The first units at the Montage closed Tuesday. 1511 is a D unit on the NE corner, 1054 SF, and sold (cash?) for $283,560.72, or about $269 psf. 2218 is a G unit on the SW corner of the "stub" towards West Street, 1500 SF, also apparently a cash deal, $293 psf. These psf numbers must be making Palladio buyers weep. You can check out the floorplans at the official Montage site.
What are your thoughts? Are the buyers urban pioneer savants or condo lemmings?
downtownjunkie
I was a palladio owner and I think those prices are similar to what I locked in around 04′.
I still think these prices are too high. I was expecting them to come down around to 175-200.
They are going to need to let some go a little cheaper so they can qualify for FHA as its impossible to get a loan without that.
I do want a penthouse though- they are pretty spectacular!
Grand Wazoo
From the department of “WTF?!?” the downtown dude is reporting Ruth’s Chris is about to apply for a liquor license, meaning that project may still be on.
As my British friends might say, I am “gobsmacked”. When I make our first dinner reservation I’ll be sure and request the table with the best view of the King’s Inn, hoping that Frank, Sammy, and Marilyn don’t have it tied up all evening.
I agree that something significantly south of $200/ft starts to make sense. When (not if) the unsold units are auctioned in blocks they will certainly go for that or probably much less.
BanteringBear
“Are the buyers urban pioneer savants or condo lemmings?”
Lemmings, of course. I posted this in the Montage thread earlier, but I think this is a better venue.
“Corus bank warns of possible failure
March 18, 2009 5:08 AM
Corus Bancshares Inc., the Chicago lender that staked its fortune on the condominium boom, has confessed that it might not survive, the Sun-Times reports.
In a regulatory filing, Corus said it expects its independent accountants will “raise substantial doubts with respect to the company’s ability to continue as a going concern.” The warning would be attached to earnings for the fourth quarter that Corus said it needs extra time to complete.”
downtownjunkie
On a lighter note- Ruth’s Chris is my favorite restaurant! Hope they do make it downtown. The only view I care about is the steaks.
– Corus will fail-period.
DownButNotOut
Pricing for the Montage isn’t comparable to the rest of the Reno area – there isn’t anything comparable.
That being said, the uncertainty of the ownership (Corus) makes whatever a person might be willing to pay still a huge risk. Most likely as soon as the FDIC takes over, which is imminent, the project will be sold quickly to another stronger bank, or put into receivership.At this point pricing will be allowed (forced) to come down to a more reasonable rate inline with the current RE climate. Once this happens sales will be brisk, as this is a project people desire.It should coincide with a leveling Real Estate prices and be one of the best things that has happened to downtown Reno.I hope Ruth’s Chris actually does commit.
stjoe56
My overriding concern is who is going to pay the HOA fees after the first year. As I understand it, Corus has guaranteed payment of all fees for the first year. What happens then? Who will pay?
If a substantial amount of money does NOT come in every month, how will the HOA pay for pool upkeep, 24 hour doorman, etc.
Also as indicated elsewhere, $.41 a square foot seems awful cheap when compare to the HOA assessments in the other downtown condos.
SJ
Reno Ignoramus
The huge problems of Corus Bank are well known and it should surprise nobody who has been paying attention when Corus fails and is either placed into an FDIC receivership (or taken over by another bank under FDIC guidance, which is unlikely.) The Corus failure will be the biggest commercial bank failure to date and will generate some national attention.
Remember that when Corus fails, the Montage in Reno will be just one fairly little piece of the larger puzzle. The Reno Montage is by no means the biggest nonperforming loan in the Corus stable, and not the biggest problem. What impact the failure of Corus will have on the Montage is only subject to speculation. Any number of things could happen. But none of them would seem to suggest that the prices of Montage units will be going up from here. Perhaps I am wrong, but I do not envision that whatever entity that ends up owning the Montage is going to be willing to take the next 9 years selling off Montage condos at the rate of 3 units a month. I believe that one way or another, the new entity is going to have to find a way to move a substantial number of units in a reasonably short time. I agree with the many others who suggest either a substantial reduction in asking prices, or an auction type scenario being on the fairly near horizon once Corus fails.
It appears to me that those buying now will, when all is said and done, be those who paid the most ever for a Montage unit.
Marla
“those buying now will…be those who paid the most ever for a Montage unit.”
Ahh, RI, you are such a doom and gloomer. Why, certainly there will be price appreciation at the Montage because they aren’t making making any more highrise condos here, and everybody wants to live here, because Reno is a hidden gem. Surely, given that “real estate always goes up in the long run”, I would say that those buying a Montage condo in, say, 2024, will pay more than those who are buying now.
CommercialLender
Mike,
any idea if they were ‘shill’ buyers related to the bank or developer or were they legitimate?
All,
You all just bought a piece of Montage. Your tax dollars will be invovled in this in a matter of weeks, in my pure guesstimation only, but highly believable possible outcome. I highly doubt they’ll survive this quarter. A bulk buyer arranged by FDIC will pay pennies, taxpayers the rest, and you will have a standard “broken condo” that will either firesale units or just rent them out.
downtownjunkie
I don’t think there were any shillers at the showing I went to. Could be wrong though.
So I am down in Vegas right now and let me tell you the hole they’re in. I think I saw 4 occupied homes out of the 200 around the golf course I played today.
Any highrise that didn’t close most of their units before 2007 are in big trouble-much worse than the Montage. And the realtor who had absolutely no clue what was going on said “Vegas is going to rebound extremely fast!”- right.
DownButNotOut
DJ – I just spent a week playing golf in Phoenix, at some of the nicer courses, and was amazed we didn’t see many inhabitants. When I asked the local Realtor voice he said they were occupied, and very few were for sale. I can only presume maybe many owners can’t afford to be there right now.
The Phoenix area has been hit as hard as anywhere, and possibly it’s older money around the golf courses I played. Or maybe there’s a sector that doesn’t want to acknowledge the RE reality. Montreux comes to mind.
downtownjunkie
Montreux for sure.
KB
“those buying now will…be those who paid the most ever for a Montage unit.”
I think that the price will go up very shortly in the next couple of years. When buying a loaf of bread costs $25 and a big mack is $20 the montage units will go for close to $315 a square foot. It will take $15 to buy one euro instead of the $1.36 or so now.
I am normally very optimistic on this blog, but current events are turning the dollar bills in my wallet into monopoly money.
Reno Ignoramus
Well, KB, I suspect you fully understand the point of my comment as it relates soley to the Montage.
Now if hyperinflation sets in and as you forecast the cost of a hamburger rises to $20 and the cost of a loaf of bread rises to $25, (and please lets not hijack this thread into a discussion on the future of inflation/deflation) then I suggest that the cost of Montage condos is going to be among the very least of the concerns of most people. Perhaps, in fact, the absolute very least.
Orlando
Fannie Mae has announced new guidelines that it will not purchase or guarantee loans in new condo projects unless the project is at least 70% sold. It used to be 50% sold, but has now gone up. Now I understand that not every mortgage has to involve FNMA, but this cannot be a good thing for projects like the Montage.
And yes, if a loaf of bread ends up costing $25, then the cost of a Montage condo will be academic. Who would give the slightest concern to what Montage condos cost? Should that moment ever arrive, they won’t be able to give Montage condos away as everybody will be trying to find a second job just to buy groceries.
BanteringBear
If inflation was so high that a loaf of bread cost $25 (I don’t buy into the hyperinflation argument), then the government would be jacking up interest rates ala Volcker back in the early 80’s. With interest rates approaching 20%, the price of Montage condo’s would drop through the floor. Your argument makes no sense, KB.
BanteringBear
There I go again…
“…the
governmentfed would be jacking up interest rates…”Walter
Excellent point, BB. It is interesting how many of the hyperinflationistas only talk about how high prices will go and never talk about how high interest rates will also go. Anybody who thinks prices are going to accelerate through the roof but mortgage rates are going to stay at 5% needs to take a step back from the bong and try to get a clear head.
RalphR
First day of class in Econ 101. The way we fight inflation is to make the cost of money, and the cost of borrowing money, more expensive. The way we do that is to raise interest rates.
I remember the early 80s and 15% annual inflation and 18% mortgage money very well. It was tough as hell to sell a house then. Nobody could qualify for a mortgage, or if they could who wanted to pay 18%? So we had to do things like wrap-around trust deeds and contracts of sale in order to avoid triggering the due on sale clauses in the existing trust deeds. It was a miserable time to be trying to sell a house. Just think here for a minute. Are you more inclined to borrow money at 5% or 18%?
diablo
“it appears to me that those buying now will, when all is said and done, be those who paid the most ever for a Montage unit”
Gee that makes a lot of sense!! considering many buyers have already paid $350/sqft for a condo at the montage this statement makes ZERO sense..
don’t think too hard.. you might hurt your head!
MikeZ
I accidentally found The Montage this weekend.
A friend and I were casino-hopping and came across a new condo tower. Huge and completely deserted. From the street, you could see that the entire first floor was still incomplete.
I turn to my friend: “I BET this is the Montage!” … we walk around the corner, find the lobby and sure enough, there’s the sign.
This was Friday evening, ~11PM. As I scanned floor by floor from the street, looking for any sign of life, I couldn’t find one single light on in any of the apartments.
With a homeless man across the street (the lobby side) sleeping on the sidewalk … and a bar with a noisy, rowdy Friday spillover crowd on the sidewalk and into the street … who would ever buy there after touring that area at night?
Yeeesh.
stjoe56
See Condo Corus at
http://www.reuters.com/article/dealAtoms/idUSCH115024921820090323
Excerpts:
In the financial world’s version of night of the living dead, Corus Bankshares Inc. zombie-walks near the front of the pack. It’s so bad that in January the Treasury Department rejected the bank’s application for bailout money. Last month, Corus agreed to a consent order with the Office of the Comptroller of the Currency, which is demanding the Chicago bank improve its minimum capital levels, cap deposit rates, and, most vexing, figure out what to do about the bank’s self-admitted “growing portfolio of foreclosed real estate assets.”
. . .
So, while Corus continues to operate, only the terminally optimistic believe it can survive. “The consent order is a death order,” says a workout specialist with detailed knowledge of Corus. “It’s a precursor to the inevitable.”
Corus built its $4 billion loan book on the back of condominium construction. Not only did management bet the bank on this most speculative and cyclical of activities, it focused on condo projects primarily in southern Florida, as well as in Arizona, Nevada and southern California. Corus could serve as an early-warning system of where real estate would crash hardest. “It was a concentration of risk, geographic and strategic,” says the specialist. “It was very high-risk.”
. . .
All these issues come together in South Florida, ground zero for overbuilt condominums. According to Brad Hunter, director for housing market research firm Metrostudy, the inventory in South Florida of finished and vacant or under-construction condos totals 28,464, of which Miami-Dade County has 22,652.
They’re not exactly flying off the shelves. Lucas Lechuga, a Miami realtor whose Web site, Miami Condo Investments, says of four newly completed projects, none have topped 5%. The most ambitious is the 1,640-unit Icon Brickell, part of a $1 billion residential, hotel and retail complex. Its closing rate stands at 0.84%. “This is indicative of what’s going on,” he says. “Nobody’s able to close. It pretty much has to be cash buyers.”
This is especially worrisome to individuals who forked over money for the condos with the idea of living there. Joseph Altschul, a Fort Lauderdale attorney, represents purchasers of preconstruction condo units trying to get their 20% deposit back. A looming issue, Altschul says, is ongoing maintenance, which Florida law limits to six months for developers. He cites Tao Sawgrass, a 396-unit project, in which exactly five units have closed. Holding a $126 million construction loan and a $20 million mezzanine note, the lender foreclosed on the Sunrise, Fla., development and took over in November, promising to market the condos itself. The lender: Corus.
Steve
Nice post Joe. I love how you laid out the facts on Corus. I am sitting in front of my Bloomberg now after the Dow was up 501 points on the day. Corus Bankshares Inc. is at $0.30/share. Yesterday, I was in a taxi from the Reno airport and the taxi driver told me that they know someone who is about to buy at Montage because they are getting 305 off, a “great deal”. Well, they are about to get SOMETHING, though I wouldn’t EXACTLY call it a great deal. Reminded me of Warren Buffet’s usage of the famous cartoon. The cartoon is an image of a Eve in the Garden of Eden just before she was about to lose her virginity. The caption read something like, “Sometimes you just can’t explain what is about to happen to them, they have to experience it”
Renotopdog
Steve, remember the old airline slogan–“there is an ass for every seat”.
Diane Cohn
BB, just curious, why don’t you believe hyperinflation is a possibility?
BanteringBear
Diane-
In short, because the wealth destruction exceeds that which is being created. Further, the bailout money would have to make it into the system, but it’s not. A lot of it is basically going up in smoke in the form of satisfying past bad bets. It would have to be in the hands of consumers for prices to run away. I believe we already had inflation. Most people are parroting hyperinflation– I don’t follow the herd. We are in a deflationary spiral, and liquidity trap, and I don’t believe that hair of the dog treatments work. It was cheap money that got us into this, and it won’t be cheap money that gets us out. Are the banks going to just hand money to deadbeats in light of what’s just happened? I don’t think so.
billddrummer
An update on Montage closings (morbid fascination, don’t you know):
A chest-thumping editorial in today’s RGJ talks about how wonderful the project is and how most of the units have been ‘sold and closed.’
Well, you might call that stretching the truth just a bit.
I found 11 partial reconveyances from 255 North Sierra, recorded between 3/30/09 and 4/3/09. I also found three cancellations and one NOD.
That doesn’t sound like ‘most of the units’ to me.