October 9, 2008
RandomRumors: Calling On That Guy And The Guy He Heard It From
We'll make some calls to see if we can't substantiate or bust, but remember debt covenants are nothing new. And for now it's simply a RandomRumor:
Heard some second-hand rumors that many of the newer developments in Soma/Potrero are indeed facing liquidity issues. Supposedly their financing sources are set to dry up, diminish, or start charging big fees if a certain number of units aren't sold by the end of the year. They have to make a certain quota by year end or incur penalties.
So look for silent fire sales starting in mid-November to close stuff by end of year. Again, this is one of those "guy I work with heard from someone" kinds of rumors. Could be accurate, could be complete BS, and I have no idea which projects may be affected. Guess we'll see in a month or so.
We'll also call on "that guy and the guy he heard it from" to chime in as well, so please forward this along if they aren't already plugged-in and you know who they might be.
First Published: October 9, 2008 10:40 AM
Comments from "Plugged In" Readers
An anonymous source reporting a "second-hand rumor" to Socketsite makes it a 4th-hand rumor by the time it gets to us. About as reliable as the story about Richard Gere and the gerbil.
Some real, sourced information about the effects of the liquidity crisis on new construction, and on specific projects, would be useful. This post is not.
Posted by: Dan at October 9, 2008 11:09 AM
Let me guess...
Posted by: j at October 9, 2008 11:14 AM
Wow. My comment got upgraded to post.
Hey, I agree with you, Dan. This quite literally is a 4th-hand rumor - overheard in the elevator type stuff. That's why I said it could be total BS. But I'm sure there are plenty of SocketSite readers who are "in the business" and can shed more light on the issue. Or dispel the notion entirely.
Posted by: Dude at October 9, 2008 11:19 AM
Those do seem to be the most distressed properties in the sense that they have been open, and selling the longest (exception: Radiance). I wouldn't be surprised if the developer of these properties was saying the above mentioned. They probably want there last remaining units out of their portfolio so that they can close the sales centers and move on. Makes sense.
Posted by: Ryan at October 9, 2008 11:20 AM
if they are so desperate they should lower prices and get it over with. i don't believe they need to sell all the units at $1000/sq ft to break even do they.
Posted by: condoshopper at October 9, 2008 11:23 AM
False rumors (or true ones) seem to have the power to sink some big ships these days ...
Posted by: jamie at October 9, 2008 1:23 PM
"He said, she said".
Is this the best we can do?
Posted by: gh at October 9, 2008 1:33 PM
Reminds me of the reaction to the "rumors" that the second One Rincon tower was delayed...
Posted by: Michael at October 9, 2008 1:59 PM
Is there a possibility that a certain large construction project, let's call it Transbay Tower as an example, losing financing if the U.S. goes into complete bankruptcy in the middle of construction, leaving us with a half built scar on the skyline?
Posted by: sf at October 9, 2008 2:08 PM
If the U.S. goes into complete bankruptcy, the last thing I'll be worried about is a "half built scar" on the skyline. (and talk about hyperbole...)
Posted by: mike at October 9, 2008 2:49 PM
Thank you, mike.
Posted by: inthemarket at October 9, 2008 4:57 PM
Typically new construction loans have covenants which require a pro-rated payback of the loan at a rate of 1.15 to 1 for each unit sold, so most of the construction loan is paid off by the time 85% or so of the units are sold and closed. I'd think that properties with a higher percentage sold are in better shape. But truthfully, even if they aren't, what is a bank going to do - call in the loan and have the development go bankrupt when they can't find anyone else to finance it? Then they get to take the whole thing back as an REO? I doubt they want that. I'd imagine they'll modify their loans to muddle through them rather than really pinch an ongoing development, but the point of this post is prescient - new money loans for big real estate projects do not exist in this environment.
Posted by: Miles at October 9, 2008 5:27 PM
I guess having no kids, there isn't much I worry about, just taking care of myself. Even in a bankruptcy I'm sure I wouldn't be any more stressed or concerned than I am now. I'm so over capitalism.
Posted by: sf at October 9, 2008 10:32 PM
Lame post. Lame comments.
[Editor's Note: That's the grrr we know and love.]
Posted by: grrr at October 9, 2008 11:56 PM
From my real estate agent:
"Developers at the new construction projects are getting hit by their banks to close out their construction loans and are offering incredible incentives. The Artani asked me today to make any offer no matter how unreasonable because the developer needs to get 12 homes into escrow fast. It's the same story at The Infinity, SFBlu, One Rincon, Arterra, The Hayes, Chelsea Park, Radiance etc."
Posted by: Baraka at October 10, 2008 10:42 PM
I was called into some of these properties as well. I'm thinking of making an offer - even though I'm pretty sure the market is heading way further south I have the need to feel settled finally.
Any idea what constitutes "even unreasonable"?? And any comments on the situation in a newer opening such as Artani vs. the Hayes?
Posted by: Ajo at October 12, 2008 7:05 AM