While short sales used to be a complete nightmare, now more often than not, they are just a bad dream.

What a mean by that is that short sales are still tough, especially with high rise condos which I’ll go into further later, but even with all the hoops and bizarre rules and regulations we are having great success in getting them done.  In fact in all of 2011 we only had one short sale that the bank refused to sell short!  Also, in general, it’s only taking us 45-60 days to get bank approval while it used to take a minimum of 90 days and sometimes as long as 9 months.  Although 45-60 days is still longer than a traditional sale or an REO, it’s certainly reasonable.

I stated above that high rise condos and lofts are tougher to sell short.  Here’s ONE reason why:

Even though Phoenix, Scottsdale and Tempe have many more high rise condos and lofts than they used to, this type of housing represents a very small percentage of the total market.  Because of this, very few real estate agents, appraisors and other professionals truly understand the product.  And let’s face it, high rise condos, row homes and brownstones are very different than a traditional single family home.  An agent who doesn’t truly understand a high rise condo or loft can not possibly do as good a job selling that property as an agent who is.  Period!  And if the agent does not truly understand the property there is no way that agent can properly communicate with the appraisor.  If you live in a high rise condo, you know that there are many more things that affect value than the square footage of the property.  High rise condo values are much more complicated and involve such things as the floor on which the condo is located, whether the condo faces west or east for example, the view in general, the number of parking spaces, the type of storage included etc…

Last year I represented a short sale in a luxury high rise building near the Biltmore.  The condo faced south and overlooked a parking lot.  The bank appraisor tried to make the case that our condo was comparable in price to condos with phenomenal views of mountains and city lights!  I presented “floor plates” of the building showing in detail where every comparable condo (comp) was located in the building and the type of views that comp had.  Ultimately the bank understood my position and agreed to the sales price of the condo.  Also, because we “hit” the value, my client, the Seller, did not have to write a check to offset the deficiency.  This was a huge success.

If I had not fully understood the building or if I did not have the resources available to properly make the argument, I believe the bank would have turned down the sale and my client would have lost the property to foreclosure.

If you have an urban property and you are considering doing a short sale… CALL US.  We not only understand the short sale process but we specialize in the marketing and sale of urban properties.  We do not charge any more commission than the agents who focus on selling suburban properties but we are a whole heck of a lot more qualified to seel urban.  For that matter, if you are selling your condo short you won’t pay the commission anyway, the bank will.  But, by hiring agents who KNOW urban, you increase your chances of successfully selling the property and avoiding foreclosure.  It doesn’t cost anything to talk to us.  Give us a call at 480-510-8755 ext. 3 and explain your situation.  We’ll give you the straight scoop whether you’re a good candidate for a short sale or not.  You’ll be glad you did.

Will Daly, Broker for We Know Urban Realty claims to have always been a big fan of the building itself but unfortunately it came ”too late to the game.”  Daly said, ”We at We Know Urban Realty have always loved the building, it’s location, the floor plans, the finishes and the amenities.  The only problem was that it was built very late in the real estate cycle; too late.  Because of this almost every “buyer” backed out leaving the building crippled financially”.  With the infusion of new cash from Macdonald Development (the new owner) the building again “makes a lot of sense” and should sell well.

Macdonald Development is remodeling the front lobby, making it even fresher than it already is, and has restarted construction on the remaining units, getting them ready for market.

For more information on Century Plaza and how to buy one of these hot properties contact We Know Urban Realty, we have our finger on the pulse of what’s going on.  (480) 510-8755 or centuryplaza@weknowurban.com

Why? After all, one would think that all parties concerned have a truly vested interest in finding a reasonable solution. The Owner certainly wants to get out from under a mortgage that they can no longer afford, the Lender should want resolution to the matter since it is not receiving a monthly mortgage payment and certainly the real estate agents involved want to sell the asset and earn the commission.

So why are short sales so darn difficult to close?

One of the problems is a lack of communication. In sales, we want to talk to decision makers. We know that if we talk to anyone but decision makers that we are wasting our time. And one of the real problems with short sales is that one rarely talks to a true decision maker.

It is true that the Owner of the property legally is the decision maker as to whether or not he or she sells the property. However, in the case of a short sale the Owner has to get permission from his or her Lender to sell the property for less money than is owed. Often times there is not only a Primary Lender but also a Secondary Lender from whom permission must be obtained. To further complicate matters many times the Lenders are no longer the decision makers because they sold the loan to an Institutional Investor (e.g. a school teacher retirement fund in Norway – hereafter referred to as Investor). So, whomever manages that fund has to agree to allow the Owner of the property to sell it for less money than is owed the fund.

Another problem of course is trust. Why should the Lender or Investor believe that the offer on the table represents the highest and best price possible for the property? After all, the Owner will lose any equity that he or she may have had in the property and they are losing the property itself. It is easy to understand why a Owner “just wants out” of the problem and will sell it to the first buyer who comes along, regardless of how low the offer price might be. A higher price really just benefits the Lender or Investor and doesn’t really benefit the Owner (except for any consequential tax ramifications which we will not address here). Also, in most cases the Lender/Investor has very little knowledge of the property specifically or the condition of the surrounding real estate market in general and has little reason if any to trust that a proposed short sale is in its best interest. For all the Lender/Investor knows it might be best to deny the short sale and force the property into foreclosure.

Finally, in a normal market there is a more equal balance of Buyers and Owners than exists today. In a more normal market both parties stand to benefit to a reasonably comparable degree. The Owner gets to sell his or her home for a profit and the Buyer buys a home that they like with the anticipation that prices will go up (so the sooner they buy the better). Both parties benefit. In today’s market, Owners are losing money to sell their homes and Buyers are trying to buy properties below their market value. A Lender/Investor can easily wonder if now is the best time to take their loss and allow the short sale or is it better to hang onto the asset until the market moves to a more balanced condition.

So there you have it, short sales are extremely hard to put together because 1) the true decision makers, Buyer and Lender/Investor never communicate 2) Owner’s just want out and are willing to “sell” the property for less than market value 3) the Lender/Investor is largely uninformed of the condition of the property and specific market conditions of the immediate area 4) the Lender/Investor has very little to gain from a short sale and MIGHT instead benefit from taking the property back via foreclosure 4) Buyers, rightfully so, are looking for great deals and are hesitant to pay “fair market value” assuming that fair market value can even be ascertained in today’s fluctuating market.

Gang, we strongly suggest that Buyers look at properties that have already been foreclosed upon OR even better, traditional sales (i.e. an Owner selling without being under financial duress) instead of spending time viewing and making offers on short sales. With a foreclosure or a traditional sale you actually know what you are getting into and you can reasonably expect to close the deal AND get a good price. Why go through the brain damage and the emotional trauma of “buying” a short sale when there are equally good or better options? Call the agents at We Know Urban Realty for help finding a great deal that can actually close.

Answer:  You’re not the only one.  Many prospective buyers are “sitting on the fence” and not buying now for this very reason.  But, more and more people are pulling the trigger.  Here’s why.

• The United States housing market just wrapped up its best season in three years and prices are up 3.6% since April.
• Talk of a new “wave” of inventory about to hit the market may be exaggerated.  We believe that the vast number of homes that are expected to come to the market as foreclosures are already on the market as short sales.  This means that the majority of these homes are already counted and will not contribute to a flood of new inventory.  “Authentic new “supply” (housing starts) currently hitting the market is actually quite low. In fact, it hasn’t been this low since at least 1959 (and probably a lot longer, but we don’t have data prior to then). This year, builders will begin construction on somewhere around 620,000 units, a number that’s about 32% below the old record low of 906,000 set–you guessed it–last year” (Home Prices: Sustainable Bottom or Dead Cat Bounce? By: Morningstar   Monday, October 12, 2009 7:38 PM).
• Most of the urban condos built early in the boom already “busted” meaning they sold as short sales or foreclosures.  In many of these buildings we are seeing price stabilization and/or price gains. 
• In some urban condo communities sales prices are low enough for investors to buy and rent the property out and net a positive cash flow.  We have seen an absolute flurry of buyers in some of these recovering buildings.  Competition is hot for the right condo in the right community.
• We expect interest rates to go up and soon for two reasons.  First, it is very likely that the US will experience high inflation in the not too distant future.  Interest rates go up during times of inflation.  Secondly, interest rates are currently artificially low due to US government influence.  Investors (other than the US government) are not buying mortgage backed securities because the rate doesn’t support the risk.  In other words would you yourself loan money today for someone to buy real estate if you were only going to earn 4.5 or 5% for the next 30 years?  Probably not.  But that’s the going rate today.  Would I feel better about loaning money if I was going to earn 8 or 9 or 10%?  Probably.  The problem is that mortgage interest rates are half that.  So “investors” like me aren’t loaning money for such purchases.  The US government can not loan money at these low rates 4.5 to 5% forever.  When the US stops loaning money rates will have to go up enough to attract other investors.  So, expect interest rates to go up for this reason and with the coming inflation.
• We believe that there is pent up demand for properties.  In many cases people stopped buying in 2005 or so.  Those folks have been sitting on the sidelines waiting for the dust to settle before they will buy.  However, there’s a point where people don’t want to wait, or can’t wait, any longer (i.e. pent up demand) and they buy.  There is strong evidence to suggest that things are getting there.  In downtown Phoenix, condo sales far exceed the supply (see chart below).  You’ll see that in 2008, inventory (the number of condos for sale) far exceeded the number of buyers so prices dropped and dropped and dropped.  In February 2009, the line representing inventory and the line representing the number of buyers intersected meaning that the numbers of buyers and the numbers of sellers were about equal.  Since then, dramatically more people are buying than people are selling.

Gang, there are always exceptions to any rule.  But it is our opinion that there are great deals out there for those who know where to look AND who meet certain other criteria.  If interest rates do go up, and I strongly believe they will, then you might want to take advantage of today’s low rates, take advantage of the many sellers who really do need to sell (at lower prices), and get yourself a great urban condo now rather than later.  Don’t be one of those folks who years from now say “boy I really wish I had bought when I had the chance.”  Call us at We Know Urban Realty and get our help.  We don’t sugar coat stuff and we know where the deals are and can show you why they are good deals.

Denver-based Condo Capital Solutions, led by Peter Wells and Marcel Arsenault were able to purchase the luxury condos at an unbelievably low price, around $317,000 per unit.  The Denver duo is very pleased with their purchase as previous Suncor offers were much higher and it was a very significant discount from the original construction loan.  The construction loans for both Edgewater and Bridgeview totaled just over $210,000,000.  It is tough to get a precise comparison without a breakdown of all construction costs, but either way, this was a great deal for Condo Capital Solutions and an unfortunate reality for Suncor, a subsidiary of Arizona Public Service Company owner Pinnacle West.

This deal is highly indicative of the extremely poor nature of the luxury condo market in the valley, but great news for buyers with some capital.  Around town, most other bulk sales or full buyouts of unsold units in a community are going for minimal fractions on the dollar and is drastically changing the shape of the condo market as we speak.  We wont be seeing anything sold for over $500/SF for many years, as those prices are simply unrealistic.  At Bridgeview, units originally started selling at much more than the average price of the recent sale’s price per unit of $317,000, which is a clear indication on how much cheaper they can be sold for now.  Here’s an example of another deal near midtown Phoenix called Citi at Camelback, which was selling on average for $275,000/unit just in 2006, and the remaining units were recently purchased for just over $70,000/unit.

It is clear that the condo market here in the valley is at or near the bottom and while many have suffered, others will make huge gains in the near future.  It is unknown how much Wells and Arsenault will market the remaining units at, or even if they plan to market them now for sale.  Many other condo projects and condo conversions around town have been quickly changing or reverting to rentals ever since the market fell apart.  As for Bridgewater, it might be harder to lease them as problems could spark with the HOA, but either way, people with capital will have once in a lifetime opportunities all over town.

Here are some other distressed projects that have or will be sold in the near future:

Summit at Copper Square’s unsold 74 units will be sold at trustee sale on October 14, 2009, unless developer David Wallach, principal of W Developments can work out a deal with the new lender, Stearns Bank of Scottsdale.

Century Plaza developer Equus Development recently filed Chapter 11 Bankrupty protection, most likely to avoid foreclosure on a unpaid loan balance of $23 million with M&I Bank.  The original construction loan, in the amount of $42 million was for a conversion of an office tower into 145 luxury condominiums.  To date, only 14 units have been sold, and the property is assessed at $19 million.  Someone will come in and buy nearly 90% of the tower for an extremely low price, but it might not be in the near future as bankruptcy can elongate the process far more than a 90-day notice of trustees sale.

Biltmore Palms’ remaining 37 units were sold to a Canadian investor for $4 million, which equates to just over $108,000/unit.

As new bulk sales or remaining unit buyouts come to our knowledge, we will post and elaborate as soon as possible.  Opportunities are out there that will most likely never be seen again!

The reason I question the claim that the building is worth $19M is that at that price and with 141 condos remaining that equates to a value of approximately $135,000.  This may sound cheap until you know that only 40 or so of the remaining condos are finished, that there are rumored to be infrastructure issues (namely problems with one of the two chiller units and rumored sewer issues), the previously mentioned debt to value disparity and potential legal battles with the developer, AND the fact that whoever buys the note or property will want to make a profit in a currently stagnant (at best) high rise condo market!  $19M seems high to me.

Having said all this I really do want to see Century Plaza succeed.  I really like most of the floor plans, the common areas are fantastic, the location is one of the best in the Valley (that is if you are into using light rail and walking and enjoying great (non-corporate) restaurants and bars etc…) and more.  I just think that it will be a while before the dust settles and I feel confident enough to recommend that people buy there.

The purpose of this post is to clarify some points made and to further explain others.

It is our understanding that the original construction money consisted of two loans; one for $54M and the other for $10M.  The second loan was originally funded by a separate party but was ultimately refinanced by FNBN, the lender on the first note.  FNBN ultimately went under and was “taken over” by the Feds but prior to that happening the developer of Summit at Copper Square sold 91 (not 74 as reported in the Business Journal) of the 165 condos and paid off $40M of the $64M.  When FNBN went under the value of the notes were approximately $28M ($64M – 40M + 4M interest = $28M).  Upon the collapse of FNBN, the FDIC bundled a large number of outstanding notes and auctioned them off.  The Summit at Copper Square note was bundled into a $700M pool of these notes.  Stearns Bank (of Scottsdale) paid about $161M (or ¢23/dollar) for the $700M pool.  To do so, it came in with approximately 20% of its own money and used government backing or funding for the remaining 80%.  If we apply the ¢23/dollar formula to the $28M remaining on the construction loan then we know that Stearns paid approximately $6.4M for the Summit at Copper Square note.  What’s crazy is that it got the $28M note for $6.4 but only had to come up with $1.288M of its own money to do so (remember the government financed 80%).

According to David Wallack, developer of Summit at Copper Square, he is working with Stearns to pay off the note.  Also, according to Wallach, he and Stearns have a good working relationship and that Stearns filed the Notice of Trustee Sale as a matter of procedure.  Notices of Trustee Sales can be postponed so the action on the part of Stearns is not necessarily ominous but it certainly gets everyones’ attention and keeps pressure on Wallach.

Something to keep in mind is that with Stearns buying the $28M note for just $6.4M and only $1.288M out of pocket, the bank is in a VERY safe position.  And with such a low basis Stearns can sell the $28M note for just $6.658M and make a 20% profit (not counting expenses).  I would think that David Wallach has an opportunity to get himself into a better position than he was in.  Afterall, if he can put the money together to buy the note from Stearns he would effectively reduce his debt by over $21M!!!  Just as importantly, by reducing the debt to approximatley 24% of what it was, Wallach has a chance to make some money when all is said and done.  It’s true that Stearns might want to see if it could make even more money on the note but I’d take 20% profit in today’s market all day long; heck I’d take 10%.  So, don’t be surprised if Wallach can structure a buy-out of the note.

At WeKnowUrban we are waiting and watching what’s going on at Summit as well as the other newer high rise buildings.  There are definitely issues to be aware of but all is not as bad as our local media would have you believe.  Remember, sensationalism sells.  I’m not saying that the press is sensationalistic for the sake of getting eyeballs but the “stories” rarely tell the whole story.  I’m also not saying that we “know it all” but the fact that we study high rise and loft living every single day does give us some advantages over the folks that are reporting the demise of a high rise condo one day and covering a chili cook-off the next.  Come to us if you want to know what’s going on in urban living in Phoenix, Scottsdale or Tempe.

“June 9, 2009 

As you may know, the real estate industry has faced unprecedented economic challenges in the last year.  Crescent Resources is no exception.  In this environment, we have been working over the last several months to strengthen the company’s financial position and improve our ability to continue to provide the high level of services for which we are known.

 As a part of this, Crescent Resources, LLC and certain of its subsidiaries have filed voluntary Chapter 11 petitions in the U.S. Bankruptcy Court in the Western District of Texas, Austin Division. This step will allow us to bring our capital structure in line with the current economic environment and will provide significantly improved resources and financial flexibility going forward.

Importantly, we have secured $110 million in new financing to fund our business activities through this process.

At Crescent, we know that the value of our communities is directly impacted by the quality of the clubs and recreational infrastructure we have created. It is our goal to continue to work to enhance value by maintaining the high level of service that we have established.

We have many very attractive assets, a highly experienced team and strong relationships with industry-leading partners. Our focus remains on doing what we do best – to create, manage and sell first-class developments, communities and real estate.

 Sincerely,

 Andrew Hede

Chief Executive Officer”

Furthermore, the broker for Portland Place has assured us that the bankruptcy will not adversely affect transactions at the midrise condo building other than possibly slowing negotiations and contract acceptance minimally.  He also stated that the bankruptcy will not affected the developers approach to prices.  Will Daly

We just learned (fifteen minutes ago) that Crescent Resources, the owner of Portland Place in downtown Phoenix filed Bankruptcy yesterday.

An article in the Charlotte Observer stated:

“Duke [Duke Energy - a Fortune 500 energy producer] created Crescent in 1969 to manage its surplus land along the Catawba River, transferring title to 300,000 acres. By the 1990s, Crescent had become a prominent developer. Duke sold a 49-percent share to Morgan Stanley in 2006.

But the company reported a net loss of $420 million on $407 million in revenue last year as it liquidated properties in Arizona, Florida and Texas, three states hit hard by the real estate meltdown.

Restructuring its debt last June left it with a $50 million payment due by the end of 2009, $75 million in 2010 and $100 million in 2011, with the rest of a $1.2 billion loan due in 2012.

Rating agency Standard & Poor’s lowered Crescent’s corporate credit and bank loan ratings in April to noninvestment grade or “junk” status.”

We don’t know yet how this will affect Portland Place but we have calls out to find out.  We would expect one of two solutions to develop; either a restructuring of the debt for Crescent allowing some “breathing room” so that it can eventually sell the condos, brownstones and lofts at Portland Place or the sale of all the remaining condos to a major investor.  We’ll look into this further and post our findings.

Oh and for those of you who don’t know, Portland Place is a FANTASTIC building; one of my personal favorites.  So, if you’re into great architecture and a fun urban location, definitely watch this blog for news, as prices MIGHT be on the verge of going down.

4:00pm June 11, 2009 – Just learned that there should be no worry of Portland Place getting slapped with mechanic’s liens or anything like that as, according to our source, Portland Place has no outstanding debts.  So hopefully, this BK will buy Crescent time to restructure and come out stronger.  WD

1.  A mortgage lender friend of mine says that April will be his best month since 2005.

2.  I wrote purchase contracts on two different properties today and received offers on two different listings this weekend.  This constitutes the busiest weekend I have had in four years.  One of the offers I received was for full price.

3.  My wife, an escrow officer, says that April will be her busiest month since 2005.  About 50% of the transactions are refinancing of existing mortgages and 50% purchase contracts.  Yes, most of the contracts are of lower priced foreclosures but its still promising to see that so many people believe prices now “make sense”.

4.  We have received more buyer leads over the last two weeks than we have in four years.

5.  We are finding properties priced low enough that one can easily enjoy positive cash flow if they buy and then rent the property out.

I’m not saying that we can now declare that the bust is over and full steam ahead but if things keep going in this direction we very well may be seeing the beginning of a recovery.