The Arizona Republic reported today that the developer of Centerpoint Condominiums, the two high rise towers off Mill Avenue in downtown Tempe, is closer to finding a financial solution to its bankruptcy and the bankruptcy of its construction lender Mortgages Ltd.
The plan calls for the developer to borrow another $43.3 million to complete the two towers over the next three to five years. I assume that the reason for the extended completion period is due to the current slow real estate market and an intention to only spend the $43 million as the real estate market improves. I would think that the developer would complete the first high rise tower and begin selling and/or leasing condos while “warehousing” the second tower until the real estate market improves enough to warrant completing and opening that tower.
The AZ Republic reports that the developer “plans to reprice the units and renegotiate contracts with existing buyers”. This clearly makes sense as any developer would hope to maintain as many existing contracts as possible. Everyone knows prices have gone down so in order to “keep” existing buyers the contract prices will have to be renegotiated.
The question will be how low will the prices go? After all, with what’s going on at the other “boom” high rise buildings and the pending foreclosure/failure of a couple major buildings how low will Centerpoint have to slash prices. My guess is 50 – 60% discounts. Sounds steep? Then consider this. M&I Bank, the construction lender for Century Plaza originally funded approximately $70 million dollars to the developer of that high rise condo building. When the developer could not perform the note was written down to $39 million with the hope that the developer would then be able to survive. When that failed to happen M&I Bank auctioned the $39 million note to the highest bidder. Although several parties made bids the note, to date, is still for sale. It is my guess that the note is worth less than $20 million, perhaps much less. Let’s say that the note ultimately sells for $10 million. That means that the 130 remaining condos at Century Plaza will “sell” for $77,000 per condo. If the new owner of the note decides to sell the condos then he/she will be able to make great profit and sell the condos at 1/3 of what they originally “sold” for.
When (and I don’t mean “if”) this happens then there will be tremendous downward pressure on prices at Centerpoint Condominiums and 44 Monroe High Rise. Does the developer of Centerpoint expect to drop prices to $250 per foot in order to compete? If he does then I assure you that the current investors/lenders at Centerpoint will lose tons, if not all, of their money. Stay tuned….
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