A Sale at the Montage

 

The first Starwood/FDIC unit at the Montage closed on 7 May 2010.  Loft 320 sold for $155,782.  Officially 1348 SF per the Assessor (1368 per the Montage site).  $115 psf in what looks like an all cash deal.  The lofts were listed at about $295 psf in the January 2009 pricing sheet, about a 30% reduction after the project went back to Corus.  Not to gloat too much, but I made my psf predictions over 6 months ago on the Highrise Condo Edition post.

You can track some of the Montage contract holders feelings on this at MontageBuyer.  And there is more to the story, which will be up at REreno tomorrow.

To see Montage units moving is a great thing for downtown.  The price has to be devastating to the existing Montage contract holders,who are in limbo trying to be released from their purchase agreements.  Or maybe just more cannon fodder for the attorneys. 

I don’t know why the Montage isn’t airing their current price structure more publicly, but this sale looks pretty attractive (add the $.42 psf  per month HOA dues).

Thoughts?

A quick update based on the comments here at renorealtyblog, montagebuyer, and now Downtownmakeover.  Montage appears to be offering selective blocks of units for sale at drastically reduced pricing.  Pricing, terms, concessions, unit choice, and financing are non-negotiable.  It’s cash, these units only, and take it or leave it.  The current batch of 20-25 units seem to be fully subscribed, though only one has closed to date.  This unit Loft 320 was one of the original contract holders, so there is a big question among the other original holders if their deposits can be converted to sales at the current asking prices.  (at a 70% drop in pricing, their 10% deposit represents a 33% down payment).    I’m in contact with about 40 of the original group, and none has indicated that they have been contacted.   Montage’s strategy is to release units incrementally, and raise the price at each issue.  If they hit the current ceiling, they will wait it out.  There is an undertone to the comments that Montage is being very snotty on who is on their "preferred" list to get in on the various levels of the fire sale.  Another law suit waiting to happen, in my opinion.

Hope this helps cut through all the cross platform comments.

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About Mike McGonagle

An architect, business owner, and compulsive public records hacker, Mike reads the tea leaves of the local real estate market from a unique perspective.. A former Chicagoan, Mike earned his MArch from Harvard University. Mike can be reached at mike@macassociates.com or 775-345-7435. His continued musings can be found on the REreno.com blog.
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83 Responses to A Sale at the Montage

  1. Avatar MikeZ says:

    RE: “I think the downtown will be a great place to live one day.”

    I could not disagree more! Why LIVE there, among the bars, the drugs, the noise, the casinos …?

    Why not live in a better, quieter, safer place, and visit there?

    Just my 2c.

  2. Avatar Downtownjunkie says:

    Mike,

    I agree with your opinion but wanted to share mine. It just comes down to personal preference. Now that these things are affordable it changes the whole argument. At 500K I would agree with you, but at 183K it might be a nice place to live one day.

    We should all agree that the sooner we get people living there, the quicker that area will clean up.

  3. Avatar RenoRetiree says:

    Thought I’d check in. Posted here several times about possibly buying a downtown condo, but my main concern is buying into problems, and what I’m reading here about this mysterious Ron who keeps irregular office hours and won’t reveal what is for sale, etc, etc, just confirms that it makes sense to wait a few years for things to settle down.

    As for the crime downtown, I posted on this issue before. Lived for 3 years in Washington, DC, about 6 blocks from the White House, as the lower end of embassy row (Scott Circle area). About once a week I’d hear a gun battle nearby. Heard a particularly loud blast one night and it turns out a robber had wasted the parking lot attendant across the street with a shotgun. Another time, heard a scream right below my window. Called the front desk and went down to investigate and found an old man beaten unconscious. Was attacked once by a crazy woman who ran up and slapped my face for no reason (I knocked her down in retaliation) then another time by some sort of drug addict with a broken bottle (I ran off). Friends of mine also mugged. Mind you, the police presence (combination of DC police, secret service, federal park police and various other police agencies) in this neighborhood was and is the densest in the United States. Things have cleaned up considerably in DC since then. The downtown condo I lived in then has quadrupled in price (from $100K to $400K) since I sold in 1995.

    Later, lived in the Tenderloin in San Francisco. Rent of $1000/month for a roach-infested studio, which was cheap for SF in the late 1990’s. All I could afford until I hit it big. Watched as a robber attacked a prostitute across the street. Stuck his hand down her panties (where hookers keep their cash), then shot her (not fatally) when she punched him in the face. Didn’t have a camera and couldn’t see too well, so couldn’t give a good report to the police. Another time, heard a gunshot down the street. Looked out the window and saw someone lying on the ground. Police came by and then an ambulance–this time it was a fatality. Smell of urine everywhere. Homeless people lying in the street in their own urine. Homeless people taking craps between the machines in the nearby laundramat (most low-income apartment buildings in SF lack in building laundry machines). Homeless people everywhere. Aggressive panhandlers. Things have gotten WORSE in SF since then. But that hasn’t stopped prices of downtown condos in this neighborhood from going up up and away. We’re talking at least $800K for the sort of unit described in this post.

    I see no reason why downtown Reno condos are a bad idea. Certainly the relatively trivial level of violence and filth of downtown Reno is not going to deter those like me who are attracted to urban areas. Currently I’m in London, as part of a 6 month trip through Europe. When I return to the United States, I could choose and afford to live anywhere. For various reasons, I have chosen to make Reno my home base. And I suspect there are plenty of other people from California who will make the same choice in the future. So the condos at Montage and elsewhere will eventually sell. But I am NOT too optimistic about the eventual pricing. I didn’t get rich by being stupid about money. And I’m not going to buy when renting is cheaper and involves fewer hassles. At $100K for a studio or 1 bedroom with view and decent sound-proofing (I’ll be doing due diligence about that issue) and assuming solid management and no pending lawsuits, I’m interested and I’ll pay cash. Otherwise, forget it.

  4. Avatar clint says:

    …and then there was this time a feller tried to shoot me, but luckily, I caught the bullet ‘tween my teeth.

    …and then there was this time I shot a feller, just for snorin’

    …and then there was this time I was attacked by a rabid old lady. Needless to say, she ain’t around no more.

    Git my drift? Can’t wait to move to Reno. Yeee hawwwww..

  5. Avatar billddrummer says:

    To Reno Retiree,

    I too lived in Washington DC (graduated from high school in 1970), lived through the riots after Martin Luther King was killed, watched as neighborhoods deteriorated before my eyes, and escaped to the Tenderloin in 1977. The most I ever paid in rent was $600 for a 1-bedroom apartment on O’Farrell St.

    Two years later I moved here. Now I live in a 2 bedroom apartment off Virginia St. and pay $815 a month.

    Seems like a decent deal to me.

  6. Avatar Downtownjunkie says:

    I went and visited Ron yesterday to look at a few units and see the new pricing. He was very upfront about the situation and the pricing strategy for the new owners. It sounds like units are in fact moving at the current prices so Hopefully Mike can keep digging to find the closing dates and prices, but they should be close to the initial ones he found.

    To get the best possible experience I would make an appointment to see him. That way you will get the whole picture. I did not get a sense of him being “selective”- he is just busy. They can only close with cash so that in itself comes across as selective.

    This is just my opinion so don’t chastise me! I think that there is still considerable risk involved in buying a unit there (hence the new pricing). You would have to plan on tying up your cash for around 4 years until the building has enough warm bodies- this is excluding the pigeons:). The good news is the building is basically backed by the FDIC. The common areas are in OK shape and would improve once more people moved in.

  7. Avatar MikeZ says:

    I strolled by The Montage this weekend.

    The place was DEAD.

    Even the guard/receptionist was gone.

    The electronic directory inside the door lists ~50 unique names but cycles through the same names in different ways, making it hard to get a real count.

  8. Avatar Downtownjunkie says:

    When I lived at the Palladio it seemed really dead-and it was 65 to 70% occupied at the time. The Montage is around 6-7% occupied and will be 10% occupied in the next couple of months so I can imagine that it looks like a ghost building.

    Basically a half-million square feet of emptiness in downtown Reno!

  9. Avatar RenoBaby says:

    Hi All-

    If I can wade in. Moved to Reno and started investing here and have bought and am buying several apartment buildings and a number of condo units of various types throughout Reno. We are now looking at Montage. Downtown will not be pretty for many years, but, even as gaming decreases, I doubt it will get worse. I think at current pricing you can cash flow Montage and hold for 5 years and make a good return. I don’t know if we’re at the bottom, but, the stuff we are buying is sustainable at current or even worse employment levels.

  10. Avatar billddrummer says:

    To RenoBaby,

    What you’re doing makes sense, as long as you can find tenants.

  11. Avatar smarten says:

    RenoBaby –

    What kind of rents do you think you’re going to be able to get at the Montage?

    Considering you have to have all cash to purchase Montage units; and factoring in property taxes and excessive HOA assessments; I don’t see how they cash flow even at the current depressed pricing.

  12. Avatar GreenNV says:

    RenoBaby, all 3 purchases that I can track your way (Plumas, Sharlands and Clear Acre?) seem like good, cash flow purchases. You pass muster as an informed investor. Interesting that Montage is in your sights. Let us know if you pull the trigger.

  13. Avatar RenoBaby says:

    Smarten,

    One bedroom unit, +/- $120K. $150 mo tax. $420 mo HOA. Insurance $20 mo. $11-1200 mo rent.
    Bet about $500 mo. 5% cash on cash. no???

  14. Avatar RenoBaby says:

    Green

    I thought ID was confidential. How do you track our purchases?

  15. Avatar inclinejj says:

    Remember that downtown SF south of Market was a shit hole till ATT park was built.

    That turned around the whole area.

    Granted that Reno is not SF. Reno can not and should not count on gambling to make downtown prosper.

    Seriously I have owned my property in IV for 20 years and the only reasons why I go into Reno are when I have too. Costco, Home Depot, Lowe’s, maybe catch a movie or a flight in and out of town.

    But then again I only go into SF when I have to also.

  16. Avatar GreenNV says:

    RenoBaby, no offense intended. I think your buys are pretty good deals, and how you proceed in the future is of a lot of interest.

    The amount of information you posted about your properties made you fairly easy to track with some certainty: “Moved to Reno and started investing here and have bought and am buying several apartment buildings and a number of condo units of various types throughout Reno.”

  17. Avatar Reno Ignoramus says:

    RenoBaby,

    You will soon learn than Mike can name that tune in one note. Sometimes he can even name it with no notes.

  18. Avatar RenoBaby says:

    Green,
    What a small town. I’m surprised you were that interested. Do you know our pending deals too????

    If so, I’d like to meet you. Or do we know you already.

  19. Avatar GreenNV says:

    RemoBaby, to the best of my knowledge, you don’t know me nor I you. I have no clue about what you have pending. But when you close a sale, a deed is recorded. A quick sort of the Assessor’s site for time and type of sale led to your properties in a few keystrokes. Again, god buys. I wish you the best.

  20. Avatar BanteringBear says:

    Anyone buying in the Montage thinking they’re going to get $1200 rent for a one bedroom in this environment is dreaming. There are 3 bedroom houses for that price. Not only that, there are vacancies galore in all apartments and condos across the area. You’re overestimating the rental market, RenoBaby.

  21. Avatar smarten says:

    RenoBaby –

    When I asked you for details of your cash flow analysis and you responded with projected monthly rents in the $1,100-$1,200 range for a tiny 1 bedroom Montage unit, I was taken aback by your answer but said nothing. Now that I’ve read Mr. BB’s comments, I don’t think I’m out of line in stating you’re dreaming.

    I’m curious how your other Reno rental condo/apartment building purchases are cash flowing? Either you know something about Reno rents Mr. BB and I don’t, or I think you’re going to learn the hard way.

    We’re in a very, very tough residential rental market. If you’re a landlord with a vacancy, you have to become very pro-active. That means determine what the REAL fair market rental value is for your vacancies, and then price your product by at least 20% LESS than the competition. That would mean that you’d probably have to price your proposed Montage 1BD unit[s] at $875/month or so.

    Sure you can hold out for $1,200/month but it will only take a couple of months for you to burn through any differential. I don’t know where you’re getting your capital [since a Montage purchase requires all cash], but once you factor in your acquisition cost of money; together with overpriced property taxes; together with overpriced HOA assessments; with real world rents; I think you’re talking negative cash flow.

    Now negative cash flow can be acceptable where there’s an appreciation upside. But to say these units can cash flow as rentals from day one…I have to disagree.

  22. Avatar RenoBaby says:

    smarten,

    We are fully rented and pre-rented in two of our pending condo purchases. We have never had a vacancy for more than two weeks after availability and have increased our rents significantly over our pro forma. I don’t think the Montage 1 bedroom is tiny (about 1000 sf). We are cash flowing well over 8% net on each of our acquisitions. Montage is more a bet on the future (which some think is folly). Renting in the summer with the pool and fitness center I believe the rent is more than achievable. But, I will let you know if I buy and if I am right or wrong.

  23. Avatar smarten says:

    Thanks RenoBaby –

    How do you pre-rent two pending condo purchases?

    Do you self-manage?

    And if you don’t mind sharing, what kind of rents are we talking about for what kind of condos [you don’t have to share the precise addresses, but maybe BD/BA, garage/not, general location, etc.]?

  24. Avatar BanteringBear says:

    I’d like to hear a little more about this “pre-rented” stuff, too. I find it laughable that, in a renters market where one can literally pick their unit and price, someone would be waiting in the wings for an overpriced rental. It just doesn’t pass the sniff test. I have some inside connections in the multi-family rental market in Reno, and vacancies are very high, and rents weak.

    I’m not insinuating that RenoBaby falls into this category, but I can’t count how many times I’ve seen or heard of “investors” losing their shirts because they overestimated rents, and underestimated vacancies. Also, maintenance and repairs is another area which is oftentimes underestimated, or completely overlooked.

    One has to have some serious resources to get into the multi-family market, and paying too much for buildings can burn through those in a hurry through low cap rates, high vacancies, and expensive repairs. You’ve got to know the market. When longtime owners in the area are feeling the pinch, I have a hard time believing people like RenoBaby are going to move in, garner high rents, and have some magical formula which is immune to the high unemployment and declining wages responsible for the weakness, especially when their cost basis is higher than those who are feeling the pinch.

  25. Avatar RenoBaby says:

    A world of skeptics. I am not comfortable with specific pricing. Although a craigslist seach by smarten would probably find the answer. We keep the list of the people who inquire after a type of unit that we own that has been rented. We advise approximate availability of like kind unit, take an application and a small refundable deposit. We self manage our properties both here and in California. But we have a great contractor who does all jobs for us big and small.
    We are conservative and our assumptions allow for the bad things that can happen. For us, lately in Reno however it has been more good news than bad. So we are still active.

  26. Avatar Renoite says:

    “For us, lately in Reno however it has been more good news than bad. So we are still active.”

    RenoBaby,
    Please enumerate the good news. Is the good news specific to your business model, whereby you are renting out your properties, which were purchased for bargain prices, with positive cash flow? Or are you saying that, in general, the economy/real estate market is improving in Reno?

    I find your remarks credible, and so would like your view on why you see things so positive right now in Reno.

  27. Avatar RenoBaby says:

    Renoite,

    I am probably the only person on this site old enough to have been active in the 1989-1992 RTC cycle. Beautiful apartments and offices in downtown areas of LA, Dallas, Denver and other places empty and going begging. People were saying real estate was dead, 15 year supply of inventory etc. Nothing is as black as night before the dawn. Right now Reno has suffered pretty much every indignity that it is capable of suffering, it is restructuring out of gaming and that is a long and painful process. But, I for one, buy the Reno/Tahoe outdoor life, low taxes, renewable energy, great place to live story. Heck, I am living it. My home in the Bay Area has lost a little value, almost insignificant and it will be back by next year. A tertiary market like Reno rides way behind in the wave of a comback. But, all indicators that I see show a bottom in rents, a bottom in many catgegories of residential housing. There is a point below with a landlord cannot price and pay expenses and mortgage and in several submarkets they are pricing at or below that point. There is not much downside. So, for us, we have 7 projects in escrow and 4 (some of size) in negotiation. Because we believe we can cash flow all or our properties in the down market and will have over the next 3-5 years a strong upside. If I am wrong, I’ll see you at the welfare office.

  28. Avatar Sully says:

    RenoBaby, I agree. However, while I’m not ready to say the bottom is definitely in, I see an awful lot of opportunity for the early bird. It’s not cut and dry as I would like it, but I do see the light at the end of the tunnel in some areas. Perhaps if I wasn’t retired and looking for a reason to do something I wouldn’t have much trouble finding one here.

    It sounds like you have done your research, combined with some experience, and feel confident in your decisions. Nuff said!

  29. Avatar BanteringBear says:

    RenoBaby posted:

    “My home in the Bay Area has lost a little value, almost insignificant and it will be back by next year.”

    I cannot take any “investor” seriously who utters something so foolish and inaccurate.

  30. Avatar montagebuyer says:

    Interesting. RPR Property Holdings LLC (aka Robert Gales) closed on 4 Montage units Friday:
    – 1103, $162,087.80, 1264 SF, $128 psf.
    – 1504, $127,205, 1085 SF, $117 psf.
    – 2206, $120,263.76, 967 SF, $124 psf.
    – 1811, $129,792, 1084 SF, $120 psf.
    He already bought 2205 in March for $191,329, 1637 SF, $117 psf. He also owns 7 units in 100 N. Arlington, and a few other properties.

    10% increase in closed sales in 1 day! Looks like the Montage is going rental, one way or the other

  31. Avatar sleezy says:

    anyone who buys at the montage is a FOOL!!!

    mark my words!

  32. Avatar Liquidity says:

    I am going to go take a look at The Montage. I have recently sold a property. I am hoping to put half the money to work over the winter when sales are usually slow. I am looking for income property so everyone keep writing. I like hearing the local flavor.

  33. Avatar MikeZ says:

    Liquidity, I strongly suggest you spend some time in the area around The Montage after 10PM on a weekend – just walk around for 30-45 mins – to get an idea of what that area’s “local flavor” is like.

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