You’ve lost your home to foreclosure, you’ve managed to get your family resettled into an apartment, and now your apartment complex is in foreclosure. Where does it end?
Developers look at the rent vs. own equations just like we do, but with their own twists. When buyers are being allowed to carry significantly higher debt loads and payments on a unit that would rent for less, it’s condo conversion time. This is a world I know well. My firm has done the architectural work on over 1200 conversions in the Bay Area for AG Evans and Emerald Fund / Lennar. Some projects were smash hits, and they made a killing for the developers. Some ended up at auction, or are back to being rentals or are still in flux. Looking back, some of the projects I considered stupid for lack of a better term were the winners. Winners like Marina Village in Richmond tanked. Who knew? I was hired to produce, not to advise.
We are seeing the fallout from apartment complex sales going bad here in Reno / Sparks these days. These may not be all failed conversions, though most fit the MO:
Brookside Villas, 1850 Idlewild, 114 Units – NOD 28 August for $9,385,000 plus interest, fees and penalties. This as a serious working class development, and my guess is that the new owners hoped to bask in the glory of "The Village at Idlewild" project from Capstone.
Northgate Villas, 100 Carville, Sparks, 116 Units – NOD 28 October for $6,185,000. This project backs up to 395 just south of Oddie. It probably isn’t a condo conversion failure, but if you feel the need for a bit of crack, it probably wouldn’t be a bad starting point.
Innsbrook Village, 800 Nichols, Sparks, 240 Units – NOD 28 October on a $23,000,000 loan. If you are going to Sparks Marina from McCarran, this is the complex on your left. Great location, good prospects, bad timing.
Manzanita Gate, 2475 Robb, 325 Units (pictured) – NOD 20 October. This is a nasty one. The NOD filer is 4th or 5th in line, but had a "last lien" clause, and the owners went out and got another loan – OOPs, nailed. There is over $45,000,000 invested in this property, which is a pretty classy development.
The bursting bubble is proving to be pretty equal opportunity. Next post – retail or "wasn’t there a restaurant here last week?"
Inclinejj
If you take a look at the rent rolls and expense statments for these properties they hardly ever cash flow either..
But institutional buyers always bought them based on future appreciation
Plus these projects take time to get thru planning and completion..the vacancy rates where totally different and these projects probably made economic sense back 3 or 4 years ago when they started the process..
Has anyone ever read a feasablity report on these projects they always make everything look so perfect..
I also noticed a few big commercial defaults lately also..One was out by the big new shopping center out by the New Costco..sorry I don’t know that part of town that well..
Mike, what is a last lien clause..saying that that will be the last lien or loan taken out on the property??
Is that like a I promise to pay this time clause?
Grand Wazoo
The Circuit City out by the new Costco in Sparks is slated to close pretty much immediately, fwiw.
Nice post Mike. I officially withdraw my previous rendering of judgement!
Inclinejj
Someone told me the Denny’s closed out there?
Is this true?
Sean
yes, denny’s did close a few months ago along with the denny’s in south reno near damonte i believe. I expect more stores to close in sparks including sports authority and several of those shops in the petsmart/oldnavy shopping center. There just isnt the population draw needed for them! Take a drive down virginia, you will see so many small places have already closed shop!
Inclinejj
Old Navy closed a store in Vacaville at the Nut Tree Outlets Shops years ago. They moved into a much smaller store across the Freeway..The space has been vacant for about 3-4 years..
Phil
The Spanish Springs shopping center has got to have the worse layout I have ever seen. Traffic patterns are horrible. Just awkward getting from place to place. Like driving through a parking lot to get to the Home Depot.
And you have a Best Buy there, and with the one opening up in “The Legends” you have to wonder what they plan on doing with both being so close. I don’t visit a Best Buy often, but driving to the Reno store was not that big of deal before, and a trip to Sacramento to go to a Fry’s was an option as well. What I wouldn’t give for a Fry’s in Reno.
Denny’s was doomed after the IHOP went in. Not that IHOP is great or anything.
Although there are 4 lawsuits on the Lazy 8 casino project, you have to wonder if the developer is just happy he didn’t start the project.
The new Bully’s on the corner on Pyramid and Eagle will probably doom “The Lake” restaurant. I heard Bully’s tried hard to get out of this new location.
Now you may ask am I disappointed at the lack of progress and empty stores? Nope, I moved out to Spanish Springs to still find horses, and a rural feel. I don’t need one big strip mall down Pyramid highway. Not to mention the traffic hassles that go with it. Now if we started losing Costco, and Walmart I might get a bit concerned. I wish the Walmart was just on the other side of the street with all the other stores.
And the new Raley’s on Vista is nice, I wish them success as they have a SuperWalmart and Costco to deal with. They have a Longs going in accross the street. This city is crazy with drug stores, I often wonder how many you need. No wonder I hear Longs is up for sale.
BTW stay away from the Sparks Costco, it is a real dive and always has huge lines, and has a cramped parking lot. The Reno Costco is soooo much nicer. *wink*
And for the stucco boxes out here…. I have to disagree, there are some tastefully done neigborhoods (and yes some not so nice ones). Yes Toll Brothers have not built here, but there are some damn fine custom homes here. BTW, I like the stucco better than the cheap pressed siding I see all over Reno. And obviously BB has not visited much of SS.
Sully
Phil, you are joking about the Sparks Costco aren’t you?
Mike McGonagle
Wow, you folks are really into the retail stuff. I’ve got a post ready about it as soon as Colliers posts their Q3 report.
“Last lien” was a new one even for me (on Manzanita Gate). The lending party basically had a clause that if the ownership took out another losn, they could foreclose, and they weren’t messing around.
A call out to BB – my recollection is that you purchased some income property in Washington (based on info from other sites). How’s it working out for you? Just curious.
BanteringBear
“And obviously BB has not visited much of SS.”
C’mon, Phil, are you being serious? Look, I know you love your new home, but I grew up in Reno, and I’ve probably forgotten more about Spanish Springs than you’ll ever know. Think Sky Ranch.
Nope, Mike, I haven’t purchased any income property in WA. My name is, however, on the deed of this rapidly depreciating asset from which I type. Things are starting to unwind quickly around here.
Washingtonians drink their Kool Aid from concentrate, and the impossibly nauseating “but it’s special here” rings at a decibel not heard elsewhere, except for, perhaps, Marin or some such place. The wailing will continue for quite some time, I’m sure.
In 5 or so years, I’ll pick up a 10 acre wooded Puget Sound parcel for a song.
Inclinejj
People in Washington, Oregon, Arizona, Colorado all blame Kalifornians for the big run up in prices. I wonder what makes these people in Seattle think they are not going to get hit in this mess..
Seattle is a much different economy today vs when Boeing was the only major employer in town..
I haven’t seen any numbers for Seattle, and haven’t looked at properties up there since my sister lived there about 8 or 9 years ago..
Phil
Sorry BB I just don’t understand your distaste for Spanish Springs. But to each his own. As for Sky ranch, I have to say I have not seen them.
Some people like living by a golf course some people do not. Persoanlly I do not see the attraction.
As for Seattle vs Spanish Springs. They are two different areas with two different climates. BTW another areas I was looking at were Sierra Vista, Bisbee, Tomestone, Tuscon in Arizona. Everyone has different tastes.
I’ll just disagree with your assesment of Spanish Springs and leave it at that.
Inclinejj
Phil
Do people complain about Spanish Springs cause it is far out from most of Reno?? Plus the traffic getting out there??
I don’t know that area that well. Not ragging on the part of town just asking a question.
Perry
Since this post is about a big development with big problems it made me think of the Montage and a story I read. This story is about lenders not financing buildings with low presale numbers. I like the Montage but wonder what will become of it. Upscale apartments?
http://ny.therealdeal.com/articles/15078/elert
Phil
Yes, it is fairly far from Reno and that is a negitive, and for traffic well comming from the Bay area I laugh at most of it. Not to say I am not concerned about it with additional growth. I also work in Sparks and not Reno.
A positive is also that it is away from the city, and prices are cheaper, has more of a rural feeling (Horses, red tail hawks, open fields), skies are darker (I like astronomy), and it is so quiet. I also have one hell of a view that is to die for.
I considered Sommerset, and arrow creek. But it turns out my commute would of been longer, and it felt awkward getting in and out of. The biggest reason however was value.
I am looking at retirement soon. Well I was……….
BanteringBear
Excuse me, spam filter…hello?
Grand Wazoo
Phil – excellent article, Fernando Leal must be beside himself with these kinds of issues. For those that didn’t read it, in a nutshell it says banks are refusing to loan to condo buyers if the building isn’t selling well, regardless of how the condo appraises vs. the loan amount.
One thing we haven’t heard yet but should start to hear soon is how the Montage condos appraise for the early buyers. I’m sure the voodoo appraisers have long fled the area and these units will be looked at with a more critical eye.
Phil – I know a family that lives in a Spanish Springs development out a ways that was designed for people with horses. It is truly a beautiful area with views to die for, and it is QUIET out there!
Sully
I couldn’t help noticing that these bailouts are crazy. Just give every U.S. citizen a million dollars – total about 306 Billion. Half the 700 Billion bailout.
And stop all the others, let the businesses fail. They will find a way out of there own mess. In the mean time, every one can stay in there houses.
Corrects several problems at once. 🙂
MikeZ
Sully: Just give every U.S. citizen a million dollars – total about 306 Billion.
Double check your math. You’re off by three orders of magnitude.
Sully
Yeah, I did. Missed a comma. Oh well, maybe the Treasury Departments bailout division has a position for me. 🙂
billddrummer
On Spanish Springs retail:
The Denny’s was run by the same franchisee that had the one at Damonte, and he defaulted on the lease at the Damonte location. Denny’s canceled his franchisee agreement and he couldn’t find (or didn’t look for) someone to assume it.
As far as the shopping centers along Pyramid, I work at the Best Buy part-time. The Legends store was slated to open this fall, then delayed til next spring, pending leaseup of the Legends mall. Best Buy didn’t want to be on the leading edge of the retailers there, despite Scheel’s and Target opening on time. I don’t expect that store to open until late next year. As you all know, the company reduced guidance for the full year because of slow store traffic and lower same-store sales.
I remember when Pyramid was two lanes with no traffic lights, and had a big LP tank on the west side just before you entered the Sunset Springs subdivision. It’s a lot different now, and not just because of the retail. The number of rooftops is stunning compared to 20 years ago.
Line space in the malls is too much for most small operators, which is why there are a preponderance of franchise stores. Kat’s Koffee was an exception, and it lasted just 15 months.
The homogenization of America is on display in Spanish Springs. You’d think it was Bakersfield, Portland or Arlington VA.
Bully’s was supposed to open nearly a month ago, and it doesn’t seem like it’s close to being done. Exterior work is complete, but the interior looks like it needs lots of work. And I don’t know that it will kill off The Lake. There’s a solid clientele at that restaurant that will probably still go there. But I could be wrong, as I’ve been many times.
I liked living in Spanish Springs until I lost my house. But now, having an apartment in town is fine.