Tuesday, January 23, 2007

Still Waiting for that 100%

With the recent news that construction on John Saca's condo towers has been halted "indefinitely," it's time for a check up on that other white elephant of Sacramento's housing bubble: Craig Nassi's Aura condo tower. Here's the most recent pronouncement by Nassi, captured in the December 16, 2006 edition of the Sacramento Bee:

Denver developer Craig Nassi insists he is on track to start construction soon on Aura, a 38-story condominium at Sixth and Capitol..."We have a very loyal group of people who have bought in our building and they're ecstatic to move in," Nassi said of Aura, about 70 percent of whose units have been presold.
Just how loyal? Let's take a time machine back to April 2006, a time of downtown condo euphoria. An April 5, 2006 Sacramento Business Journal article sets the stage:
He's spending $250,000 on a gala sales event this weekend. Guests will sip Dom Perignon, dine on pricey Russian caviar and oysters and listen to a San Francisco Symphony string quartet while touring a furnished model that includes such standard features as floor-to-ceiling windows, Bulthaup cabinets, oak laminate floors, Miele appliances and subzero freezers that, Nassi says, "cost more than most people's cars."

By the end of the weekend, he says he expects to collect nonrefundable deposits - 15 percent of the sales price - for all 265 units in his Aura Condominiums project. Units will range from the mid-$400,000s to more than $1.5 million for penthouse and larger condos.

"It will be like a game of musical chairs," he says. In other words, some folks may be left standing without a condo when the symphony strikes its last chord.
On April 8th, the Bee reported this prediction:
Sure, developer Craig Nassi knows how to party, but the question remains: Can he sell out Aura, the high-end condominium tower he has planned for downtown Sacramento? Nassi's answer during Aura's grand-opening bash on Friday: "We'll be 100 percent sold by 6 p.m. on Sunday."
On April 11th, the Bee reported the results of the extravaganza:
Buyers eager for downtown high-rise living snapped up "over 75 percent" of the units in the yet-to-be built Aura condominium tower, during a three-day sales event that ended Sunday, according to developer Craig Nassi. "Sacramento has spoken loud and clear," Nassi said by cell phone. " 'Build it.' "

His Denver-based company, BCN Development, had not yet made a final tally of signed contracts, but buyers had put down nonrefundable deposits on at least three-quarters of the 265 condos in the 38-story tower planned for Sixth Street and Capitol Mall, Nassi said.
...
Although Nassi has not yet identified who will finance Aura, construction is supposed to start in two months and finish in mid-2008.
The next day, a Bee editorial trumpeted "Downtown passes a housing test."
A noteworthy test happened the other day with an upscale 265-unit downtown condominium project known as Aura...More than three-quarters of the units, Aura's backer told The Bee's Jon Ortiz, got gobbled up...It seems the aura of our sleepy downtown is quickly fading.
But what about those remaining unsold condos? Why didn't 100% sell over the weekend?
"We still have about 20 percent of the units to sell," Nassi said. "We just didn't have enough time to write all the contracts..." He expects buyers to ink contracts for the remaining units at BCN's on-site office this week.
Sound familiar? Perhaps Nassi learned this creative trick from the marketing gurus responsible for Centex's "12-hour" sale:
"Our 12-hour savings event was a huge success," D'Arcangelo said. "Because the response was so great, and we were unable to spend quality time with everyone in the 12-hour period, we are extending the special incentives through Sunday.
The week passes without a media report of a sell out. But on May 24th, the Bee's Bob Shallit had this tidbit:
What's the latest on the Sacramento project? Nassi says he's collected non-refundable deposits on about 80 percent of his 265 units.
However by June, Nassi provided a more ambiguous response in a June 2nd Bee story:
Nassi said Thursday that he has taken non-refundable deposits on "the majority" of Aura's 265 units, selling for between $386,000 to $1.24 million. In April he told The Bee that three-quarters of the units were sold during a three-day grand opening. "We still have units left and we're selling every day," Nassi said. "We're not holding back anything."
Although construction was supposed to begin in June, the month ends with no reports of construction. Then in October, the Journal had this report:
Developer Craig Nassi says construction of his closely watched high-rise condominium project in downtown Sacramento will start by the end of the year, despite a fast-sliding housing market that has caused a national homebuilder to cancel two competing projects...The Denver-based company has collected deposits for 70 percent of the 268 condos.
Wait a minute. Nassi said that he's "selling everyday" and yet deposits have declined from "about 80%" to 70 percent? Even more remarkable is this statement that appeared in the October 19th Bee:
Craig Nassi, the Denver-based developer building competing condominiums nearby, has presold 73 percent of his 268 units. Sherryl Fleeman, the sales representative for Nassi's Aura project at Capitol Mall and Sixth Street, said that "sales have been consistent with no noticeable slowing" since the project's splashy April kickoff...Officials with Nassi's company, BCN Development, would not confirm the monthly sales trend numbers.
Sales have been consistent with no noticeable slowing since April? Isn't 73% less than "over 75%" or "about 80%"? If sales have been consistent, then it appears that cancellations have been even more consistent, with "no noticeable slowing." It seems that some of Nassi's buyers aren't "very loyal" or very "ecstatic to move in."

So what is going on here? Let's do multiple choice:
(a.) Nassi and company are engaging in puffery (to put it politely)

(b.) Sloppy media reporting:
  • Inconsistent use of terminology (presold, nonrefundable deposit, etc.)
  • Newspapers misquoted Nassi and company
  • Reporters failed to read their own past articles and challenge inconsistent statements
(c.) All of the above

(d.) Other
Whatever the explanation is, we're still waiting for that 100%. Isn't nine months long enough "to write all the contracts?"

14 comments:

Lander said...

As I was putting the final touches on this post over the weekend, I noticed this editorial in the Sacramento Bee. Finally some skepticism!

It's a daytime drama with mystery, intrigue, high-stakes economic gambling. (As yet, fortunately, there's no sex or violence.) The scene: Sacramento's downtown, where key redevelopment projects are fading left and right, the truth is hard to find and the solution even harder.

Episode One: "We can feel the (progress)," says Mayor Heather (Fargo), speaking to the downtown faithful at a recent breakfast. "We can see it. We can even hear it with the pile driving." Fade quickly to Third and Capitol. There, the pile drivers have stopped. John (Saca), developer of the largest high-rise condominium project the Central Valley has ever seen, has run into financial trouble with his Towers project.
...
Sixth and Capitol is the scene of the other big high-rise condominium proposal, the 38-story Aura tower. But what is happening with its developer? Craig (Nassi) has stepped down as project manager of a big project in Reno. There, a court-appointed receiver has replaced Craig. But Aura, project folks say, is still on schedule.
...
But City Hall has only so much money, and an unknown amount of political will, to make Mo, John, Craig and every other would-be downtown developer happy. Something has got to give. What construction sounds, if any, will ring out? Stay tuned.

Perfect Storm said...

I guess I have not paying attention, I thought Aura was being built.

Anonymous said...

On a different note. Did anyone else notice the ad in Sunday's Bee regarding model homes in Elk Grove being auctioned off?

Unless I missed it, I didn't see the builders name.

anon1137 said...

Great summary of the Aura project, Lander! I still don't get it, as hard as I try - $1M condos in Sacramento? Is Sac really as desirable as SF?? It might be moving that direction, but Sac will never be SF, and I think it's at least 10-20 y away from a $1M high-rise condo type city. First, they have to redevelop K St., then the rail yard, then a new sports stadium (NOT funded by taxpayers).

I think Aura is right across the street from that shooting incident outside Macy's not long ago. And having a Walmart in DT Plaza is not going to lift property values around there either.

Anonymous said...

DR Horton CEO saying in conference call that he sees no sign of housing market recovery and decline is in the early stages.

Anonymous said...

Sacramento County 1,642 $352,168 $387,000 -9.00%

DQ numbers updated Jan 22, 2007 Dec 05 change to Dec 06.

negative 9%

Anonymous said...

“‘We’re in the very early stages’ of the current housing slowdown,’ CEO Donald Tomnitz said. ‘Most of these downturns are longer and deeper, and right now we don’t see anything on the horizon that would change that opinion,’ the CEO said. ‘We continue to see a very challenging industry environment for fiscal 2007,’ he added. ”

Anonymous said...

LOL...

1. Sacramento Biz Journal, a truly rancid piece of crap, is nothing more than a Shill for the local boys on the government dole...aka "sacramento developers"

2. Shallit is a Shill for these same boys on the government dole, aka "sacramento developers"

3. The Bee commonly has sections and sections of real estate mumbo jumbo pushing the stucco crap boxes being built around Sacramento

Nassi and Saca are nothing more than sleazy carvival barking flimflam men...

drwende said...

This condo thing... at least overbuilding single-family homes halfway made sense, since people who live in the Central Valley mostly want a house and a yard, and there briefly was a rental housing shortage in 1999/2000. I'd even grant some logic to the mega-growth of W. Sacto, given the impossibility of affording anything nice in Davis.

But million-dollar condos in every Valley town with a population that hits five digits? The people in the CV who have mega-bucks are car dealers, and they live in mini-Mansions in subdivisions with names like "Fleur de Ville" or "Tuscany," with enough garage space for their five or six favorite vehicles. Or they're the larger farmers (who have the big house on the land)... or they're doctors and lawyers who want to live near the country club with the rest of the doctors and lawyers. Trying to pretend the Valley is a nascent San Francisco is ludicrous, when its entire charm and point is that it's not.

Rob Dawg said...

Didn't some other high profile CEOs go to prison for materially misstating the health of their companies? If it turns out that Saca never had 75% they're gonna need a rope.

# said...

Thanks for the excellent post and follow up on the condo situation downtown, Lander!

Anonymous said...

According to DataQuick, 6,078 were foreclosed in the fourth quarter of 2006, compared to 874 a year earlier.

Foreclosures are crashing the market and this is just the beginning.

Gwynster said...

here is the link to the sacbee article
http://www.sacbee.com/103/story/112896.html

Anonymous said...

As a resident of one of Craig Nassi's buildings in Denver, I've been amazed that there has been no investigation of BCN's prior construction projects by the Sacramento media. At the Beauvallon where I live, the HOA is filing a multi-million dollar construction defect claim against Nassi, BCN and all subs in order to compensate the homeowners for shoddy work, broken promises and blatant omissions (e.g., Nassi didn't install garage doors for the parking facilities).

As with the Aura project, BCN consistently overstated the amount of units sold or under contract. Nassi has also insisted for a year that the Beauvallon is "sold out" when he in fact still owns 3 units in the building (verifiable on the Denver County Assessors web site at denvergov.org).

I have also found a disturbing trail of evidence that could suggest that BCN engaged in some questionable sales transactions in the run up to the Aura sales party. In December and January of 2006, BCN sold 10 of the largest units in the Beauvallon for significantly more than the market value as determined by contemporary comparable sales in the building. The units were all sold to single individuals who put little or no money down (the biggest down payment was $167.00) on units priced from $399k to $805k. Although the Beauvallon is located in downtown Denver where parking is scarce, most of the 10 units were sold w/out any parking spaces. 9 of the 10 units are now either available for short sale from the lenders or actively in foreclosure. It is fairly apparent from county records that no loan payments or condo dues have ever been paid on any of these units. From photos on the MLS web site and realtor.com, it is obvious to me as a resident that none of the units has ever been inhabited by any of the buyers. By my calculation, BCN grossed over $7 million from these questionable transactions.

Sacramento should demand that BCN explain these transactions b/f handing over the nearly $10 million in loans being requested.