers currently oblivious to this risk ? I realize there are not actually many buying but I'm puzzled that there are still some doing so in this project north of $250 per foot. I realize 97% loans from FHA plus the $8k rebate can equate to no money down but that cuts both ways, bidding up prices even when their is no fundamental reason for them to be at these levels.

    I know how tempting zero down buying may seem but Tennessee is a deficiency state. Are buyers as unaware of this as they were of specific performance ? These buyers seem to be taking huge downside risk with very little to gain during an assumed 3-4 year ownership period. I guess I just don't understand it. Maybe most of the closings we're seeing are just doing so under threat of lawsuit, who knows?

  • Falcon2

    The FHA recertification process seems to be in limbo now because of political pressure not to do ANYTHING to upset the very weak recovery we're seeing in the housing market. But this state of limbo will not last indefinitely. FHA is a very poorly organized bueracracy buried within the bowels of HUD. It was never intended to be the largest loan source in the US. It's functioning as the lender of last resort at the moment making these no money down loans everywhere at an alarming rate. It's been going on for over a year now and they are already experiencing a huge upswing in defaults on loans that are practically brand new. How long can this last ? I can't wait to see congress scratching their heads at the inevitable hearings to follow.

    I think what we're seeing is a wealth transfer borne of necessity by the Fed. FHA and the tax rebate facilitates the shift of billions from unsuspecting buyers (and taxpayers, eventually) to banks and developers. This isnt intended to bailout the developers but that reality is unavoidable since what's good for the developers is obviously good for the banks since it helps them get paid off and avoid writedowns. But again, I think this music stops at some point and the little guys (and the taxpayers) will be stuck when the market finally corrects.

  • erheath

    I would think its appropriate for any person talking about FHA financing to actually understand the guidelines behind the approval process and ALL of the requirements necessary to become an FHA approved condo complex. All of you can very easily view the HUD website, https://entp.hud.gov/idapp/html/condo1.cfm, to see for yourselves that Velocity in the Gulch is in fact FHA approved. The 51% owner occupancy piece that is so often referenced is only a portion of the requirements to become FHA approved and there are many pieces to this occupancy piece as well. It's also important to note that CityLife Lending Group is a Wells Fargo company, thus the FHA approval was underwriten by Wells Fargo and all of the loans being closed FHA are underwritten by Wells Fargo, one of the largest and strongest financial institutions in the country. Should anyone have specific questions about the FHA approval process or obtaining a loan at Velocity or any other condo in Nashville I would suggest they reach out to a local professional with expertice in this area. Many lenders simply do not want to take on the risk of making a loan on a condo and are simply pushing the blame back on HUD or FHA or FNMA, etc. rather than denying the loan. Its easy to create fear in a market when a full understanding of whats involved is not achieved.

  • John_23

    er heath,

    I am well aware of these guidelines. I am well aware of the link. In fact, I sent that link to a lender after they had REFUSED TO ISSUE AN FHA LOAN ON VELOCITY. It appears that there is at least some serious confusion or at least concern as to whether Velocity has FHA approval. The lender explained that Vel. was previsouly approved based on their contract sales. However, lender said this is no longer the case. Same lender also refused to do FHA loan for another client on Icon, which also shows as approved on the same HUD website you refer to. This is not case of lender trying to get out of the loan and blaming it on FHA. Client applying for loan with Velocity had credit score just under 800 and was willing to put down 25% if necessary.

    My understanding is that City / Wells Fargo are not giving FHA loans on velocity in particular, rather they are keeping these loans on their books hoping for a market upturn. Then in the event that the property can go FHA, the loans can then be sold.

    erheath, rather than respond by telling me I lack “understanding,” which is a polite way of telling me that I'm stupid, how about providing a helpful explanation?

  • erheath

    Your understanding that CityLife is offering a substituion to FHA loans is incorrect. In fact if you were to contact the local HUD office you would be able to obtain several case numbers that have been issued and validate with HUD that several FHA loans have been closed on both of these projects. FHA charges each lender with verifing the 51% requirement and this has been done at both Velocity and Icon several times. It is a burden on both the developer and the lender to validate each contract and closing, however its a necessary process which again has been done successfully. I am aware of several lenders who are not willing to provide financing on the basis that the projects are ineligible, however it is their lack of understanding of the project thats leads them to this decision. I am also aware of several other lenders that have been successful in providing FHA financing for both properties. Bottom line is both projects are eligible for FHA financing today and will be for the foreseeable future.

  • John_32

    The link that erheath refers to shows that Velocity has FHA approval. HOWEVER, a condition to continued FHA lending is that the condo have 51% owner occupancy. To confirm this for velocity, look them up on the link and see the “Remarks” section of velocity's “condominium detail” page. This occupancy is not simply a “piece” of the approval requirements as erheath says. The lender has to confirm this occupancy before giving out the loan. I have confirmed this info with HUD by phone. My point, is that FHA financing is not as easy as a look at the link that erheath says it is. That is according to HUD people I just got off the phone with. If you want to confirm this call (800) 225-5342 and ask them.

    I personally know of at least one lender who has very recently refused to issue an FHA loan on both velocity and the ICON due to failure to meet the owner occupancy requirement. For Velocity, the logic is as follows: 263 units. Velocity has one legal phase including all 263 units so they need 51% owner occupancy on all 263. They don't have it, so the lender won't give an FHA loan. The lender was surprised to discover this. And was also surprised that this is not yet common knowledge in the Nashville market.

    If this information is true for both velocity and Icon, this is HUGE deal for Gulch.

  • John_23

    This from FHA website is helpful as well:

    “How do I document the 51% owner-occupancy certification requirement for condominiums?”

    According to FHA:

    “For all FHA approved condominiums, the lender must submit a certification from the Condominium Association or Management Firm that at least 51% of the units are owner occupied prior to closing the loan.”

    To confirm go here:

    http://www.fhaoutreach.gov/FHAFAQ/

    and look for FAQ entitled “How do I document the 51% owner-occupancy certification requirement for condominiums?” or refer to
    Handbook 4150.1 REV1, Section 11-3B

  • John_23

    And this, again from http://www.fhaoutreach.gov :

    “When is the 51% owner-occupancy requirement applicable on condominium projects?”

    “The 51% owner-occupancy requirement applies to all condominium cases (except streamline refinances without an appraisal) regardless of whether the condominium project is proposed, under construction, existing or a conversion from a rental project. The 51% should be computed on each approved legal phase. If the project approval is issued with all phases included, then the 51% will be based on all units within the project, not the individual phase. If the phases are approved individually with separate approval numbers, then the 51% is based on each phase.”

    ML 97-22, ML 96-41

  • John_23

    I don't think the issue is recertification, it's with the 51% owner-occupancy requirements. Please see my comments below.

  • John_23

    I don't think it matters that there are FHA loans that have already gone through on Velocity. The rules have recently changed. The link that you provided shows that Velocity is only approved under the “pre HRAP / DELRAP” approval method. Here's the link again. https://entp.hud.gov/idapp/html/condo1.cfm .

    The new FHA approval process which is the HRPA / DELRAP went into effect on 11/2. See ( http://www.hud.gov/offices/hsg/sfh/hsgsingle.cfm ) , and then scroll down to title “Notice on FHA Condominium Processing.”

    Under this program, “At least 50% of the units of a project must be owner-occupied. This is what page 4 of the “Mortgagee Letter 2009-19” says. A link to that letter is in the same location.

    For condos under construction or in their initial marketing phase, FHA will allow a minimum owner occupancy amount equal to 50% of the number of presold units. This is also on pg 4.

    If this more flexible standard is allowed for Velocity (and I don't know if this is possible), they have roughly 78 owner occupied units out of 153 total units sold and/or under contract. 78 / 153 = 50.98% Even assuming that this more flexible measure can be used, they are barely sqeaking by.

    However, if you take 78 owner occupied units out of 263 units overall, you have just under 30% owner occupancy. UNLESS the more flexible standard is used, and even if it were it would only be a temporary measure, I SEE NO WAY THAT A BANK CAN FOLLOW THE RULES AND PROVIDE FHA FINANCING ON THE VELOCITY AFTER 11/02/2009.

    Note that the new rules “allow lenders to determine project eligibility” (p. 1 of Mortgagee Letter 2009-19). However, there are very steep penalties for falsely certifying documents such as the owner – occupancy certification. See page 9.

    Thoughts??

  • TNRE

    Under Mortgagee Letter 2009-19, it looks like Veloc. may be able to get grandfathered in for approval since they were previously approved (see p 9 Sec. XII). However, they still need to comply with FHA requirements, which appears to include the owner-occupancy condition on their prior approval.

  • Falcon2

    I think everyone agrees that regardless of whether your talking about FHA, FNMA or FRMC, all of these agencies are going to decertify projects that don't meet the 51% owner occupied test. In Nashville there are 5 new projects larger than 175 units: Icon, Encore, Viridian, Velocity and Adelicia. All of these buildings except for Icon and Velocity have rental restriction policies in their Bylaws that will forever prevent these buildings from falling out of compliance with this key test. To my knowledge, none of Bristol's projects (Icon, Velocity, Bristol West End, Bristol on Broadway) have any restrictions on the number of units that can be leased. Doing this makes it easier to sell to investor buyers but unless those investors cash out early to user buyers, in my opinion, there will be a dear price to be paid. How easy is it to get a loan in Bristol West End these days ?

    So, the brokers and mortgage brokers for Icon and Velocity can speculate about how many of their buyers are investors and how many of their 2 year old contracts are still likely to close, but I don't think they can offer any definitive assurances that the building won't eventually be more than 51% rented and, therefore, at significant risk of not meeting the key test to qualify for conforming loans. I hope all brokers that have clients considering these buildings are making sure their clients understand this risk and I commend Grant for making this blog available to help brokers and clients alike get educated.

  • Hooper11

    why didn't they just convert this to apartments ? i see a fractured condo coming.

  • Hooper11

    i think fha will keep the floodgates open, at least until the spring. but projects like this one that have no rental policy are likely to become roadkill when the political winds eventually shift in dc. better to buy in a building that has docs/policies that gty you wont be in harms way later.

  • Hooper11

    why didn't they just convert this to apartments ? i see a fractured condo coming.

  • Hooper11

    i think fha will keep the floodgates open, at least until the spring. but projects like this one that have no rental policy are likely to become roadkill when the political winds eventually shift in dc. better to buy in a building that has docs/policies that gty you wont be in harms way later.

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