Sipping Wine at the Dunhill Part 2

As mentioned in yesterday’s post, the conversation with Dennis Marsoun from Center City Realty was wide-ranging.  He is a huge advocate for Uptown Living, is optimistic about the city’s future prospects, and feels we will get through this tough period. On price, this is where I delved in hard. He began by acknowledging that pre-sales buyers have contracts for unit prices that are high. In other words, pre-sales buyers are likely to take a financial hit. His feeling though, was that in the long run (5-10 years) we will be ok. That as mentioned yesterday, there is no comp for the Vue and the prices will come back and in all probability go higher than what we paid. There will be nothing like the Vue built for quite a long time in Charlotte. Low supply, growing demand…that will work in our favor. But in the short run, no doubt about it, pain.

This is where he goes and reminds me of what we bought into. We bought a lifestyle. There will be some in the building that can pay any price for that lifestyle, they don’t care what it costs. Others, they can find a way to pay for it but it will be more of a struggle. He thinks for those they probably won’t regret it. And finally, for the folks that simply can’t afford it due to the changing economic conditions, that is going to be unfortunate but is not the Vue’s fault.

I’ll mention a side-note here. We are already hearing about the lifestyle and the quality of the building on our Homebuyer forum. It so far confirms the view expressed by Dennis that there is no comp for the Vue.

Back to price. My argument to Dennis was ok, we did sign contracts, we did buy into a great product that will afford us an awesome lifestyle, but isn’t it too risky at this point to move forward? For example, what if I move in but very few others do? What then? What if that happens and then the Vue has no option but to discount the units substantially to get them sold? Why should I send good money after this lifestyle when others may get the same lifestyle for much less? These are tough questions and there are no terrific answers. But the responses we bandied about, not attributing them to Dennis or myself because I don’t remember who mentioned what, were these.

Others may get in for less. You can’t worry about everyone else. Just focus on you. Can you afford the lifestyle or not? The Developer may or may not acknowledge that the world has changed an make some concessions. He is not contractually obligated to but it might be a smart business decision for him to do so. You will need to find out as you go through the closing process. Maybe there is something you can do contractually in the event that the units don’t sell as expected and they are forced to reprice downward. Maybe there could be an escrow account, and funds held back, in the event this happens. [admittedly, these are my personal pie-in-the-sky ideas that probably have zero chance of happening]  As to possible approaches available to be taken with the Developer, threatening or partnering– and we both agreed, and has been the policy of this blog, to air our views and concerns and encourage all to work in partnership with the Developer to resolve these issues, not to go to war as a group. I mentioned that while I hadn’t met the Developer, I have offered to open this forum to any message they wish to deliver and that it had been taken advantage of once in regards to the Orlando Vue situation. [it bears repeating here that MCL had NO CONNECTION with the Vue Orlando]

Dennis reviewed with me a page of 20 properties or so in Uptown that were I think foreclosures and steeply discounted. Many were in high quality buildings. Until this inventory is sold off, pricing pressure is going to be fierce. There was nothing even remotely resembling the prices we are set to pay per square foot in the Vue.  And this is where it is a real stretch for me to justify the purchase, no matter how “one-of-a-kind” the Vue is. And that is where for me personally, it will be how willing the Developer is to work with me through these issues that will determine whether I will close. We are starting to hear first hand on the Homebuyers forum the possible challenges and tougher process in financing our units, which also may come into play in the decision.

Dennis did make clear that if the Vue is 60% sold, then you can bet that those are all the best units. So if you walk away and try to come back in later, even if you are allowed to, the better units will be gone. So in summary, his message to me as I interpreted it was the lifestyle is great, the building is great, it could work out over time as a good investment, but all the benefits you will derive from Uptown living and enjoying the Vue lifestyle will probably be, as Mastercard would say, priceless.

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4 Responses to Sipping Wine at the Dunhill Part 2

  1. Dave Hasegawa says:

    Could you send (resend) out the link to the Homebuyers forum you mentioned in several of your posts?

  2. Holly says:

    Slow down there Mr. Vuebuyer blogger! Let’s focus on the fundamentals for a minute.

    Let’s say I bought in at $1 million and put $150,000 down. My “break even” if I walk away from my $150k and then buy back in, is $850,000. So I have to ask myself a question. Will I be able to buy my unit or something similar for $850,000 or less? I think I will be able to. If I could buy it for say $750,000 I just saved myself $100,000 by walking away from the original deal.

    We will have strong evidence to help us make these decisions in advance. Beyond words and opinions, we will have the the professional analysis of banks and mortgage providers. In this environment they will not take unnecessary chances, they will provide an appraisal that is the best resource for us to make our decisions. We need to focus on these facts, not on opinions shared with us in a 5-star wine bar discussion.

    A few other thoughts, cynical though they may be:

    1. Vue Orlando was a one-of-a-kind condo complex in downtown Orlando on beautiful Lake Eola. Bankruptcy, fire sales, inability to generate enough in common charges to sustain the building/lifestyle, turned into a rental building, etc. Ugh.

    2. The comment that the Vue is “60% sold so the best units are gone” has many holes in it. First, it is highly unlikely that those 60% will close, and one could argue that it will be less than half that will close. There should be absolutely NO feeling of desperation, in this market, like “uh oh if I don’t buy now I won’t get a good unit”. Balderdash!
    3. Careful of blending the “it will likely come back in value in 5-10 years” with the “should I fulfill my contract” question. The real question, the most relevant question for those who want the lifestyle, is “can I buy it for less if I walk away and then come back in at whatever the real market price is?”
    4. I suppose there is one other question too. Why should I take the chance of buying at my previous price with all the uncertainty there is? Why don’t I just wait, and if I have to pay slightly more in aggregate, as unlikely as that is, as a hedge against a huge decline, so what? Take my earlier example. If the price for my unit that was $1 million ends up being $875k in the post-market, and I wait to buy it then, I will have spent $1,025,000 instead of $1,000,000. Wouldn’t it be a smart hedge to have spent $25k to potentially avoid a catastrophic (and in my opinion, likely) drop in price? What if my unit is selling for $600k in the post-market? I will have lost $400k right out of the gate. I’ll risk $25k to avoid that any day of the week.

    Sorry for the long post, I’ll stop now and write more later if there is interest.

    • Jim Smith (not my real name, but a real buyer) says:

      I agree with everything Holly said. But if you bought a unit for 1,000,000 and have a deposit of $150,000 and then get an appraisal for $650,000 and don’t close. It looks to me that you are potentially at risk for a lawsuit from MCL for the damages of $200,000. I am not suggesting that they will sue as it might very much hurt there image and they have lots of units to sell, but they could. That would be a big OUCH!!!

  3. I tend to agree that comps will be found to The Vue. In custom construction, no two homes are exactly alike yet they seem to find the value somehow. It will undoubtedly be a challenge but thankfully one that none of us need to do – at least not me. I would strongly caution that anyone even remotely considering the notion of not closing on their contract should consult with an attorney.

    Sellers sue buyers for breach of contract all the time and there have been a number of other developers in town that have done the same thing. If you’re running your calculations, you need to consider what might happen if you go to court and lose…or even win but have $100k in legal fees.

    I’m not saying that MCL would do that as I have no connection to them or The Vue. However, as someone active in the market with our own clients, I’ve been watching the patterns of the other developers in town – and they didn’t seem to care about their image being tarnished. After all, you haven’t heard of any reaching the media – have you?

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