Wednesday, June 13, 2007

'It's a Tough Cycle Right Now'



From the Sacramento Bee:

On Tuesday, the California Public Employees' Retirement System, an early investor in developer [John] Saca's dream, said it had bought out his interest in the struggling project. The announcement ends a proposal that was at once hailed as visionary and dismissed as oversized.
...
Sales of the condos, which ranged from $368,000 to more than a $1 million, began in 2005, with Saca eventually taking deposits of 10 percent down on 402 of the Towers' 804 units.
...
Condo market experts say Saca's failure to build the Towers symbolizes the rough waters builders face. "The big markets -- Miami, San Diego, places like that -- have units in foreclosure and projects in the pipeline going away," said Bruce Slaton, president of sacramentocondos.com, which tracks the local condo market. "It's a tough cycle right now."
Flashback to January 2006:
Recent turns in the local real estate market could pose another problem to condo builders charging $500 per square foot and more for a chance to buy a piece of the sky.

Inventory of the most expensive homes in the Sacramento region has ballooned, sales have slowed and prices are flat at best. Meanwhile, high-end homebuilders are offering incentives such as free swimming pools and landscaping worth tens of thousands of dollars.

Saca says he and other condo tower builders won't be hurt by those trends. His wealthy buyers are drawn by the lifestyle promised by downtown living.

He says he has 19,000 names on a buyer-interest list, 5,000 people who have prequalified to buy in The Towers and more than 500 potential tenants who have put down refundable deposits.

"Right now I honestly believe that we could sell out two or three times over," Saca said. "We're not trying to sell a condo. We're selling a lifestyle."

10 comments:

norcaljeff said...

Just like my Toll Brothers analogy...Rich people are immune to real estate slow downs. BS! They aren't rich b/c they're stupid. Who wants to bet Sippin's got a deposit coming back to him?

smf said...

Sorry, but the rich people I know in Sacramento (both sets of parents) would never live in a condo highrise.

These are probably several people who 'liberated' their equity to get a better return to on this 'investment'

Patient Renter said...

smf, agreed. I love the flame someone made in the Sac Bee article, calling the Sac Landing posters whiners or something and declaring that the towers project was great because they had initial deposits on half the units.... of course, they were probably all intended for resale - nobody wanted to live there!

Sippn said...

Norcal jeff - no see I don't buy retail expecting to sell retail. I own my home instead of renting.

I believe CALPERS move was more politically motivated than market. They're involved in much more risky real estate investments and subprime investments, but their board is political.

Can't compare our sleepy little town with Miami - rows of condo towers as 2nd homes. Lets see how Aura does if it does.

smf said...

Raise of hands:

How many of us here would pick million $$ high rise living, as opposed to a million dollar house anywhere in Sacramento?

Condos are the same as the dot.com bust. Way back then, I remember reading about the logic about how people would flock to the internet to do their shopping...

But no one (till way too late) bothered to ASK anyone what they really wanted to do, and then it was 'discovered' that people ACTUALLY LIKE TO GO OUT SHOPPING.

Similar with condos. The original condo concept came out because housing was so expensive, that condos became more affordable. It wasn't a 'lifestyle' choice, it was purely financial.

This was then corrupted and this is why we find the mess we are in now.

Sippn said...

"Inventory of the most expensive homes in the Sacramento region has ballooned, sales have slowed and prices are flat at best."

Sac Real Stats shows inventory above $900K plataeuing lower than 2006, and we should check sales and pendings before calling that statement a fact.

I have an agent friend who has put together contracts on 5 homes over $1 mil in the past 5 weeks. Its not 2004-2005, but its a steady drip.

Sippn said...

SMF, I agree with you that "most of us" want to stay in the 'burbs. Got a 1/2 division of kids, pets, etc.

Maybe later in life.

Or maybe a secret place to go that my kids don't know about?

Seriously, Saca had deposits on 50%. Most subdivisions and low rise condo projects this size break ground without any deposits... mostly because in CA a deposit on a large project made by a consumer is returnable no questions asked, so its unenforcable.

smf said...

"Seriously, Saca had deposits on 50%."

Sure, but how many actually intended to live there? And how many put deposits on multiple units?

Recall that some figures are coming out that in Florida and Las Vegas condos have a 70% speculator rate.

"low rise condo projects this size break ground without any deposits"

I know, I have worked on several of these smaller condo projects. The Towers had a lot of press, but forgotten were the multitude of multi-family projects occurring throughout the area.

HappyinSF said...

""most of us" want to stay in the 'burbs"
Why would you need to stay in the burbs in the Million Dollar range? You can buy a lot of house even in midtown, East Sac, Land Park. And no 600 dollar HOAs..Ouch.
Hell, one of my friends bought a cute 2/1 bungalow 2 blocks from McKinley Park in 2004 for 360k. Hmmm, one bedroom condo or house..
So why do these make sense again?

And It doesn't make any sense when I see posts saying this is a shame that this project wasn't started in 2002-03...It's a shame that there are not hundreds more forclosures out there (FIT)? That 400 investors are not now scrambling to unload over priced condos?

HappyinSF said...

Whoops, I didn't finish my thought..
Saying it's a shame that the towers were not started sooner stating that then they would be built and successful today is the same as saying it's too bad those 500k Elk Grove tracts weren't completed in 2004.. Is the money and the market there? Apparently not..not at those prices. The towers office was open until last week yet sales had pretty much ceased.. While we can see this a a glass is half emtpy/full dealie, 400 vacant condos is huge.(let alone the vacant condos that were purchased on top of that.)