July 26, 2010

No, no... your stupid project is DEAD

There are few things that amuse me quite as much as a completely delusional developer. Apparently, that's exactly who is developing 1155 Barton Springs. The project recently filed for bankruptcy which was, frankly, inevitable given the following description of the property location and pricing...

...4-story, 27 unit development on Barton Springs just east of Lamar adjacent to the train tracks, McDonalds, and Peter Pan Mini Golf. With pricing starting at $1,000,000, our original reaction was that "the project is a very odd combination of location and pricing that suggests a lack of experience in residential development."

The bolded section is, honestly, first rate comedy and completely spot on (I'd seriously like to offer my compliments to the author of the line for their brilliant subtlety). Yes, STARTING at $1,000,000. This project was as sure a sign of a top as that idiotic project at the corner of Riverside and the 35 frontage that was being priced starting at $750k. What kind of fucking waste of goddamn skin moron builds a project full of (asking price) $1m - $6m condo next to a fucking McDonalds? Apparently, one that's completely fuckall insanse...

Despite the setback, PPT Development LP principal Steffen Waltz said the $40 million development called 1155 Barton Springs is merely in hibernation, not dead."

Not for nothing, Steffen, but you're not going to get anyone to finance you. Period. You might as well have filed for dissolution because I don't think anyone's going to give you DIP to work through the 11, even with the super senior claim. So, you're toast. Don't feel bad, this is probably your first project and you can chalk it up to a learning experience. Granted, you could have found a cheaper way to gain knowledge, but at least now you know... don't buy at the fucking top. One other thing... your dream of those obnoxious sales prices ain't gonna happen. If you want to salvage, see below and restructure for more affordable units.

For all you other budding developers, make nice with a REALLY good LO (not some dipshit at one of the retail banks) and LISTEN to what they have to say. They know far more than you think and can be especially helpful to those of you involved in conversion projects that fucked up the FHA approval. And, for the love of all that's holy, don't develop an attitude or use the phrase 'I've never been through a transaction like this'. That just makes me want to put my foot up your stupid ass (and those of you who know me know that's what I'll do)... or decline the transaction and leave you to the tender mercies of BAC or WFC. And finally, ASK someone for advice BEFORE you decide to write a proposal based (not to mention, before you actually break ground) on sales of residential units in a non-warrantable property.

In other news from AustinTowers, there appears to be some positive news regarding condo sales downtown. The May YoY results show an increase in sales volume from 11 units in May 09 to 24 units in May 10. The average sales price was around $259k and the average days on market was 118, skewed in part by two units with a greater than one year time on the market. This is interesting because it tells us a couple of things...

1) The weak hands have shaken out. The only owners left are those holding on like grim death... they'll never let them go for a price they don't like and they have bloated credit cards and depleted investment accounts to prove they have the stones to stay in the game.
2) The average sales price indicates that the sweet spot in the downtown market is under $300k, significantly below the average in 2007-08 and very clearly shows the effects of new underwriting criteria.
3) The lower price point and the stability of it indicates long term buyers and a washout (finally) of the speculators.
4) This doesn't bode well for luxury developers, but it looks EXTRAORDINARILY strong for developers looking to bring in more affordable units. 2-3/1-2 units coming in under $300k will sell very fast and very close to ask.

With this data, I think I'm ready to call a bottom in the downtown market. While it will be a few more months before the MI companies pick up on it, it seems pretty clear that downtown has stabilized and is no longer in decline. Now, that should continue as long as it remains difficult for asshats who want to build projects near fast food restaurants to obtain construction financing.

Posted by mcblogger at July 26, 2010 09:43 AM

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