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.
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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?"

Aura or Parking Lot?

From CBS 13:

...[T]here's been some action around the Aura. That's right, from the look of things here, they are putting in a parking lot right where the Aura was supposed to stand. The Aura hasn't officially announced it's doomed, but take it from me - it's in the tank, at least for the time being.

Now Nassi Goes Begging

Sound familiar? From the Business Journal:

The developer of the Aura condominium project in downtown Sacramento is seeking a $9.6 million loan from the city of Sacramento as the last piece of financing needed to build the $175 million, 39-story building.

Craig Nassi, of BCN Development in Denver, originally sought a higher amount in the form of a grant and a loan, but city staff examined the financing and determined approximately $10 million would make the project viable, assistant city manager John Dangberg said.
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If approved, Nassi would have 90 days to secure $150 million in loans and an additional $18 million in equity needed to build Aura. If the financing isn't in place within that three-month timeframe, the loan offer expires. The Council would need to revisit the issue once the loan terms are negotiated. The deal would also give Aura $360,000 in city sewer credits.

The Aura project was approved months ago by the city, but Nassi has not pulled construction permits as he's struggled to pull the project together. "We should be ready to go within a few weeks after the city council meeting on Tuesday," Nassi said of construction timetable.
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Nassi said he was unable to secure financing elsewhere. "The construction market is tough right now," he said. "Sacramento is an unproven market because high-rise condominiums haven't been done."
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According to a report from Hanley Wood Market Intelligence, buyers have put down 15-percent deposits on 196 of the project's 268 units, or about 73 percent of them, through November.

Aura of Vulnerability?

From Bob Shallit's column in the Sacramento Bee:

The developer of one of Sacramento's high-end downtown condo towers has hit a bump on a similar project in Reno. Craig Nassi last week stepped down as one of the managers of the Palladio Condominiums on Reno's riverfront following complaints from lender Merrill Lynch Capital that the project was over budget and behind schedule. A court-appointed receiver has been brought in to complete the 13- story, 92-unit Reno tower.
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Meanwhile, Nassi insists the developments in Reno have no effect on his plans to begin work soon on Aura, his 38-story condo project at Sixth Street and Capitol Mall. "One has nothing to do with the other," he says of the two projects. He says about 70 percent of Aura's 268 units have been presold. Plans are to pull building permits as soon as a construction loan is awarded from Corus Bank of Chicago. Actual construction, Nassi says, could start "within 45 days."

Stockton's Repo Bus

From the Stockton Record:

It's not a magic bus, just a vividly marked one - REPO HOME TOUR.COM - that real estate agent Cesar Dias hopes will work some magic for him in a bleak home-sales market. Dias, an agent and loan officer at Approved Financial & Real Estate Center, 1140 N. El Dorado St., has launched a weekly Saturday bus tour to try to get buyers interested in looking at some of the area's growing number of foreclosure properties.

The bus absolutely is just a marketing ploy, he said, because anybody can go look at foreclosures with any agent. But between a dozen and 20 people a week have taken the tour of 10 to 12 bank-repossessed homes the past few weeks, Dias said, and a few deals have been made. Not bad in a market where home sales in September dipped to the lowest level so far this decade.
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[T]he latest Coldwell Banker Grupe-TrendGraphix monthly sales report, based on Multiple Listing Service data,...indicates that sales and selling prices of existing homes in San Joaquin County have continued to drop as the market moves into its third consecutive year of decline. The 228 sales countywide in September were the fewest this decade, as were the 289 pending sales last month. That compares with 796 sales and 716 pending sales in September 2005, just before the downturn hit. And median selling prices have fallen sharply, from $370,000 in July to $325,000 last month, a 12.2 percent drop in two months.

From CBS 13 (video):

A sleek-looking high rise in downtown Sacramento, called Epic Tower looks similar to the proposed Aura Project. It's an aggressive proposal considering the real estate market's current downturn. High rise condos like the Towers on Capitol Mall prove investors can get in over their heads. The Aura proposal is another example...Craig Nassi's BCN Development is behind both Epic Tower and Aura projects. Nassi hopes to break ground next year probably after city planners make a decision in January.

From the Sacramento Bee:

Jose Olagues knew the bad news. Like so many area residents, he's seen his Tahoe Park home decline in value. The good news: He's among 50,000 Sacramento County property owners who can expect to receive a shrinking tax bill. "That is sweet," said Olagues, who may be in line for a rebate from his mortgage company, which rolls his taxes into his monthly bill. "If they want to give me money back, that is cool."

Most property owners – in Sacramento County and elsewhere – will still see an increase in their property tax bills, which started arriving last week. Sacramento County taxes 446,000 properties. But the county's move to reduce the taxes on 50,000 properties – just over 10 percent of county properties – is perhaps the most sweeping in the state.
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The silver lining for some recent Sacramento County homebuyers is nothing but bad news for schools, the seven cities within the county, the county government and special districts that rely on property taxes. The Sacramento County assessor's recalculation of property taxes wipes away $15 million in tax revenue.

From the Associated Press:

Wells Fargo & Co.'s earnings grew at its slowest pace in more than six years during the third quarter, dragged down by deteriorating home loans likely to cause more trouble in the months ahead.
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Like many other lenders, Wells Fargo is being hurt by a combination of crumbling home values and overextended borrowers who can't afford to make their monthly mortgage payments as their once-low adjustable interest rates reset to higher levels. "The housing sector is weak and we are not immune to that," Atkins said.
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Atkins said the bank is having the toughest time collecting from homeowners in parts of the Midwest and California's Central Valley, where many borrowers now owe more money than their properties are worth.

From the MarketWatch:

U.S. home builders grew even more pessimistic in October, hit by a triple whammy of tight credit, abundant supply of homes for sale and falling prices. The seasonally adjusted housing market index fell to a record low of 18 in October from 20 in September, the National Association of Home Builders reported Tuesday. It's the lowest reading in the index since its inception in 1985. "The market for new homes is dead for all practical purposes," wrote Patrick McPherron, an economist for Moody's Economy.com.
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All three components of the home builders' index notched record lows in October. Sentiment fell in three of four regions, with builders in the West the least optimistic.

Builder's Boom Recipe: Loose Lending + Bailout + Media Silence

From the Lodi News Sentinel:

Three years ago, builder Tom Doucette was "moving at 100 miles per hour" trying to keep up with the demand for new homes at his project sites. Potential buyers were "camping out" at his FCB Homes subdivisions, hoping to snatch up a piece of real estate at the peak of the housing boom.

Business is no longer a blur for Doucette...[A]ctual construction has slowed dramatically. In Lodi, for example, the number of building permits issued for detached single family homes has plummeted from 396 for all of 2005 to just 18 so far this year, according to city records.
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The shaky housing market has led Lodi builder Dennis Bennett to build only pre-sold homes...Overall, Bennett said his company has reduced new home construction by 50 percent compared to just a couple years ago.
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Bennett, who started his company in 1977, said there are a number of reasons for the building slowdown. The media should take some blame for continuing to highlight the trend, he said. Large, corporate home builders are also part of the problem. They've flooded regional markets with new homes creating "huge inventories." That, in turn, lowers sale prices for smaller builders.
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Bennet said new construction won't boom again until the "huge inventories" of homes for sale are bought up. Easing some of the recent mortgage restrictions and offering federal relief to those with expanding subprime mortgages might be two ways to bring buyers back, he added. "If we get a little relief from the lending side of the business, hopefully that will help the inventory out there," Bennett said.

CBS 13 (also video): Developer Says Real Estate Buyers Are Too Worried

From the Sacramento Bee:

Sacramento city leaders have pulled back their offer to loan $10 million to fund construction of a downtown condominium high-rise. Craig Nassi, the Denver-based developer behind the 39-story Aura tower proposed for 601 Capitol Mall, lost the city's commitment after he failed to secure all of his private financing by the end of last month.
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Nassi insists that Aura is alive. But besides having the city withdraw its money, he hasn't yet bought the land for it from local developer David Taylor...In June, Nassi said that he would have his lenders lined up within 45 days. This week, he said financing was on the horizon for the $177 million project. "We hope to have the loan ready to fund soon," Nassi said in an e-mail. He blamed the delay on "capital markets (that) have been paralyzed by the subprime fallout and the unknown of secondary market pricing."

There's No Reply At All

From the Sacramento Bee:

Next to the US Bank Tower, Denver developer Craig Nassi hopes to build Aura, a 39-story luxury condominium tower designed by renowned architect Daniel Libeskind that will cost about $177 million.

But Nassi has yet to break ground at 601 Capitol Mall because he hasn't purchased the land from Taylor. Last month, Nassi's deadline passed to line up financing. He has asked for more time, but Taylor said Thursday he won't formally grant an extension without talking directly with Nassi's lenders and equity partners.

Nassi, who has maintained all along that Aura will be built, did not respond to requests seeking comment.

Three blocks west, all is quiet where John Saca's $550 million Towers project is planned between Third and Fourth streets. The foundation work on the ambitious 53-story, twin tower, hotel-retail-condo complex abruptly stopped last fall.

Last month Saca said he reached an agreement to buy out the California Public Employees' Retirement System, his largest investment partner. To close the deal, he must come up with about $25 million by May 25 to reimburse the state pension fund for what has been spent.

The Sacramento-based developer also needs more money from other investors and lenders to restart the project. He has taken deposits on about half of the 800 condos up for sale.

Saca did not return a telephone call seeking comment. Mark Cordano of Sacramento-based Cordano Co. said his company has put its Towers retail marketing efforts "on hold" for now.

Current Sacramento Housing 'Recession is the Worst One Ever'

UPDATE - From Inman News:

Wendy Shapiro, a resident in Roseville, Calif., said she purchased multiple investment properties after selling her home in San Francisco and moving out to the Sacramento area. "I bought a fourplex in Red Bluff; I had $500,000 in the bank and a 700-plus credit score," she said. But her real estate investments have become a money pit. "Unfortunately, I put all my eggs in one basket. Now my daughter is going to college and I don't know if I'll be able to keep her there."

Shapiro, a nurse, said she had planned to gradually sell off the properties for a profit, but now she is faced with a decision on which properties to "walk away from," she said. "I am a single mom here working my butt off, and I thought I was doing the right thing."

Rental prices have dropped substantially in areas where she owns property, Shapiro said, as many investment properties are competing for rental income. "Rents have dropped everywhere because people who couldn't sell houses are now trying to rent them. I can't even sell one house," she said. Buyers are on the fence these days, she said, and the credit crunch isn't helping out with sales.

"It's just hell. Will I be able to sleep at night knowing I just walked away from $400,000 to $500,000 ... and all my time?" she said.

From the Sacramento Bee:

About a year ago, Susan McDonald began to see dead lawns, weeds and vacant houses in her new Elk Grove neighborhood built nearly overnight during the housing boom. The blighted scenes seemed an ominous indicator, a housing downturn tightening its grip on her suburban surroundings. Months later, as that downturn continues to deepen across the Sacramento region, thousands more empty homes and their unkempt lawns have become the ugly face of rising foreclosures and bank repossessions.
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Many real estate agents estimate that about 40 percent of the 10,000 single-family houses for sale in Sacramento County are empty. In the short run, that poses aesthetic problems for many neighborhoods. In the long run, so many empty houses are also likely to prolong the housing recovery, analysts say.
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Thousands more owners will face difficulty in coming months as their adjustable-rate loans reset to higher payments. At the same time, many investors, who represented one in every four sales in Sacramento County at the peak of the boom in 2004, are still trying to sell their empty properties..."There are so many new homes here and so many investors from the Bay Area," McDonald says. "When we pull up the owner's names, nine times out of 10 they live in the Bay Area..."From 2001 to 2005 we had just a flood of people from the Bay Area. That was when the market was really hot," she says. "Now everybody is losing their shirts and renting or walking away."

From the Sacramento Business Journal:

On the list of big-city status symbols that Sacramento can't quite seem to land, add the condominium tower. The most ambitious project to date, John Saca's 53-story twin Towers on Capitol Mall, died in June when the California Public Employees' Retirement System bought out Saca's interests...BCN Development's 38-story Aura project at 6th Street and Capitol Mall is technically still alive, but stalled.
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Don't feel too bad, though. In cities where condo towers have been a hot trend, the condo markets are becoming glutted thanks to overbuilding. Sacramento may have dodged a bullet.

From the Stockton Record:

Soon after the City Council celebrated its adoption last month of a plan to build homes downtown - City Manager Gordon Palmer said it "set a vision" for the city core - it became clear even strident civic action could not match the force of the housing market's collapse.

Following the plan's adoption, Grupe Investment Co. Inc. President Kevin Huber confirmed the postponement of downtown's most-ballyhooed housing project, the construction of more than 150 condominiums and townhouses on the south bank of the Stockton Deep Water Channel.

It was a significant setback for City Hall. Since announcing the project last year and predicting that homes could be built this year or next - or, later, in 2009 - civic boosters have pointed to it as proof developers could build and people would live in the city core.

Not in this market, Huber said. "It's hard to say when we would start at this point," he said. Before the council adopted its housing plan, it came out last month that Stockton's foreclosure rate is among the highest in the nation. Houses sit vacant, and home sales have slumped. The market is "as difficult as I've seen it," Huber said. To start a housing project here at the moment would be unwise, he said.

From the Sacramento Business Journal:

Eva Garcia has been selling real estate in Sacramento for 44 years...."I think this recession is the worst one ever, worse than the one in the '90s, because of the fraud on the part of too many lenders. But we're OK. We have a steady flow of customers. Some of our customers are the children of people we sold homes to a generation ago. We advise people not to sell now unless they absolutely have to. "

From the Chico Enterprise Record:

People are asking "When is the housing market going to recover?" What they usually mean is, "When are prices going to start going up again?" This is the wrong way to look at the trend. The current period of stagnant sales and dropping prices is the recovery. It's the last few years that have been unhealthy. Things got so bad that the market contracted that dread malady, the bubble.

At the height of the bubble, ordinary, everyday Chico houses were selling for $300,000. That's just plain madness in a community where $50,000 a year incomes are the norm.
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The deflating of the bubble ought to teach us that what goes up what must come down. But we will never learn. It won't be long before we've embarked on a mad dash after another supposed source of riches.

Membership in Central Valley Realtors Association Plunges 59% in 1 Year

From the Stockton Record:

The Central Valley Association of Realtors, a trade group covering Stanislaus County and much of San Joaquin County, was expecting a huge membership loss this year as more and more agents dropped out of the sales market. But instead of an expected drop from 2,900 to 1,700 year to year, the association...has seen membership shrivel to about 1,200...Cliff Coler, the group's interim chief executive officer, said declining membership and revenue have meant a cutback in staff from 13 to four.
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Karl Enzmann,...Realtors group president-elect, said there was some surprise at the depth of the membership decline...."Some of the numbers hit us in the face like a cold bucket of ice water," he said, and belt-tightening has meant a 50 percent cutback in the CVAR budget.

From the Sacramento Bee:

Sacramento-area home builders are being extraordinarily cautious this year about starting new homes. That's evident in the newest count of building permits taken out at area city halls. Home builders in El Dorado, Placer, Sacramento and Yolo counties are pulling back at more than double the statewide average rate, seeking only 589 building permits to start new houses, condominiums and apartments in January and February. That compares with 1,833 permits the same time last year, the Burbank-based Construction Industry Research Board reports.
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When builders slow down like this, it means fewer jobs all down the line, from subcontractors to materials suppliers. It's also partly why the state Employment Development Department is reporting that jobless numbers in the capital region are up nearly one percentage point over February 2007.

From the Stockton Record:

Home starts in San Joaquin County slowed to 46, the lowest monthly level in years, based on building permits pulled in February, the Research Board reported last week. That was an 82 percent drop from 249 in February 2007.

From the Stockton Record:

It appears other county residents also are short on funds to pay essential expenses like property taxes. In 2004 and 2005, about 3.5 percent of those who owed property taxes were delinquent on their payments, according to the San Joaquin County Treasurer-Tax Collector's Office. That number rose a percentage point in 2006 and passed 7 percent last year. Homeowners get two tax bills each year, one in November and one in February. This tax year, nearly 10 percent of payers missed the first payment....

From the Sacramento Bee:

A host of real estate scams popular during the 1990s housing downturn are back this year and snaring unsuspecting homeowners and renters, say law enforcement and real estate officials. "The ones that know how to do it are remembering how to do it and doing it again," says Elk Grove real estate agent Alan Wagner, president of the Sacramento Association of Realtors.
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One is the fake landlord scam. Sacramento real estate agent Carey Covey says a would-be renter at one of his listings lost $2,000 after handing a security deposit and first month's rent to someone pretending to rent him the house. The house had been foreclosed on and was owned by the bank – not by the person posing as the landlord...Covey says con artists "track homes that have been on the market for a while, have them re-keyed and put an ad in the paper or Craigslist and offer it for rent."

From the Sacramento Bee:

Undaunted by the recent failure of two high-rise condominium projects planned for downtown Sacramento, a Los Angeles-based developer proposes to transform a leafy, four-block area south of the Capitol with five new residential towers. The Bond Cos., an experienced developer of infill housing and retail projects nationwide, filed an application with the city of Sacramento Thursday to replace 206 low-rise apartment units in the Capitol Towers neighborhood with five towers ranging from 15 to 33 stories....In total, Bond Cos. is proposing to build 1,646 new housing units.
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Mark Bachli, a principal in the Bond Cos., said the "market will determine what is actually built" on the Capitol Towers property, bounded by Fifth, Seventh, N and P streets.
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Jim Pachl, an environmental lawyer...is watching the latest idea for Capitol Towers with a wary eye...Pachl said he's troubled by the recent failure of the Aura and the Towers condominium projects. The Towers was under construction when it melted down financially, leaving a huge hole in the ground on the Capitol Mall. "I'm sitting here saying, 'How realistic is this?' " Pachl said.

"A Giant Hole in the Ground"

From the Sacramento Bee:

Towers project facing hurdles
Downtown high-rise residence far over budget; unit sales lag.

It's little more than a giant hole in the ground, but already the 53-story Towers hotel and condominium project is $70 million over its original $500 million budget. Meanwhile, sales of the Towers' condos are slow, and developer John Saca has switched general contractors.

What all of that means for one of the tallest residential construction projects on the West Coast remains to be seen. Saca is in talks with his backers for more money, and his isn't the first commercial development to overshoot its budget. Contractor changes aren't as common, but Saca says that the swap brings in a more experienced high-rise mixed-use construction firm.

However, one thing is clear: Saca admits the Towers, at Third Street and Capitol Mall, is being pinched between a weak housing market and rising prices for materials such as steel and concrete.
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Many thought the building was too ambitious to be Sacramento's first high-rise condo project and questioned whether there were enough customers to fill all those units, priced from $368,000 to $852,000.
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Construction started, but as massive pile drivers over the summer banged away at the Towers' downtown Sacramento site, Saca realized the initial cost estimates fell short. He appealed to Sacramento city officials and received an $11 million subsidy in October for the 18-story Intercontinental Hotel that will anchor one of the building's two towers. Now, he's in talks with his other financial backers for more.
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Besides funding challenges, Saca also said the condo market has gone soft with the rest of the housing market, and the Tower's sales are "slowing down." He also has a condo competitor, Craig Nassi, whose Denver-based BCN Development has plans to build the Aura tower two blocks east on Capitol Mall and Sixth Street.

Through September, buyers had made deposits on 364 units at the Towers, according to the most recent figures from Hanley Wood Market Intelligence, a Costa Mesa firm that tracks residential construction.

Hat tip: Max.

Sacramento Housing Market Underwater: 1 in 5 Homes is a Short Sale

From USA Today:

Here's an alarming fact about Sacramento's housing market: About one of every five existing homes on the market is a "short sale." That means the home is worth less than the value of the mortgage, and the lender is willing to accept less than full repayment of the loan to avoid foreclosure, says Tracey Saizan, president of the Sacramento Association of Realtors.

That, in turn, puts pressure on the remaining 80% of sellers, who have equity in their homes, to cut prices. The median price in the state capital, one of the most overheated metro areas during the real estate boom, fell 4.3% in December compared with December 2005.
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"There is a sense that we are going through the tunnel, and the light at the other end is sunshine, not another train heading at us," says Greg Paquin of The Gregory Group.

From the Auburn Journal:

Citing shifting economic factors, Auburn Harley-Davidson owner Bob Holmes has scrapped plans to move his North Auburn dealership to a Bowman parcel. The plan would have seen construction of a 30,000-square-foot store and service facility at the corner of Luther and Bowman roads.
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Holmes withdrew his application last month but stated that once the project makes economic sense again, he would re-apply...Citing the recent financial difficulties on a 55-story condominium and commercial project in downtown Sacramento as an example, Holmes said that it's a difficult time for a development to move forward because of the slowing housing market and economic conditions in northern California.

Businesses like boat, auto and motorcycle dealerships depend on discretionary income to remain high and with the housing market continuing to soften, the Auburn Harley-Davidson focus will be on the Locksley Lane location.

From the Sacramento Bee:

Holding back: The builder of one of two planned downtown condo towers hasn't sold a single unit in months. But that's strictly by design, says Craig Nassi, the Denver developer behind the long-awaited Aura project at 601 Capitol Mall.

He says he reached the sales threshold he needed for a construction loan last fall. Since then, he's held off sales in the expectation he can get higher prices for the remaining units after construction begins. "We do that on every project," Nassi says. "You get a lot more money (for condo units) later in the game."

Nearly 200 of the project's 268 units have been sold, according to Hanley Wood Market Intelligence....Nassi says he expects to finalize his main construction loan from Corus Bank of Chicago by mid-March. When will construction start? "The next day" after the loan is finalized, he says.

From the Sacramento Business Journal:

Centex, the region's eighth-largest builder last year, is one of at least 10 homebuilders in Sacramento that have had a change at the top ranks, a turnover rate that's been pushed by the market.

"The builders are shuffling," said Angel Ahumada, founder of Integrity Recruiting of Roseville, which specializes in placing executives and mid-level managers in construction industry positions nationwide.
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Most of the turnover occurred during a stretch that saw new-home sales in the region drop from 14,095 in 2005 to 9,588 last year...New division presidents have taken the helm in the past year at KB Home, Meritage Corp., Morrison Homes and Pardee Homes.
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Some of the first moves by the new leaders have been to trim the work force. Construction-related jobs fell by 1,500 between December 2005 and December 2006.
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Richmond American Homes reduced its Sacramento staff, including division president Jim Gillette, who was hired in December 2005 and then departed about nine months later, said Mark Butler, Northern California president at Richmond American. Gillette is now working as a real estate consultant.

Butler, based in Richmond American's Pleasanton office, said the company hasn't pulled up stakes in Sacramento but has reduced its land holdings. "Our goal is to keep buying land," Butler said, adding that the company has not closed a deal since early 2006. "(But) the next deal we do has to reflect today's sale price and incentives."

From the Stockton Record:

The coming layoffs of about 100 Stockton-based workers at Washington Mutual should surprise nobody. A good number of those people work in WaMu's sub-prime lending arm, Long Beach Mortgage, one of the nation's biggest sub-prime mortgage lenders.

Sub-prime loans are not your traditional 30-year, fixed-rate mortgages. Anything but. They are loans aimed at higher risk borrowers, people with little to put down, and people who, to be honest, might be buying more home than they can afford.
...
But funny-money loans? It probably will be a while before we see what we saw at the height of the boom. In the first quarter of 2005, 42 percent of all mortgages in San Joaquin County were interest-only loans.

The heady times started heading south by the end of that year. Regulators have become more and more outspoken about the dangers of the sub-prime, put-'em-in-a-house-at-any-cost industry. Financial institutions loan money. They should not be in the real estate business and that's what might happen if a bucket of mortgages go south, regulators warn. And they might. Foreclosures are climbing. In the fourth quarter of 2006, foreclosure notices in San Joaquin County reached their highest level in at least 10 years.

Also from The Record:

The rising number of foreclosures in San Joaquin County isn't helping home sellers, because that pumps up the competition, makes it tougher to sell and depresses prices. Still, builders, brokers and industry experts said that even with defaults climbing, the impact may not be significant because homes-for-sale numbers have plummeted in recent months anyway.
...
David DiDio, mortgage broker with Greene Dream Homes and Loans in Stockton, said the foreclosures downturn should end soon, adding that the last foreclosures upswing a decade ago lasted about a year and a half. The housing market has picked up noticeably recently, he said, "so by spring, we'll be out of this, because most of these homes will be able to sell."

John Saca Back For More, Blames Plunging Real Estate Market For Failure

From the Sacramento Business Journal:

Developer John Saca says he's still in the high-rise business.

While a little bruised from the unsuccessful effort to save The Towers on Capitol Mall, Saca is forging ahead with another downtown Sacramento project -- a 39-story condo tower at 10th and J streets.

The Metropolitan, which if built at its projected 420 feet, would be taller than any building in the capital today, is on the agenda of the city of Sacramento's Design Commission for Wednesday.
...
In an interview this week, Saca sounded a little disheartened about the fate of his pet project, but said he expects to find success the second time around. He blamed the plunging real estate market for The Towers' failure, deflecting claims that he overreached or lacked enough experience.

Despite a housing downturn, developers such as [Shepard] Johnson are still building in Sacramento's central city, attempting to capitalize on demand for homes in the downtown and midtown areas. The projects have concepts and plans that differentiate them from suburban housing. But the verdict is still out on whether they can draw buyers who will pay a premium to live there.

According to the city of Sacramento's Development Services Department, there are 580 units, in 17 projects, under construction in the central city....[T]he construction doesn't mean that sales have been brisk. Loft projects in the central city and West Sacramento are selling at an average of about 1.8 units per month, slower than the 2.88 average rate of sale for all types of housing this year, according to data from Hanley Wood Market Intelligence.

And more housing could be built, but isn't because of a lack of funding and a soft housing market. Developers are sitting on about 900 units that have been approved by the city but not built, ranging from small projects to the 262-condo Aura tower.

SL's Water Cooler - March 2007 (part 2)

Post off-topic links, observations, and stories here. Please read the comment policy before posting.

Some weekend reading:

• NY Times: Crisis Looms in Mortgages
  


• LA Times: Loan turmoil closes doors for buyers


• Countrywide ends no down-payment lending
  

• WSJ: Sacramento's Drive to Sizzle Has Hit a Few Snags:

Some say the cooling housing market's impact on the high-rise projects has been overstated. Lenders leery of financing projects in smaller cities like Sacramento -- not lack of demand for luxury downtown living -- have delayed the start of construction on Denver-based BCN Development's Aura tower, according to BCN President Craig Nassi.

• Sierra Sun: Experts: Home ownership options still exist:

“Today there are more options than there have ever been in the real estate market,” said Kathy Harry, broker and branch manager at Prudential California Realty Truckee. "It’s a good time to buy because there are a lot of programs, loan products and properties out there. It’s as good as it’s ever been."

New financing options such as 40-year and second mortgages and credit reports that don’t verify income are helping local people buy their first homes. "You have to be creative sometimes, and in this market you have to be more creative," Harry said.

• Active Rain: Better Sell NOW!! ... Blockbusting, the Media, the Public, & Us:

In Sacramento, the paper and local tv news, together with the national-level media, have been beating the living stew out of the Market for the past 2-and-a-half years. Every week, a new headline in the paper, "Housing Bust Looms," "When the Bubble Bursts," "Housing Bubble Getting Bigger"... The headlines are inflammatory and prejudicial....

• Realty Times: A Big Thumbs Up:

What's in store for the real estate market in 2007? Will this year be a good time to buy? As Northern California's most comprehensive real estate organization, JC & Associates with RE/MAX Gold keeps its fingers on the market's pulse-and its latest assessment gives the 2007 market a big thumbs up. JC & Associates, in fact, sees current conditions as "virtually ideal" for buying now.

Stung by the Sacramento Real Estate Market

From the Santa Cruz Sentinel:

When Howard Little got a call last year about refinancing, he decided the time was right to pull money out of his home in Boulder Creek to invest in real estate. He bought a house in Sacramento and figured he'd have steady rental payments to supplement his disability income.

Instead, he lost the property in Sacramento to foreclosure, and fell behind on payments for his own home. His credit rating dropped and he couldn't refinance. To avert the lender from foreclosing on his home in Boulder Creek, he put his five-bedroom, two-bath Boulder Creek home on the market, but with listings at all-time highs he hasn't found a buyer. He's dropped the price from $680,000 to $650,000 and now $630,000.

At 58, he doesn't want to give up the place his parents owned, the place where he and his wife raised their two children. He wishes he could go up to Sacramento to track down what went wrong there. He doesn't drive because of epileptic seizures, so he's been trying to get information via phone without much success.

"Where I'm going from here I don't know," he said.

From News10 (also video):

The numbers are startling.

Nearly 20 percent of Sacramento homes are worth less than the value of their mortgage. Some 3,400 Sacramento County property owners faced foreclosure in the first quarter of 2007, up nearly 200 percent from 2006. Sacramento County ranks in the top ten nationally in the number of foreclosures.
...
Real estate investor Tony Sedillo said while he can make money if the foreclosure trend continues, watching families leave their homes under the financial strain is excruciating to see.

"This one woman was paying $2,000 a month and is now paying $5,000 a month after a year," Sedillo said. "Who wants to profit when a little girl is looking out the window and the parents are packing up?"

From the Sacramento Business Journal:

While residential towers have seemingly stalled in downtown Sacramento, a San Diego developer with pension fund backing is seeking approval for a 24-story condominium tower on the West Sacramento riverfront.

Fairfield Residential LLC is looking to build a 150-unit development on about 1 acre between the pyramid-shaped Ziggurat building and the California State Teachers' Retirement System's new headquarters under construction.
...
Fairfield bought the property last year, but the developer said it's likely to wait until conditions are more favorable before building. "We're not going to rush into a bad market," said Dan Milich, development manager with Fairfield. "We're in a position to wait it out. If you're wondering about a groundbreaking, it's too early for that."

Fairfield would need to seek a construction loan to build the project, Milich said. Financing of pricey residential projects is scarce these days, judging from the delays and problems with Sacramento's other condo towers. A resurgent housing market, however, might lead to looser lending.
...
Large condo projects have not fared well in the past year. In Sacramento, there has been no word yet from the partners in The Towers on Capitol Mall project -- John Saca and the California Public Employees' Retirement System -- on what will happen with their plans to build twin 53-story condo towers. Saca has failed to come up with enough financing to satisfy the agreement with CalPERS, essentially putting the project on hold.

Craig Nassi, the developer of Aura, another high-rise condo tower in downtown Sacramento, has struggled to secure financing for the project since last fall.

'They Can't Hold on Forever'

From the Sacramento Bee:

[M]ost big public firms are now facing Wall Street pressure to scale back their operations and abandon plans to buy new land. More may also end up selling land if the downturn continues through the rest of this year, [Roseville-based land broker James S.] Radler said. "I think time will tell as we go through this adjustment. The publics have a lot of assets around town they will end up dumping," he said. "The privates, they can't hold on forever, either."
...
Radler said builders believe about 30 percent of their buyers are gone because of tighter credit rules in the wake of rising mortgage defaults and a meltdown in the subprime lending business. And that shakeout is hitting both public and private companies. "Subprime is similar to a cold," [Hanley Wood analyst Kathryn] Boyce said. "It doesn't pick and choose." "We're all in the same boat," added [Sid] Dunmore.

Other brokers, including Greg Ocasek of Irvine-based O'Donnell Atkins, said private builders now have an advantage in long-term land buying. Public builders have stopped bidding up prices and created an opening for private firms to make bigger land buys.
...
So far that isn't by buying new-home lots from their publicly traded competitors, Ocasek said. Like the mass of homeowners across metropolitan Sacramento, the public firms are sticking to the highest possible price as long as they can, he said. "The publics are saying, 'We don't have to sell right now,' " said Ocasek. That could change, added Radler. "Call me at the end of the year," he said.

From the Sacramento Business Journal:

City of Sacramento officials are preparing to ask the City Council on Tuesday to approve another 60-day extension on a $10 million market-rate loan to BCN Development, the developer of the $175 million Aura condominium project downtown. The deadline on the loan has been extended several times to allow BCN founder Craig Nassi to secure financing.

From the Manteca Bulletin:

Foreclosures - which are sinking the housing market just across the San Joaquin River in Mossdale Landing - are having just a small ripple effect on River Islands at Lathrop.
...
Three years ago they envisioned building 500 homes the first year...A little over a year ago that was scaled back to 350 homes. Now they expect to only allow 200 homes to be built in 2008 - the first year of actually pouring foundations.

From the Merced Sun-Star

Partying like it's 2005 ... Merced's once blazing hot housing market is now colder than a bowl of icicle soup, but that doesn't mean that Ranchwood Homes president Greg Hostetler is feeling the chill.

Loose Lips has learned that Hostetler -- the self-made Los Banos native who builds subdivisions with swanky names like Tuscany and La Paloma -- has been laying low for the past couple of months, but burst back onto the jet-set scene recently when he attended the title fight between Oscar De La Hoya and Floyd Mayweather, Jr. at Las Vegas' MGM Grand hotel.

Hostetler joined celebrities including Eva Longoria, Jennifer Lopez, Tobey Maguire, Jack Nicholson, Snoop Dogg, and Denzel Washington to watch Mayweather defeat De La Hoya in 12 rounds.

Lips wonders why Hostetler seems untouched by the recent "correction" (read: screeching halt) in the housing market. Maybe it's all those almond trees he has up his sleeve ...

Condo "Scrapheap" Grows

From the Sacramento Bee:

Billboards featuring the bemused face of star architect Daniel Libeskind have disappeared from downtown street corners, and so have plans by Denver developer Craig Nassi to build two Libeskind buildings here. First, Nassi's Aura condominium project on the Capitol Mall ran into trouble. Now the head of BCN Development says he can't find financing for the 50-story Epic condo and hotel tower he planned for 12th and I streets, either.

Last week, a lawyer representing Libeskind and the local office of architecture firm Stantec Inc. sent a letter to Nassi terminating their relationship for nonpayment. "Design professionals do not have the ability to continue working for free," said the letter from lawyer John Condrey, a copy of which was provided to the city. In an e-mail Thursday, Nassi characterized the letter as a "routine" part of shutting down the city approval process for Epic for lack of funding.
...
"Sacramento's economy is so depressed at the moment, we can't get lenders to consider any projects at this time," he said.
...
The scrapheap of high-rises planned for Sacramento before the real estate market collapsed is starting to pile up. Libeskind's creations join the twin 53-story hotel and condominium towers formerly planned for the Capitol Mall by local developer John Saca.

From DQNews.com:

Lenders started formal foreclosure proceedings on a record number of California homeowners last quarter, the result of declining home prices, sluggish sales and subprime mortgage distress, a real estate information service reported. A total of 72,571 Notices of Default (NoDs) were filed during the July-to-September period, up 34.5 percent from 53,943 during the previous quarter, and up 166.6 percent from 27,218 in third-quarter 2006, according to DataQuick Information Systems of La Jolla. Last quarter's default level passed the previous peak of 61,541 reached in first-quarter 1996. A low of 12,417 was reached in third-quarter 2004. An average of 34,781 NoDs have been filed quarterly since 1992, when DataQuick's NoD statistics begin.
...
Trustees Deeds recorded, or the actual loss of a home to foreclosure, totaled 24,209 during the third quarter. That is the highest number in DataQuick's statistics, which go back to 1988. Last quarter was up 38.7 percent from 17,458 for the previous quarter, and up 604.8 percent from 3,435 for last year's third quarter. The peak of the prior foreclosure cycle was 15,418 in third-quarter 1996....
...
Half the state's default activity is concentrated in 293 zip codes, almost all of which are in the Inland Empire and Central Valley...While numbers at the zip code level can fluctuate severely, among the zips with the biggest foreclosure problem are 95330 Lathrop in San Joaquin County, 92571 Perris in Riverside County and 95832 Sacramento.

From the Sacramento Bee:

At least 6,638 homeowners in El Dorado, Placer, Sacramento, Sutter, Yolo and Yuba received formal notices of default -- the first step in the foreclosure process -- from their lenders during the three-month period....That's up 27.6 percent from April, May and June defaults in the six counties...Sacramento County's defaults were up 180 percent from July, August and September 2006.
...
In the six-county region, 2,731 home owners lost their houses to banks during July, August and September. That's up from 2,203 foreclosures in those counties in April, May and June.
...
DataQuick says about 46 percent of homeowners who go into default are able to work out financial arrangements to either keep their houses or sell them and pay off their debts.

From the Sacramento Bee:

We know. We know. The real estate news these days is always about home sales hitting a new low and values falling. As 2007 nears an end, everyone who owns a house is longing for something better – a recovery or at least some stability for the Sacramento region. Most local experts counsel it's still a little early to be talking about either.

But for the sake of all anxious homeowners standing around the wishing well, let's look at local history. If it has anything to tell us, it's that real estate recoveries – and that dependable upward trajectory for California home values over the long run – usually come pretty fast once they start.

Consider 1997 across much of the Sacramento region. After several lean years of recession, job losses and military base closings, homeowners in El Dorado, Placer, Sacramento and Yolo counties saw their values start to climb again. Here's a look at [DataQuick] September median sales prices for new and existing homes combined in the region after recovery began and until the next boom took off.
...
Sacramento County: September 1997 delivered a $119,000 median price – still below the $138,000 median from September 1991. But the median climbed to $140,000 in 1999 and $154,000 in 2000. In September 2001 it hit $180,000 and then soared away. The September 2007 median: $307,000.

From the Sacramento Business Journal:

Bank of America Corp. will exit its consumer wholesale-mortgage business, a move that will eliminate 700 jobs, including "less than 100" in Rancho Cordova...The Rancho Cordova operation has a centralized processing operation for wholesale mortgages, and that will be ended.

From the Modesto Bee:

Condo conversions were all the rage a couple of years ago, as seven Modesto apartment complexes decided to sell about 500 rentals as owner-occupied units. The first couple of projects sold like hotcakes, filling a niche for lower- priced housing. Then the real estate market cooled, and sales slowed dramatically. Now after two years of trying, one of those multifamily projects is giving up on traditional sales methods. Instead, the Villas at Creekside is going to auction off its final 29 units Nov. 18, with bids starting at $100,000 to $130,000. That's less than half what those town houses sold for in 2005.
...
At first, only those who planned to live there were allowed to buy. Now investors are being invited to bid, and the auction is being promoted in the Bay Area....

Still Waiting....

From the Sacramento Bee:

The developer of the proposed Aura Condominiums, still working out his financing for the downtown project, has asked for more time to purchase land for the job.

Developer Craig Nassi wants to build a 39-story luxury condominium tower at 601 Capitol Mall but does not own the property. He had until Friday to exercise his option to buy the land.

The owner of the site, developer David Taylor, said Monday that Nassi has asked for an extension. Before that request is granted, Taylor said, he wants to speak with Nassi's lenders and equity partners this week.

Hat tip: Gywn

Down to 65%?

Read this first for some background. From the Sacramento Bee:

A second high-rise condominium developer has come hat in hand to the city of Sacramento...[Craig] Nassi's request follows a similar one last year from John Saca...
...
Despite strong sales of units in their planned buildings, both developers sought help after the residential real estate market slumped while prices for construction materials continued to climb.
...
"The demand for the units is there, it's just that construction is really expensive right now," said City Councilman Rob Fong. "If we can be helpful, we need to help these guys make investments in our city."
...
He has since collected non-refundable deposits for 65 percent of the 268 units in Aura. The city of Sacramento has issued permits for excavation, grading, foundation work and utilities, but Nassi has yet to pick them up.

According to the city staff report, he needs to pour the building's foundation by April to meet the delivery schedule for condominiums promised to his customers.