One of our readers pointed me to a thread on a forum that I wasn’t aware even existed that discussed the recent VUE Charlotte unveiling. It was in this forum that I picked up yesterday’s gem of a post on a building with 32 stories only having 1 tenant (read the comment and you will learn more buyers are moving in to the VUE so tell Mr. Guiness sorry for the false alarm!) I was struck by how sophisticated the thread was and not a bunch of kooks wising off about things they know nothing about. If you read the comments on the recent article in the Observer you will find mostly smart-aleck comments but nothing really useful. This thread I found to be different.
I can’t go into the entire thread but you can read through it if you like by visiting the city-data.com forum for Charlotte. In the thread our blog was mentioned and I felt I needed to jump in and provide my 2 cents. While there were many interesting contributions in the thread, one person in particular, called CharlotteJW, had some thoughtful content. I am pasting it in here for you to read at your leisure. CharlotteJW is not a broker but rather claims to be a prospect for a unit Uptown sometime in the future. Again, this is only one person’s VUE, and we are here to gather diverse perspectives and then make our own decisions. I think you will find this perspective worth your time, but I will tell you in advance it is quite long! Thank you CharlotteJW for the permission to post these comments!
Long Winded Thoughts From CharlotteJW
I think that the Vue is an interesting case study for the uptown market. The developer says has said over the last 3 years that anywhere from 50-60% of the units are. However that number hasn’t changed for over 2 years so at best the pre-sales have been extremely slow recently. Deposits were only 10% for most of the units (they may have been closer to 20% for some of the high end units). Which means that while it hurts from an investment standpoint if the price has dropped more than 10% from your contract price it makes sense to either walk away or renegotiate (it is important to note that earlier pre-construction prices were 10-20% cheaper than the prices currently listed by the developer).
The thing to worry about with the Vue is what happens if only 50% of the people with deposits close (which I personally think is aggressive). You would have a 25-30% occupied building. Which means a huge carrying cost for the developer in terms of HOA costs in a very bad sales market. Additionally you run into uncertainty on whether the building would qualify for Conforming mortgages or FHA loans based on stricter condo lending rules from the Miami debacle (please correct me if I’m wrong and the building has gotten approval for government guaranteed mortgages). The last question is appraisals and whether the appraisals will come our high enough to support the mortgages which I havent heard happening yet… whenever you hear a developer saying we’ll go to as many appraisers as we need to until we find one that works I start getting really nervous.
The final issue which is why the rest of these problems come up is whether the valuation is realistic on the view, you are talking about $450-$600+ per sq foot cost at the Vue. The prices you are seeing at its closest comp Avenue are $250-$350 per sq foot. So while people are saying it is a “unique” product that type of talk has gotten a lot of people into trouble recently with real estate.
Personally I like the idea of uptown living, I think the Vue is a great property, but there is no way I take the risk of a 20% filled new condo tower with HOA fee issues in a stagnant real estate market, true I may miss out on a chance at living in a great condo and prices may move up 5-10% over the next couple years, but better that than risk the Vue selling at $250-300 per sq foot (which I think is quite possible if sales struggle) and the nightmare that has played out with a bunch of unfilled condo towers in other markets
The Vue homebuyer blog is clearly not unbiased, but it is understandable, it’s created by someone who has a large deposit down at a place that he/she really wants to do well. I believe that the psychologists call it Cognitive Dissonance, we naturally tend to ignore or discount data that goes against our opinions.
I feel bad for a lot of the people who put down these deposits, even if you don’t care about having to hold on for a few years to recover value, the idea of a developer possibly going under leaving the burden of HOA fees on a small percentage of units is a pretty intimidating risk.
It’s nice to say that your property is unique, but people aren’t talking enough about how prices are set in a market economy… It’s supply (400+ units coming on the market) vs. Demand (this has been very weak recently). When you have a hard time closing 10 units a month in uptown it makes it really hard to see where the 200-300 sales are going to come from when you are pricing all of your new units at a significant premium.
Yet again another continuation
I have a suspicion on why they are freezing prices at current prices. What they are trying to do is get as many people as possible to close at their contracted prices anywhere from $400-$600+ per square foot (which are below the posted current prices for new sales, so to some people it still seems like they are getting a “discount”) . The developer probably can’t sell at what people may consider “current market prices” because it wouldn’t cover the debt on the property. So trying to clear everything at $250-$300 sq. foot is not an option, it would have to go through foreclosure and at those price the developer and all equity investors are wiped out. The real “owner” of the property may well be the holder of the construction mortgage, but that all depends on what the size of the mortgage was on the property.
I don’t blame the developer, the only way that he gets this project to work is to get enough people to close that the condos become eligible for FHA and Fannie and Freddie mortgages. The project would likely get sold (it would take time and likely at a significant discount to current prices) if they can get a critical mass to close on their contracts.
The last interesting piece from the Homebuyer blog that I saw is that there hasn’t been any word on loan docs, I don’t see how anyone lends against this property without a 30%+ equity cushion, which would mean that buyers would have to put up a lot more cash in addition to their deposit, which I see as unlikely. The only units to close thus far are cash buyers, and I question how many of those there are. When we start to see people close on their units with conforming mortgages I will start to think differently about the project and will freely admit that I was wrong.
Final Thread in Response to One of My Threads
Welcome Vuebuyer, it is good to hear your perspective. I have recently read through some of your blog and understand where you are coming from. It is hard not to be emotionally vested in the building when you have a hard-earned deposit down on a unit. What most people will not admit with hindsight being 20/20 is that at the time it really didn’t look like a bad decision, you were putting 10% down in a great market that was still 2 years away from peaking (assuming that you invested in 2005) and even if you didn’t want to live in the units you could have flipped the unit and made multiples on your initial deposit (which many people did in 2002-2006). I actually remember a hilarious quote from Ice-T (yes the rapper/actor) where he said the best way to make money was investing in pre-construction property. Pre-construction provided for massive leverage and many people made a lot of money, as with anything else timing is critical and I don’t fault you when the industry experts that should have been loss averse and know the markets very well (read mortgage underwriters) and credit rating agencies absolutely missed the risks too.
Now back on topic to the Vue. The developer’s interests are not inline with many of the depositors. His current actions are doing the best that he can to protect the overall value of the project, but unfortunately the best way for him to do that is to try to get as many people as possible to close at above market prices.
On the topic of what is an accurate price for the Vue, here are my thoughts for comps:
Fifth and Poplar – units selling for under $200/sq foot for short sales (vs. over $400 in 2005, a 50% decline) this is not a good comp as homeowners fees at this property have gone up significantly recently to cover costs to correct some serious structural issues, I believe they are suing the builder. The Vue should trade at a significant premium
The Madison – Very nice premium units, this is a better comp with the understanding that the building is a very different style, its location is probably less desirable for most (although not terrible) and it is far smaller without as many common area amenities, definitely a different target customer here. However, the high quality finishes make it interesting to look at as a comp. The two bedroom units are very large (1800 sq feet) and are listed between $225-250 per square foot. The larger penthouse units are listed at ~$275 sq foot with one units as an outlier at $375/sq foot. Given the high quality of the units all with large terraces I don’t think that you can ignore this as a comp. Granted i have NO IDEA who would want a 3500+ sq foot 2 bedroom homes, the logic completely escapes me on the design of some of the larger units.
Avenue – Clearly a pretty close comp with high quality common areas and good quality units (albeit hideous imo concrete ceilings) this is where is gets interesting, seems that most units are listed in the $300-350 sq foot range with some above that level. Sales have been pretty slow with 13 in the last 6 months (and most of those were when the homebuyer credit was in place). It looks like you are starting to see some pressure there, one thing that is notable is the 1 bedroom short sale that they are trying to clear at $145k, that is $207/sq foot. Obviously distressed units go at a discount, but it should only be a 10-20% discount.
My overall take is that in a STABLE market the Vue should be selling in the $300 sq foot range for the one and two bedroom units. The extra issue being that you are adding MASSIVE supply to the market at a tough time. My best guess is that they are going to have to auction units at some point absent the developer being able to hold on for several years, which with massive carrying costs I don’t think that he can/will do without some surprising support from his lenders. In an auction scenario with the supply that is being added to the market here I think that you are likely to be in the $225/sq foot range to clear the inventory. Yes this is below what the comps say, but the huge issue is that you are trying to clear a ton of inventory and that requires a discount. I would welcome your response vuebuyer if you have read this far =p