Aug 2009
Impressive New W Renderings
August 29, 2009 13:17
As the W Hotel & Residences continues to rise, the developers have been busy creating new renderings of the high visibility second street project. The renderings look great -- in fact, they make you wonder how they produce renderings this good for a building that does not yet exist. We are particularly impressed by the second image where they superimposed the project into the current Austin skyline -- the building looks as real as any of the others in the skyline.
Sage Auction Results
August 24, 2009 07:52 Filed in: News
At least 18 of 23 units at the Sage Condos, a new low rise development on South Lamar near Oltorf, sold in the third major Austin condo auction of the year. All 23 units received bids and 18 of the bids were immediately accepted by the developer.
The format of the auction was a first for auction with each bidder competing for the right to choose any remaining unit at the point that they bid. The auction drew a large crowd with approximately 300 people packed into the auction at the Hyatt Regency.
Winning bids ranged from $151K for a 1,262 square foot unit to $253K for an 1,847 square foot unit including the mandatory 10% buyer's premium. Winning bids ranged from $121 to $161 / per square foot with an average of $131 per square foot.
Not surprisingly, the units with downtown views fetched the highest prices. The project is located roughly a mile south of downtown on Lamar, a more central location than the Bel Air, which also sold units via an auction earlier this month.
Read more to view the full results of the auction as well as a video of the auction proceedings: Read More...
The format of the auction was a first for auction with each bidder competing for the right to choose any remaining unit at the point that they bid. The auction drew a large crowd with approximately 300 people packed into the auction at the Hyatt Regency.
Winning bids ranged from $151K for a 1,262 square foot unit to $253K for an 1,847 square foot unit including the mandatory 10% buyer's premium. Winning bids ranged from $121 to $161 / per square foot with an average of $131 per square foot.
Not surprisingly, the units with downtown views fetched the highest prices. The project is located roughly a mile south of downtown on Lamar, a more central location than the Bel Air, which also sold units via an auction earlier this month.
Read more to view the full results of the auction as well as a video of the auction proceedings: Read More...
New Condo Investment Model: The Emergence of the Bulk Discount Buyer
August 22, 2009 14:06 Filed in: Market Analysis
Every condo market is different. Miami, in particular, has been known for over-development spurred by speculative investors. As the market appreciated rapidly, the same buyers kept snapping up more and more speculative units. When prices fell, these investors were left holding the bag.
The Miami market with it's thousands of unsold units has led to a new investment model: bulk investment. In this model, bulk investors or bulk vulture buyers take the pressure of developers by negotiating to purchase multiple units at deeply discounted prices. Often, these investors or investment partnerships purchase 5 or 10 or more units in a single transaction. They than can rent or hold the units to turn a profit. Often, they purchase the least desirable units (small units on low floors) at rock bottom prices.
The presence of sophisticated bulk investors in the Miami market is a sign of the scale of the condo market problems but also a signal that smart buyers see paths to profitability in the chaos. While we have not heard reports of bulk buyers in Austin, over supply and discounting may lead to increased investor interest in the downtown condo market.
Here is a recent report from the Miami Herald on a typical bulk investment transaction:
Following the bankruptcy this week of Cabi Downtown Developers, the builder of the luxury condominium Everglades on the Bay, a new distress marker was revealed in Miami's downtown condo market.
In the lowest bulk price paid for condo units in the downtown area since the market crashed last year, Prodigy Capital Investments, a newly created corporation based in Miami, has purchased 10 units in the Brickell on the River South condominium for $156 per square foot, according to new research from Bal Harbor-based Condo Vultures, a real estate consultancy that closely follows the downtown condo market.
Prodigy Capital Investments, which incorporated in July and is headed by Rodrigo Nino, according to state records, paid$1.9 million for the units,which include five one-bedroom apartments and five two-bedroom units for 12,081 square feet of space. . .
``A key reason for the discount realized on the Brickell On The River bulk deal is the location of the units,'' Peter Zaleweski, president of Condo Vultures, said in a statement.
The 46-story south tower is located at 41 SE 5 St. in Miami. The prices were lower, Zalweski said, because the units, which are primarily suitable for renters, were located on the lower floors of the building.
The Miami market with it's thousands of unsold units has led to a new investment model: bulk investment. In this model, bulk investors or bulk vulture buyers take the pressure of developers by negotiating to purchase multiple units at deeply discounted prices. Often, these investors or investment partnerships purchase 5 or 10 or more units in a single transaction. They than can rent or hold the units to turn a profit. Often, they purchase the least desirable units (small units on low floors) at rock bottom prices.
The presence of sophisticated bulk investors in the Miami market is a sign of the scale of the condo market problems but also a signal that smart buyers see paths to profitability in the chaos. While we have not heard reports of bulk buyers in Austin, over supply and discounting may lead to increased investor interest in the downtown condo market.
Here is a recent report from the Miami Herald on a typical bulk investment transaction:
Following the bankruptcy this week of Cabi Downtown Developers, the builder of the luxury condominium Everglades on the Bay, a new distress marker was revealed in Miami's downtown condo market.
In the lowest bulk price paid for condo units in the downtown area since the market crashed last year, Prodigy Capital Investments, a newly created corporation based in Miami, has purchased 10 units in the Brickell on the River South condominium for $156 per square foot, according to new research from Bal Harbor-based Condo Vultures, a real estate consultancy that closely follows the downtown condo market.
Prodigy Capital Investments, which incorporated in July and is headed by Rodrigo Nino, according to state records, paid$1.9 million for the units,which include five one-bedroom apartments and five two-bedroom units for 12,081 square feet of space. . .
``A key reason for the discount realized on the Brickell On The River bulk deal is the location of the units,'' Peter Zaleweski, president of Condo Vultures, said in a statement.
The 46-story south tower is located at 41 SE 5 St. in Miami. The prices were lower, Zalweski said, because the units, which are primarily suitable for renters, were located on the lower floors of the building.
Get Downtown Austin Condo News Faster
August 22, 2009 13:43 Filed in: Site News
For our more than 10,000 monthly readers, there are more ways than ever to keep up with the News on AustinTowers!
If you have a Twitter account, you can follow us at http://twitter.com/austintowers. We regularly use twitter to send flash news updates, check the validity of rumors, and pass on market insights from experts that we talk to. Twitter is free to join and a great way to keep up with Austin Towers news.
As always, if you use Google for search, we've made it easy to add our news feed to your google home page. Simply click on the "Add to Google" button on the right and you will be directed to Google to create an iGoogle search page like the one below, to add AustinTowers to an existing iGoogle page, or to add AustinTowers to Google Reader. Once added, you'll see our latest headlines whenever you visit your iGoogle page to conduct a web search. If you later change your mind, it's easy to remove the AustinTowers feed or to revert to a basic search page.
As many of you know, you can also subscribe to the AustinTowers feed on this site by simply clicking the Orange RSS feed button on the sidebar or by following this link: AustinTowers RSS Feed
Thanks for visiting the site! If you have ideas or feedback, send us a note to register and add comments!
If you have a Twitter account, you can follow us at http://twitter.com/austintowers. We regularly use twitter to send flash news updates, check the validity of rumors, and pass on market insights from experts that we talk to. Twitter is free to join and a great way to keep up with Austin Towers news.
As always, if you use Google for search, we've made it easy to add our news feed to your google home page. Simply click on the "Add to Google" button on the right and you will be directed to Google to create an iGoogle search page like the one below, to add AustinTowers to an existing iGoogle page, or to add AustinTowers to Google Reader. Once added, you'll see our latest headlines whenever you visit your iGoogle page to conduct a web search. If you later change your mind, it's easy to remove the AustinTowers feed or to revert to a basic search page.
As many of you know, you can also subscribe to the AustinTowers feed on this site by simply clicking the Orange RSS feed button on the sidebar or by following this link: AustinTowers RSS Feed
Thanks for visiting the site! If you have ideas or feedback, send us a note to register and add comments!
Texas A&M Expert: I See the Bottom!
August 20, 2009 22:27 Filed in: News
Mark Dotzour, the director of the Real Estate Center at Texas A&M University, has announced that the Texas real estate market has likely reached bottom.
According to Dotzour: “I feel now is the time to buy a house in most Texas cities. Housing affordability has never been higher, and I never thought I would see 5 percent mortgages in my lifetime. If you plan to live in the house for at least two or three years, now is the time to buy.”
The Texas A&M real estate center is predicting that 2009 will look a lot like 2003 in terms of volumes, listings, and inventory. Prices, however, are definitively higher with the 2009 estimated average price 20% higher than the price in 2003 and lower only than the prices of the last two years. The median price remains at an all time high.
Texas A&M Austin MLS Tracking with 2009 Estimates
According to Dotzour: “I feel now is the time to buy a house in most Texas cities. Housing affordability has never been higher, and I never thought I would see 5 percent mortgages in my lifetime. If you plan to live in the house for at least two or three years, now is the time to buy.”
The Texas A&M real estate center is predicting that 2009 will look a lot like 2003 in terms of volumes, listings, and inventory. Prices, however, are definitively higher with the 2009 estimated average price 20% higher than the price in 2003 and lower only than the prices of the last two years. The median price remains at an all time high.
Texas A&M Austin MLS Tracking with 2009 Estimates
Date | Sales | Dollar Volume | Avg. Price | Median Price | Listings | Months Inventory |
| 2003 | 19,793 | 3,899,018,519 | 197,000 | 154,800 | 10,340 | 6.6 |
| 2004 | 22,567 | 4,487,464,528 | 198,900 | 154,100 | 10,394 | 5.9 |
| 2005 | 26,905 | 5,660,934,916 | 210,400 | 161,300 | 8,965 | 4.3 |
| 2006 | 30,284 | 6,961,725,607 | 229,900 | 172,200 | 8,695 | 3.6 |
| 2007 | 28,048 | 6,910,962,480 | 246,400 | 184,200 | 9,833 | 4 |
| 2008 | 22,439 | 5,470,241,896 | 243,800 | 188,200 | 11,585 | 5.5 |
| 2009 e | 20,043 | 4,746,392,079 | 236,800 | 188,000 | 11,244 | 6.6 |
It's hard to know how Dotzour's prediction applies to the downtown Austin condo market. The downtown Austin market is less established than other markets and currently faces a surplus of newly constructed and planned units. This surplus, however, is driving unprecedented discounting. For buyers, it is a balancing trick: for how long will prices continue to go down and at what point will interest rates go up?
BartonPlace July Construction Update
August 16, 2009 22:48 Filed in: News
After a week of problems in the Austin development scene it was great to hear from BartonPlace where construction continues as normal. They even sent pictures to prove it!
BartonPlace includes 270 units across 6 buildings each of which is 6 stories tall. According to the developers, sales continue to go well and traffic has increased dramatically in the last few weeks.
On buildings 1 and 2, they are already framing the inside as they simultaneously erect the roof steel. In buildings 3 and 4, the roof installation is almost complete and windows are being installed. In buildings 5 and 6, stone installation is nearing completion. Building 6 is the farthest along with tape and float ongoing and the elevators currently being installed.
BartonPlace has updated its virtual tour with new renderings and images that give a good feel for the project. The tour can be accessed here.
Here are the latest construction images:
BartonPlace includes 270 units across 6 buildings each of which is 6 stories tall. According to the developers, sales continue to go well and traffic has increased dramatically in the last few weeks.
On buildings 1 and 2, they are already framing the inside as they simultaneously erect the roof steel. In buildings 3 and 4, the roof installation is almost complete and windows are being installed. In buildings 5 and 6, stone installation is nearing completion. Building 6 is the farthest along with tape and float ongoing and the elevators currently being installed.
BartonPlace has updated its virtual tour with new renderings and images that give a good feel for the project. The tour can be accessed here.
Here are the latest construction images:
Bel Air Auction: More Bad News
August 14, 2009 23:01 Filed in: News
We've received multiple emails from irate participants in the Bel Air condo auction. The most recent reports are that as few as two units actually sold in the auction. The rest of the bids were supposedly rejected by the seller. As more details come out, it is becoming clear that the Bel Air condo auction went very very poorly.
The purpose of an auction is to quickly sell condos at the market price. In the case of Bel Air, the developers didn't like the market price and so they have refused to sell many of the units. When the final bids came in, multiple reports suggest that the average "winning bid" carried a 45% discount off of the original price with the discount ranging from 30 - 60%.
In an unbelievable move, the developer and auction company are now aggressively negotiating with bidders to try to get them to pay more than their winning bids (market price) if they want the units that they won. This is a very problematic tactic and unlikely to succeed. Let's not forget that they must also pay a 4% buyer's premium.
The developers at this point have few choices: they either need to accept market price or take their chances back on the open market. It is hard to believe that they will sell units at above market rates through private marketing efforts or the MLS. With as many as 23 units remaining, the auction is on track to turn out poorly for everyone involved: residents, bidders, the auction company, and the developer will all likely be disappointed when this is over.
The following video shows the last unit to be auctioned and provides an inside look at the auction proceedings. The key words come at the end as the auctioneer clearly states that the unit is sold subject to seller's approval. We'll see if this approval ever comes.
The purpose of an auction is to quickly sell condos at the market price. In the case of Bel Air, the developers didn't like the market price and so they have refused to sell many of the units. When the final bids came in, multiple reports suggest that the average "winning bid" carried a 45% discount off of the original price with the discount ranging from 30 - 60%.
In an unbelievable move, the developer and auction company are now aggressively negotiating with bidders to try to get them to pay more than their winning bids (market price) if they want the units that they won. This is a very problematic tactic and unlikely to succeed. Let's not forget that they must also pay a 4% buyer's premium.
The developers at this point have few choices: they either need to accept market price or take their chances back on the open market. It is hard to believe that they will sell units at above market rates through private marketing efforts or the MLS. With as many as 23 units remaining, the auction is on track to turn out poorly for everyone involved: residents, bidders, the auction company, and the developer will all likely be disappointed when this is over.
The following video shows the last unit to be auctioned and provides an inside look at the auction proceedings. The key words come at the end as the auctioneer clearly states that the unit is sold subject to seller's approval. We'll see if this approval ever comes.
Star Riverside Halts Construction
August 12, 2009 21:34 Filed in: News
Star Riverside, a high end condo project on the south shore of Ladybird Lake just east of I-35, announced today that construction has "temporarily" stopped as a result of the ongoing economic crisis.
Star Riverside
In an emergency change, the project developers are redesigning the project well into the construction process. Apparently, the original plan to offer units starting at $600,000 for the first phase was not viable. The redesigned project will focus on smaller units starting at $375,000.
Star Riverside's challenge has always been location: it is difficult to sell 201 units -- the first 64 of which were priced starting at $600,000 -- in the shadow of I-35 on East Riverside drive during an economic crisis. While the architecture is compelling and the views of the lake and downtown should be beautiful, the project is priced to compete with the most expensive downtown high rise projects which are much closer to the downtown action, much taller, and much farther from I-35.
From the beginning, the Star Riverside developers have been betting that direct access to the lake and hike and bike trail and unobstructed views of the lake and downtown will lure buyers to the south side of the lake. The drastic construction freeze and mid-project redesign shows that the developers are still searching for just the right combination of price and unit to attract more buyers. The redesign and repositioning is a smart move in this market: it is probably the only path to viability. Still, the project may face a difficult market for the location even with a lower price point.
Star Riverside
In an emergency change, the project developers are redesigning the project well into the construction process. Apparently, the original plan to offer units starting at $600,000 for the first phase was not viable. The redesigned project will focus on smaller units starting at $375,000.
Star Riverside's challenge has always been location: it is difficult to sell 201 units -- the first 64 of which were priced starting at $600,000 -- in the shadow of I-35 on East Riverside drive during an economic crisis. While the architecture is compelling and the views of the lake and downtown should be beautiful, the project is priced to compete with the most expensive downtown high rise projects which are much closer to the downtown action, much taller, and much farther from I-35.
From the beginning, the Star Riverside developers have been betting that direct access to the lake and hike and bike trail and unobstructed views of the lake and downtown will lure buyers to the south side of the lake. The drastic construction freeze and mid-project redesign shows that the developers are still searching for just the right combination of price and unit to attract more buyers. The redesign and repositioning is a smart move in this market: it is probably the only path to viability. Still, the project may face a difficult market for the location even with a lower price point.
Updated: Bel Air Condo Auction Results
August 11, 2009 20:14 Filed in: News
Contradicting our initial report on the Bel Air auction, it now looks as if the real auction results differ substantially from initial published reports.
In a very unusual auction development, updated reports on the Bel Air condos suggest that while bids were placed for all of the units, only 2 of the bids have actually been accepted by the developers. Despite a large crowd of more than 300 attendees and "winning" bidders for each of the 25 or so remaining units, small print in the auction rules requires acceptance by the developers.
According to Jude at the Downtown Austin blog, the lowest winning bids were in the 60% of original list price range, far lower than the typical 25% - 30% discount typically seen for closeout sales and auctions. To add insult to injury, it sounds as if the bank is now negotiating with some of the "winners" to try to get their bids raised to meet the minimum selling price.
No matter how you look at it, these seem like bad results for everyone involved. Bidders were misled by artificially and unrealistically high minimum sales prices, the developers will likely have many unsold units that are clearly being offered at above market rates, and the current residents will have a new lower market price AND unsold units to contend with if they try to sell.
There is no transparency at this point so it will be very difficult to get a clear picture of how many units actually sold or what the final sales price was for each unit. We're not even sure of the sizes of the units as the official numbers include garage and roof deck space which should not be counted. The best estimates suggest that the size range is 1,100 to 1,500 square feet.
As we have said, the Bel Air results are only marginally relevant to downtown Austin residents and condo buyers. The Bel Air is a low-rise town house project in far south Austin (South of Ben White). While Green and designed to meet the needs of a more urban buyer, the location limits the price premium. It is entirely possible that the economics don't work: that the developers will not be able to recoup their costs while selling the remaining units.
We'll see how this one falls out . . . the biggest casualty may be the Austin auction seen as the most likely bidders may avoid future auctions fearing similarly opaque processes and results.
Bel Air Interior
In a very unusual auction development, updated reports on the Bel Air condos suggest that while bids were placed for all of the units, only 2 of the bids have actually been accepted by the developers. Despite a large crowd of more than 300 attendees and "winning" bidders for each of the 25 or so remaining units, small print in the auction rules requires acceptance by the developers.
According to Jude at the Downtown Austin blog, the lowest winning bids were in the 60% of original list price range, far lower than the typical 25% - 30% discount typically seen for closeout sales and auctions. To add insult to injury, it sounds as if the bank is now negotiating with some of the "winners" to try to get their bids raised to meet the minimum selling price.
No matter how you look at it, these seem like bad results for everyone involved. Bidders were misled by artificially and unrealistically high minimum sales prices, the developers will likely have many unsold units that are clearly being offered at above market rates, and the current residents will have a new lower market price AND unsold units to contend with if they try to sell.
There is no transparency at this point so it will be very difficult to get a clear picture of how many units actually sold or what the final sales price was for each unit. We're not even sure of the sizes of the units as the official numbers include garage and roof deck space which should not be counted. The best estimates suggest that the size range is 1,100 to 1,500 square feet.
As we have said, the Bel Air results are only marginally relevant to downtown Austin residents and condo buyers. The Bel Air is a low-rise town house project in far south Austin (South of Ben White). While Green and designed to meet the needs of a more urban buyer, the location limits the price premium. It is entirely possible that the economics don't work: that the developers will not be able to recoup their costs while selling the remaining units.
We'll see how this one falls out . . . the biggest casualty may be the Austin auction seen as the most likely bidders may avoid future auctions fearing similarly opaque processes and results.
Bel Air Interior
W Must Replace Troubled Lender to Proceed
August 10, 2009 21:20 Filed in: News
Since long before the 36-Story W Hotel and Residences began to rise earlier this year, the developers have faced the unpleasant task of replacing Corus Bank as their prime lender. Bad development loans in other markets have squeezed the bank's liquidity, making it impossible for Corus to provide the capital required to complete the W.
What is the impact? It's hard to say. But it is a positive sign that the developers continue to poor their own money into the project (the developers will fund the first $128M and must raise an additional $162M in debt or equity financing to complete the building) with the knowledge that the loan balance remains in limbo. The Corus problems have been known for months: if the developers did not believe that the project would be fully financed, they would likely have paused development already.
The W is an expensive project. At $300 million, the project will include an attractive mix of 252-room W hotel, 165 condo units, 35,000 square feet of office space, retail and restaurant space and a new theater to host KLRU's Austin City Limits. The frame of the project has already reached 14-stories, and the developers say that construction will continue to proceed normally for the time being. The development partnership has invested approximately 2/3 of it's available capital. The project team is currently in discussions with banks to secure a loan to replace the previous Corus obligation.
What is the impact? It's hard to say. But it is a positive sign that the developers continue to poor their own money into the project (the developers will fund the first $128M and must raise an additional $162M in debt or equity financing to complete the building) with the knowledge that the loan balance remains in limbo. The Corus problems have been known for months: if the developers did not believe that the project would be fully financed, they would likely have paused development already.
The W is an expensive project. At $300 million, the project will include an attractive mix of 252-room W hotel, 165 condo units, 35,000 square feet of office space, retail and restaurant space and a new theater to host KLRU's Austin City Limits. The frame of the project has already reached 14-stories, and the developers say that construction will continue to proceed normally for the time being. The development partnership has invested approximately 2/3 of it's available capital. The project team is currently in discussions with banks to secure a loan to replace the previous Corus obligation.
Analysis: Understanding New Condo Pricing and Risk
August 09, 2009 22:12 Filed in: Market Analysis
Condo fire sales at Brazos Place, the Shore and other projects have led readers to question the value of purchasing condo units directly from the developer during or prior to construction. In these and other projects, full price buyers have seen the value of their units plummet when the developer dumped excess units at a deep discount.
For example, one reader told us that their large Shore unit recently appraised for $525K, roughly $250K less than last year and $200K less than what they the developer prior to completion of construction. This 28% drop in value is a big deal for any buyer -- and rightfully leads people to ask what the best strategy is for purchasing units in a new condo project.
Housing prices are set by supply and demand. When developers sell new or pre-construction units, pricing is based on construction costs, demand, and the developer's perception of market trends. The final price, however, is set by the sale of the first few post-completion units. So let's look at different scenarios for a fictional 100 unit project:
- If the developer sells out all 100 units, the final value will be set by the first resale units. In a strong market, they may very well be higher than the initial price as buyers who missed out on their original attempt to get into the project. The price growth may very well be higher than the appreciation in comparable units. If construction costs are rising quickly as they did between 2004 and 2007, than the original pre-sale prices may never be matched.
- For the same project In a weak market, prices will likely be lower than the original market price. The price drop will likely be similar to the overall market drop for comparable condo units.
- If the developer sells 95 units and then drops the price by 10% prior to completion of the project and sells the final 5 units (still preconstruction), the final price will still be set by the first post-completion resale transactions. Thus, the price will likely increase or decrease in line with the general market.
- If the developer only sells 50 of the 100 units at the point the project is completed -- this has happened a couple of times this year -- than it will likely be bad news for the original buyers. To sell the remaining units and to try to move them fast, the developers will cut prices by 10, 20, or as much as 30%. The value of the original owners' units will fall at a similar pace. If the units do not sell, it will be very difficult for the original owners to resell their units at anything but a substantially discounted price.
There are lots of reasons to buy a pre-construction unit. If you have found the perfect building and perfect unit with the perfect view at a price you can afford, it's probably a good thing to do. If you want to stay put for a long time, your risk will be low. If the market is rising and costs are going up and you want to lock in on a unit, it may be a good time to buy. If the market is a mess and prices have been slashed to clear out inventory, it may also be a good time to buy.
But here is the important thing to remember: in exchange for getting an early pick and a pristine new unit, you will be facing additional risk and variability than you would on a completed unit on the resale market. To see short term appreciation, the building will need to sell out, the initial pricing will need to have been fair, and the market pricing will need to be stable or positive.
To maximize your chances of success, it is very important to remember that most people pick a building and than a unit. Cheap units in an undesirable building will be unlikely to appreciate as well as units in the most popular buildings.
In another year, this post would be very different. It would talk about how to pick the building with the best appreciation and how to get in early on the hottest projects. In 2009, there are no hot projects. It's a tough market. In a tough market, however, buyers can do very well by purchasing discounted units in desirable projects or by getting great units in buildings on track to sell out at current pricing.
For example, one reader told us that their large Shore unit recently appraised for $525K, roughly $250K less than last year and $200K less than what they the developer prior to completion of construction. This 28% drop in value is a big deal for any buyer -- and rightfully leads people to ask what the best strategy is for purchasing units in a new condo project.
Housing prices are set by supply and demand. When developers sell new or pre-construction units, pricing is based on construction costs, demand, and the developer's perception of market trends. The final price, however, is set by the sale of the first few post-completion units. So let's look at different scenarios for a fictional 100 unit project:
- If the developer sells out all 100 units, the final value will be set by the first resale units. In a strong market, they may very well be higher than the initial price as buyers who missed out on their original attempt to get into the project. The price growth may very well be higher than the appreciation in comparable units. If construction costs are rising quickly as they did between 2004 and 2007, than the original pre-sale prices may never be matched.
- For the same project In a weak market, prices will likely be lower than the original market price. The price drop will likely be similar to the overall market drop for comparable condo units.
- If the developer sells 95 units and then drops the price by 10% prior to completion of the project and sells the final 5 units (still preconstruction), the final price will still be set by the first post-completion resale transactions. Thus, the price will likely increase or decrease in line with the general market.
- If the developer only sells 50 of the 100 units at the point the project is completed -- this has happened a couple of times this year -- than it will likely be bad news for the original buyers. To sell the remaining units and to try to move them fast, the developers will cut prices by 10, 20, or as much as 30%. The value of the original owners' units will fall at a similar pace. If the units do not sell, it will be very difficult for the original owners to resell their units at anything but a substantially discounted price.
There are lots of reasons to buy a pre-construction unit. If you have found the perfect building and perfect unit with the perfect view at a price you can afford, it's probably a good thing to do. If you want to stay put for a long time, your risk will be low. If the market is rising and costs are going up and you want to lock in on a unit, it may be a good time to buy. If the market is a mess and prices have been slashed to clear out inventory, it may also be a good time to buy.
But here is the important thing to remember: in exchange for getting an early pick and a pristine new unit, you will be facing additional risk and variability than you would on a completed unit on the resale market. To see short term appreciation, the building will need to sell out, the initial pricing will need to have been fair, and the market pricing will need to be stable or positive.
To maximize your chances of success, it is very important to remember that most people pick a building and than a unit. Cheap units in an undesirable building will be unlikely to appreciate as well as units in the most popular buildings.
In another year, this post would be very different. It would talk about how to pick the building with the best appreciation and how to get in early on the hottest projects. In 2009, there are no hot projects. It's a tough market. In a tough market, however, buyers can do very well by purchasing discounted units in desirable projects or by getting great units in buildings on track to sell out at current pricing.
Sage Announces Auction Plan: Here We Go Again
August 03, 2009 22:16 Filed in: News
First Brazos Place. Then Bel Air. Now the Sage.
This week the Sage Condos in South Austin -- 1702 South Lamar -- announced that they will be selling the remaining 23 units through an auction on August 22. This is the third major auction in the Austin market. In May, the Brazos Place auctions saw strong demand. The second auction, for the Bel Air condos in far south Austin, is scheduled for this coming weekend.
While it remains to be seen how the successive two auctions fare, there is a big difference between Brazos Place and the other two projects. In particular, Brazos Place was a moderate high rise in a prime downtown location: the other projects are not downtown condos and not tall. In fact, the Sage is about a mile south of the city on Lamar and the Bel Air is far far south, located on Congress Avenue south of Ben White. While the Sage may likely attract people who want to live close to downtown, far South Lamar living is very different from being downtown. The opportunity for both sites is to attract people who want to live in a centrally located condo at a bargain basement price.
The Sage auction is unique on a couple of dimensions. First, 10 of the 23 units are selling without minimum bids and reserves: the auctioneers will take the highest bid no matter how low. The developers will have a minimum bid for the other 13 units. Prior to the auction, the units were originally priced from $299,000 to $469,900.
According to the Downtown Austin blog, "The auction of the Sage Condos will use a different system than the auction at Brazos Place or the Bel Air. Rather than auction each individual unit, the auctions are for the right to choose which unit you want. Everyone bids and the highest bidder gets to choose the unit he/she wants. The auctioneer repeats this process until 10 units are sold."
This sort of auction is suspicious, it much less straightforward than the typical auction where buyers bid on the unit they would like to purchase. While this auction method may be effective, it's suboptimal for buyers who may be attached to a particular unit, floor plan, or view. For these buyers, the only way to ensure their choice is to be the top bidder. We'll see how it works: it is a very risky move for a struggling mid-rise project on South Lamar.
This week the Sage Condos in South Austin -- 1702 South Lamar -- announced that they will be selling the remaining 23 units through an auction on August 22. This is the third major auction in the Austin market. In May, the Brazos Place auctions saw strong demand. The second auction, for the Bel Air condos in far south Austin, is scheduled for this coming weekend.
While it remains to be seen how the successive two auctions fare, there is a big difference between Brazos Place and the other two projects. In particular, Brazos Place was a moderate high rise in a prime downtown location: the other projects are not downtown condos and not tall. In fact, the Sage is about a mile south of the city on Lamar and the Bel Air is far far south, located on Congress Avenue south of Ben White. While the Sage may likely attract people who want to live close to downtown, far South Lamar living is very different from being downtown. The opportunity for both sites is to attract people who want to live in a centrally located condo at a bargain basement price.
The Sage auction is unique on a couple of dimensions. First, 10 of the 23 units are selling without minimum bids and reserves: the auctioneers will take the highest bid no matter how low. The developers will have a minimum bid for the other 13 units. Prior to the auction, the units were originally priced from $299,000 to $469,900.
According to the Downtown Austin blog, "The auction of the Sage Condos will use a different system than the auction at Brazos Place or the Bel Air. Rather than auction each individual unit, the auctions are for the right to choose which unit you want. Everyone bids and the highest bidder gets to choose the unit he/she wants. The auctioneer repeats this process until 10 units are sold."
This sort of auction is suspicious, it much less straightforward than the typical auction where buyers bid on the unit they would like to purchase. While this auction method may be effective, it's suboptimal for buyers who may be attached to a particular unit, floor plan, or view. For these buyers, the only way to ensure their choice is to be the top bidder. We'll see how it works: it is a very risky move for a struggling mid-rise project on South Lamar.