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Mr_Brightside
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| 04/03/2007 3:07 PM |
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Thanks that's very interesting.
Couple notes:
The downside protection is capped at 10% or $55,000. On some of the larger units this isn't as helpful as it could be.
The funds stay in escrow until the tracking units are sold which is attractive.
This would put a bias on the developer tearing out the kitchen or flooring for a prospective customer of one of the tracking units that didn't like what was installed as the developer would pragmatically look at the situation as getting a unit sold without losing any additonal money on the PPP relative to a straight price cut. You might try to get a change made that attempts to quantify any non-price cut oriented incentives. That might be hard for them to account for but this would make the PPP more valuable.
Net net it's worth something. It's very interesting to see the innovations that are occurring due to the marketplace. On my blog we had a discussion about a unit at the Mills that had a somewhat similar arrangement.
Since they aren't offering say 30% with no amount caps I wonder what this means about how they feel about the market and their cost basis on the building. |
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sandiegodweller
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| 04/03/2007 6:40 PM |
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| Craig Gustafson is the developer for both the Mills and the Solara Lofts. |
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Jon
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| 04/04/2007 12:30 AM |
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Interesting how the market turned. We went from no-flip agreements to price protection plans.
I too wonder where the builder thinks the market is going since he put in the $55k cap. |
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brad72
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| 04/07/2007 11:08 AM |
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Sounds like a more-than-fair deal to me. The developer has to put some kind of cap on a deal like this...he is, after all, in it to make a profit. I think the cap speaks much more to their cost basis, rather than to their feelings about the market. However, it does speak to buyers who are concerned about the market conditions...gives them some piece of mind. I think it's a nice little insurance policy and that other developers should follow their lead.
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Interesting...
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| 04/07/2007 2:59 PM |
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Keep in mind 10% only really covers the cost to sell a place in this market, gone are the days when you could sell in the first week for 1%.
A mere four years ago and these units would be listed at literally 50% less than they are today. |
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Davey
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| 04/07/2007 6:21 PM |
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I agree with interesting... The cost to sell the home in the future is 6% + costs. If the market is stagnant for one decade that means a lot of money down the drain. If for some reason you have to move out and let the home sit for many months while you market it in a slow market, that's even more money lost.
In a declining market, 10% is not much of a depreciation protection.
Sure the builder is in it to make money and that'll fine.... But as a buyer, you're not in it to loose money either. Who says it's the buyer's responsibility to pay the builder's desired profits?
If you can rent the same condo for 1/2 the cost of owning it, there better be some guaranteed APPRECIATION (not even talking about depreciation protection); otherwise you're pretty much screwed.
Even if you could afford to part with all that money, think about what else you could do with it, such as take two trips to Europe every year and still have money left to save. If you're overpaying $1500/mo on a condo, that's $18,000 per year.
Anyone wanting to buy should sit down and do a buy/rent analysis. Do you it yourself and don't rely on the salesman to do it for you.
All Downtown condos are the same. You can rent a condo next door to the one that's for sale.
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Anonymous
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| 04/07/2007 10:07 PM |
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| Jon makes a good point about the 180 that's taken place from anti-flip to price protection plan. Based on my research the anti-flip plans never held water, the price protection plan could have better terms and there is some gray area but it is worth something while the anti-flip "agreements" are worthless if not somewhat funny considering flipping isn't going to happen on most of the new construction out there as even the phase 1 prices are probably more than the current market will bear. |
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Mr_Brightside
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| 04/08/2007 12:01 AM |
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| I would expect that at some point in the future you will be able to buy your own price protection for $200-300 a month that would protect against a certain amount of downside. It's an interesting business problem to try and price 10-20% price protection with some sort of deductable. |
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Anonymous
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| 04/08/2007 12:53 PM |
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There are futures that trade based on home prices. These are probably too large to and generic to hedge a specific property but the next generation of this type of thing could be useful.
Housing Futures
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Anon
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| 04/08/2007 9:50 PM |
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I imagine that some of the institutional buyers of the mortgages that are now going into foreclosure bought some of the contracts as a hedge. This means that while they've lost money on the mortgages they made money on the housing future. This could mean that some of the short sales and foreclosures aren't hurting the banks too much.
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Anonymous
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| 04/09/2007 1:18 AM |
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Based on the volume in housing futures, i don't think there's been much hedging.
If that were the case, lenders would not be taking big write-offs or going out of business. So far 50 lenders have gone kaput. HSBC, one of the biggest banks in the world took an $11 billion write off for problem loans in America. If HSBC had not purchased Household Finance, that company would have gone out of business also.
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Anonymous
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| 04/09/2007 1:21 AM |
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Hedging also costs money and would lower rates of returns.
I don't remember reading any annual report from the lenders disclosing hedging for default risk.
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Smith
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| 04/09/2007 2:45 PM |
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| Thinking about hedging, it sounds like most of the devlelopers downtown don't really have a hedge (I'm sure it's hard to set one up) other than The Mark has a presales to cover their construction loan. This seems risky to close if you're in the first wave as they aren't even trying to sell the remaining units as Wilson is openly saying so, what happens if you close and they chop the price 20% of the leftovers? Pretty ugly... |
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KAT
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| 04/25/2007 10:53 AM |
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The PPP is completely worthless unless it is very detailed about what Solera cannot do.
Are they forbidden from paying a buyer's closing costs, points on his mortgage, giving him gree upgrades, or giving him a "decorating allowance?" How would you know if they did?
If you are not already living in a condo downtown, you should rent one of the many available first for a year and see if you like it. I did this for a year and then decided I wanted an actual house.
I agree with Brightside about prices. There are many 1000-1200sf 2 bed/2 baths available in the 2000-2500 per month range, depending on view, amenities, and parking. Considering property tax and HOA on these units alone is more than 1200 a month, that is a steal.
I believe there is a loft apartment building, called something like 4th street lofts, that look like they have great floor plans. |
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chloe
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| 04/30/2007 7:03 PM |
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| Good review Larry, but if it was my name being flaunted on your attachment I know that I'd be pissed |
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dishonest pricing
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| 05/01/2007 11:32 AM |
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Excellent points KAT. If the developer isn't prevented from offering "incentives", allowing them to keep the official price at whatever they want, the PPP is truly worthless. This has been a favorite technique to keep previous buyers ignorantly happy with their purchase while allowing for what amounts to price cuts for future buyers.
Now this dishonesty seems to be being extended to contractual "price guarantees".
I'm not a fan of increased regulation at all, but in the interest of public disclosure, transparency and honesty, the official recorded selling price should be required to be adjusted to account for any "incentives" given to the buyer.
These deceitful tactics have to stop. |
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swimjet
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| 05/01/2007 7:44 PM |
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| Someone on another blog wrote that the builder Skandia is in bankruptcy. No details but claims an insider advised him. Any idea where to get more information? What affect, if any, do you think it could have on sales at Solara? |
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bill
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| 05/03/2007 2:01 AM |
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Skandia is not in bankruptcy. But this individual project is clearly in trouble with only a handful of sales. My suspicion is that the lender - Australia's Macquarie Bank - will ultimately end up taking over this project in the next 6 months or so unless sales improve dramatically in short order. I doubt the developer will lose much money on this deal as I doubt there were any corporate or personal guarantees that extended beyond the project itself. The equity holders, including some sliver put up by Skandia, will almost surely get wiped out and Macquarie Bank will take it on the chin as the debtholder. But I'd be willing to bet that Skandia's developer fees were greater than its equity investment, so that net/net they'll come out slightly ahead on the deal. Developers are clever that way. If Macquarie ends up taking over the project they'll price everything to move. What level that will be is anyone's guess, although it's safe to assume that it'll be at least 20% below current asking prices.
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Mr_Brightside
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| 05/03/2007 12:37 PM |
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Very interesting information. I did notice that the lock company building with is part of Phase II is for lease. Pretty much indicates not a lot of action on Phase II for awhile.
No question that when banks get handed underperforming assets (bad loans) that they want these off of their books. In fact bank regulations require this type of thing to be handled quickly. |
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