For those without print subscriptions, lot of competition in a very tight lending market. Skyhouse and Mercantile Exchange are still in planning, but more pre-sales are needed. Projects such as the Arcade and Jefferson Arms have been pushed back.
^from same article:
Tightening belts
A few blocks west of Steffen's Mercantile Exchange development, Chicago-based Metropolitan Development Enterprises is still planning to build a 22-story high-rise condo project, SkyHouse, at 1400 Washington Ave. But Chief Executive Paul Hardej said sales have slowed in recent months, and the developer has pulled back on its marketing budget for the project. Since SkyHouse was announced a year ago, 30 of the 166 planned condos have sold, which won't meet his lender's requirement of at least 40 percent, or 66 units sold. Hardej said despite the slowdown, he's still hoping to move forward with the project.
For those without print subscriptions, lot of competition in a very tight lending market. Skyhouse and Mercantile Exchange are still in planning, but more pre-sales are needed. Projects such as the Arcade and Jefferson Arms have been pushed back.
^from same article:
Tightening belts
A few blocks west of Steffen's Mercantile Exchange development, Chicago-based Metropolitan Development Enterprises is still planning to build a 22-story high-rise condo project, SkyHouse, at 1400 Washington Ave. But Chief Executive Paul Hardej said sales have slowed in recent months, and the developer has pulled back on its marketing budget for the project. Since SkyHouse was announced a year ago, 30 of the 166 planned condos have sold, which won't meet his lender's requirement of at least 40 percent, or 66 units sold. Hardej said despite the slowdown, he's still hoping to move forward with the project.
Yeah, I noticed that too. That isn't even 20%. They have apparently been fudging the sales numbers. I was personally told they were at 25% by one of the developers several months ago. Maybe he meant 25 units.
I have no idea what the true number is, but I was told that 30% of the units have been pre-sold. Maybe the article got it wrong, and it was 30% rather than 30 units???
Gone Corporate wrote:That construction has stalled on all of these projects makes absolute perfect sense.
For years, the economy has been capitalizing on incredibly lax lending standards, including and especially individual mortgage holders who’ve overextended themselves. This has been further exacerbated with the secondary markets’ selling of investment products based upon collateralized mortgage obligations, basically banks selling the interests in mortgages wholesale for investment. When these collapsed, it took down hedge funds as well, to the tune of $400 billion.
This resultant full-blown collapse in the US credit markets, and now the Euro credit markets, has greatly impacted the availability of either liquid or collateralized capital that can be used to fund major expansion projects like these. We’ve had a great history of rehabilitation projects, backed by state-supported and federally-supported tax credit programs for ancillary support of financing. While these programs remain strong and aren’t expected to disappear, their role as ancillary funding sources remains. Banks are still the primary source for capital in these development projects. As banks are in the doldrums of the credit market crash (and yes, it is a full-blown crash), it’s hard to place that $50M bridge capital to a fully-occupied building.
The establishment of a base population within these buildings is what will separate these projects from being a sound investment from a purely speculative enterprise. Only with a firm foundation in actual sales and revenues will a beleaguered lending institution be able to support such an allocation.
Gone Corporate - great analysis. Your thoughts on lax lending standards as they relate to the PACE at which downtown has been re-developed? In other words, care to wager on when the correction hits?
And, I would love your thoughts on the current credit crunch as it relates to buyers?
Personally, I believe the inability to obtain financing is not just a problem for businesses. The days of creative financing are limited if not gone. And considering the median price for downtown condos is a (speculative) $235,000, I honestly don't see enough people in the niche STL condo market being able to put 20% down on the purchase. So, while I couldn't agree more with your point on these projects sustaining themselves on actual unit sales, I just don't see that happening.
Endgame: the STL condo market is going to get hammered.
I'm honestly surprised that people continue to build, especially with the on set of the commercial real-estate collapse.
I believe there is enough money in this town to buy a few hundred condos. We may not be the wealthies city, but there is a good percentage of the population with a "little coin" in their wallet. I feel that we sell our self short way too often in this town. 235k is table scraps in many other cities. I think it could be a little slow here for while, but what city hasn't experienced a little growing pains. I don't see the boom and bust here that we've seen on the coasts.
ttricamo wrote:...The days of creative financing are limited if not gone. And considering the median price for downtown condos is a (speculative) $235,000, I honestly don't see enough people in the niche STL condo market being able to put 20% down on the purchase. So, while I couldn't agree more with your point on these projects sustaining themselves on actual unit sales, I just don't see that happening.
Endgame: the STL condo market is going to get hammered.
I'm honestly surprised that people continue to build, especially with the on set of the commercial real-estate collapse.
I love a good finance fireside chat.
I think you've been watching too much "doom and gloom" local news!
1. Mortgage interest rates are still VERY low.
2. It may be hard for investor buyers to obtain financing, but "owner occupants" can still get 100% financing (or 95%, 90%, etc.).
3. There is a national condo trend being fed by first time buyers as well as baby boomer "empty nesters".
4. The downtown condo market represents a TINY portion of the overall metro area housing market. Statistically, it's not hard to see all current projects selling out and more being added in the coming years.
This is not to say that sales won't be slower than they were during the feeding frenzy of the past few years, but only time will tell if we're going to get "hammered".
There was a great article in the February 22-28 St. Louis business journal about new housing with the headline, "New Home Sales drop 26%." Unfortunately, STLBJ won't let me post the whole article.
I consider my outlook more "reality" than "doom and gloom". That said, I sincerely hope the downtown redevelopment weathers the storm.
Also, I'd love to see the demographical data of Downtown condo buyers.
^ We just did our orientation with Dorsa on 14th and Washington and they said so far out of 20 units, only 1 person is over the age of 50, while every else is in their twenties as a couple.
We arent afraid of investing downtown, I think as AvantSTL said, everyone i know between 20 and 30 (ironically besides native St. Louisans) do not want to move anywhere near a suburb.
As far as the skyhouse or any property being built now, I dont understand how a development can sell properties without the "goods" What percentage of people buy a place looking 3 years down the road? It worked before because 50% or more of the buyers were speculators. Now people really want to live in these places but are not going to wait 3 years for this to happen. (Unless you are an empty nester)
We might have been interested in Skyhouse, but we needed something tangible.
jlblues wrote: Yeah, I noticed that too. That isn't even 20%. They have apparently been fudging the sales numbers. I was personally told they were at 25% by one of the developers several months ago. Maybe he meant 25 units.
Several months ago? I wouldnt doubt they did have 25%, but many probably have canceled to actually buy a place to live in now. Pyramid does a good job as well as a transparent listing of all their properties downtown. (Available, Reserved, Contract, Closed) They change almost every 3 days. Some days 2 reservations will be gone, and the next 3 new ones pop up.
zink wrote:^ We just did our orientation with Dorsa on 14th and Washington and they said so far out of 20 units, only 1 person is over the age of 50, while every else is in their twenties as a couple.
We arent afraid of investing downtown, I think as AvantSTL said, everyone i know between 20 and 30 (ironically besides native St. Louisans) do not want to move anywhere near a suburb.
We might have been interested in Skyhouse, but we needed something tangible.
Couldn't agree more. My fiance and I bought over on the Hill and totally love it; I'm 25 and she's 24, but we plan to have kids fairly soon - downtown = no place for little ones.
So 20 units? Is that total? In other words, do you know the percentage sold in your new building?
Right now for the one we are moving into is 60% either reserved/contract (us)/ or closed. Not bad, and not 2003 great They are about to finish the last floor probably end of next month.
Other properties like the Jacob development (Bogen) decided to not show any of that information any more.
[Speaking of which: LIGHT UP THE BOGEN!, I think DT residents should promote that saying]
Interesting information. Did they break ground on your building sooner rather than later? And, without divulging actual numbers, did they offer you financing?
About the Hill; it's a great place. You're within a 15 minute walk of great everything - even a schnucks and a YMCA - and about a 5 minute romantic stroll from lot's of great restaurants.
On Skyhouse and development financing in a credit crash
Caveat: I work in investments and am not a banker. I’m in equity, not debt.
That said, I can relate to how the whole economy is under a tight belt because of the actions taken by both consumers and corporations, including institutional investors, regarding secondary market debt operations, such as CMOs and the various other offerings out there.
Now, as for when the correction hits: it’s already in effect. You notice how not as many people are buying homes these days? It wasn’t so long ago that the media was full of commercials from mortgage companies. Now, we’re left with just “99-99” Ray, who’s doing a lot of his stuff, I imagine, rebuilding his brand and a base pipeline of new business as opposed to the great fortunes in the real estate and lending industries.
Recent news stories include that the amount of actual equity held by homeowners across the US is at an all-time low, with banks holding notes on the remainder. Las Vegas, Phoenix, and South Florida, which all were heralded for their real estate markets not even two years past, are economically dying while filled with beautiful new homes that can’t be sold because of market constraints.
Thornburg, a mortgage company, had its margins called this week. It doesn’t have the necessary equity. The stock has shot down 88% this week.
The Carlyle Group, one of the largest private equity firms in operation, is getting its margins called as well. How far are they leveraged? One of their funds is supposedly 40:1.
Now, let’s carry all this to loans necessary for new construction, such as Skyhouse. We have a lot of buildings out there who can’t get the funding that was available when their projects were announced. Not having easy access to a liquid base of capital shackles developers to delays worse than lawsuits can. While I don’t see companies tucking tail and running to Mexico with down payments and abandoned business plans, I do see everyone having to be a little more patient than we’d like.
As for individuals: remember that the markets go both ways. While lending standards are up, those that want to unload a condo must offer what the market can buy.
Individual consumers who are seeking financing have to deal with stricter standards now, which is a good thing, and I hope to all that there are newer limits internal to banks on the extension of refinancing contracts.
Still, if I had a 2,200 sq.ft. loft and wanted to unload it ASAP so I can move to my relocated job and not have to pay a mortgage in a place I no longer live, well, I wouldn’t be so picky on Lending Agent X getting $50K as a down payment on the first day. Consumers will buy what the market is offering, and in the absence of supply meeting demand, market conditions will change accordingly.
Overall, a few things are at the forefront of my mind regarding all this:
1. We are in the after-effects of a credit market crash.
2. We must all be patient in watching new construction go up, as there’s less money than before at the quick & ready.
3. People are still going to need places to live.
4. Downtown residents are overall affluent yuppies who can ride this out.
5. Skyhouse, et.al. will most likely be built so long as people continue to buy interests in the building. If you want it built so badly, buy a condo there.
But, all that aside ...
What keeps me from moving into Skyhouse? Larry Rice as a next door neighbor.
Skyhouse: Get rid of Larry, and I'll reconsider your offerings as an interested buyer. And, I know I’m not the only one.
Gone Corporate wrote:
Overall, a few things are at the forefront of my mind regarding all this:
1. We are in the after-effects of a credit market crash.
2. We must all be patient in watching new construction go up, as there’s less money than before at the quick & ready.
3. People are still going to need places to live.
4. Downtown residents are overall affluent yuppies who can ride this out.
5. Skyhouse, et.al. will most likely be built so long as people continue to buy interests in the building. If you want it built so badly, buy a condo there.
I live in a loft downtown and am not overly concerned. I've got to live somewhere. I suppose if I were that concerned about potential depreciation, I could rent an apartment.
1. After-effects? The Arabs reneged on bailing out CitiGroup. Of course they were only doing it so we could afford to keep buying their oil. But they knew CitiGroup was a lost cause and more money would need to be pumped in. Nope, things are going to get worse in the credit market.
2. Yup!
3. Yup. Increased demand for apartments due to financing difficulties.
4. Most of them. It'll be interesting to watch comps on the secondary market over time.
5. Good luck, especially for the reason you mention.
^ Regarding Citigroup: I disagree with your conclusion. Most of the credit problems are with US and Western European debt investors being overextended. Check out the mortgage firm Thornburg, losing 88% of its common stock valuation this week.
Further, when you look at the sovereign wealth funds that have been making both public and private equity purchases of Citigroup, they have been for long-term investment, noting the nature of sovereign investment, as opposed to keeping us purchasing oil. This is especially noting that, although one of the larger investmetns was by the Abu Dhabi Investment Authority, the biggest purchase in recent times of Citigroup was by Temasek Holdings of Singapore, who don't care about US oil purchasing patterns. Combined, they've already dropped over $10B in the company; I'd say that's enough. Further, the primary problem with oil is US capacity for gasoline refineries, which is already maxed out because prohibitive lawsuits have negated industry expansion.
If someone is looking for funding for projects, though, send these funds a wire. I'm sure they have a few bil they can drop on some construction.
Focus: My problem with buying at Skyhouse, though, is Larry Rice next door. I consider his presence to be at the crux of much of this.
Looks like Larry's under the heat. I posted there that I bet Skyhouse has a lot to do with this. Great news for this project advancing!
Hmm, I think this is just a natural progression of a power shift from US to Europe as an intermediary and finally to China. There will be some upheavals in the world markets as this shift occurs. It's kind of interesting, because national governments are pretty much run by corporations. But China is "communist" and as such doesn't seem to be. It will be interesting to see how they straddle the line between capitalism and communism.
^I think China is in a race between their white-hot economy trickling down to the benefit of the average rural person and the increasingly rapid disentitlement of said persons.
800 million pissed off uneducated former communal farmers, whose only options are to work in horrific factory conditions or move to the city and live in squalor, would be difficult for any government to deal with, let alone a quasi-communist/socialist/capitalist/whatever oligarchy.
And of the people in the generation that is at the age to marry and start families, 2/3 of them are male.
Wow... That just made me think... If I knew all my friends were making sure they only had sons, i would make the investment into making sure I had a girl. More likely chance of marrying rich. To relate back to the topic on hand: marrying rich to buy a SkyHouse Unit!
And of the people in the generation that is at the age to marry and start families, 2/3 of them are male.
Wow... That just made me think... If I knew all my friends were making sure they only had sons, i would make the investment into making sure I had a girl. More likely chance of marrying rich. To relate back to the topic on hand: marrying rich to buy a SkyHouse Unit!
From what I understand according to Confuscianism, when a person has a child a male heir must pray for them, so people without sons supposedly went to hell.
But a few years the Chinese government did pay couples who had girls. You could also find Chinese girls for adoption in the 80s and 90s moreso than today.
But one problem is now is that older women are telling the young women to get married and have kids, and the young women are working. It's not like they have to get married right away. They have their pick.
According to an article in today's Post, the project is dead:
•The Skyhouse, a $67 million, 22-story condo project at 14th Street and Washington Avenue. The developer, Skokie, Ill.-based Metropolitan Development Enterprises, has abandoned the project. Its failure could put a crimp on new residential construction.
They are about to finish the last floor probably end of next month.
