Feel free to keep Hating Diane, but I wanted to post the month end foreclosure numbers in front of Guy’s May sales data, and tell you about the Riverwalk auction.
Trustee’s Deeds ended up at 210 in May, only up a bit from April’s 191. TDs have been basically flat or down for the last 6 months or so. The story is completely different for NOSs. They rose to 639 from April’s 498, a 28% increase in one month, 25% over the old record set in March. I observed a much greater number of HOA liens moving into the NOS category. NODs topped out at 950 gross (includes HOA filings), another new record. I don’t see any positive news in the data – sorry, I’d like to.
So on to the Riverwalk condo auction. It was pretty comical all week, with JP King parking their mobile billboard for the auction in front of the Montage sales office. A couple of meter maids are eating at Fin / Fish tonight for their oversights!
I went to the auction, with about 120 of my closest friends. It started out with a big surprise – a 6th unit was now going to be sold for at absolute auction.
The way the auction worked, the absolute units were bid on as a block. The winning bidder then got to choose which unit they wanted, the process repeated for the remaining absolute units. The winner could bay as many units as they wanted at that price, but all chose to select just one. The first bidder got to select any of the “good” units that originally had a hidden reserve price, and bid $225,000 and took unit 1106 for $145/SF (1547 SF, 2/2.5). The second absolute unit went for $155,000 and took #610 for $99/SF. Third went for $105,000 and took #702 for $68/SF. Fourth, fifth and sixth absolute units all went for $70,000 and took #412, #304 and #1606. 412 went for $45/SF. 304 for $90/SF. And the mini penthouse 1606 for $161/sf.
Then bidding opened on the reserved price units. Same format – high bidder got his pick of units. Bidding topped out at $190,000 and selected penthouse 1604. This seemed to be well below the secret reserve price, but “we’ll take it up with the owners” was the comment from the gray shirts (auctioneer’s helpers). The crowd then got a chance to equal that bid and select other units with no guarantees that the owner would approve the sales, and no one stepped forward. So the auction was halted, except for “negotiations”.
Then they unilaterally canceled the auction for the Retail space and the development parcels. But the friendly helpers would be around with buyers who might want to submit a bid. I think that there was just no interest. The retail portion is a mess, with the second floor being almost unusable due to low ceiling heights. I am surprised that they didn’t at least float the vacant development parcel, but I guess their read that it was too grim to even open it up and establish a baseline. A bad day for downtown development.
OK, prices are actually 10% higher when you add in the buyer’s premium, But Jeez, what a train wreck. The first bidder watched his purchase decline 15% in an HOUR (he bought at 225, penthouse topped out at 190, and no bids for the properties in the middle).
So you buy #412, a 2 story 1543 SF 2 bedroom, 2.5 bath townhouse unit for $70K. I am wary that you would be able to cash flow this unit. Any thoughts?
Reno Ignoramus
Mike this very much substantiates what I heard from my friend who was at the auction (didn’t buy)that I mentioned in the thread below.
I said below that perhaps $65 a sq. ft. was about right for many of these places, but I see that #412 went for $45 a sq. ft.
$45 a sq. ft.
I wonder what the Montage spinmeisters will make of this. I’m sure it will be something like the Montage is an “urban village” while the Riverwalk is just another redone casino across the street from a couple of sleazy bars.
Oh, but that’s what the Montage is, isn’t it?
GreenNV
Sorry to chime in on my own post, but I need your help. An agent (Dickson?) posted on some local blog about his 2-2-2 theory – never buy a house if more than 200 hundred houses have been built near the property within 2 miles within 2 years. Can anyone point me to the agent? The RGJ could use his quote for an article the are preparing. Thanks.
mike
Raymond
There isn’t any way in hell this is good news for the Montage. They can try to distinguish and separate and shuck and jive all they want, but this was a very bad day for the Montage and all the downtown condo projects.
This is the first time these places are exposed to the market in a no-reserve (for some units) auction and the result is an unqualified trainwreck for the bubble inspired developers.
But, I do have to say, that if I was an out of towner that enjoyed coming to Reno on a regular basis, I’d even consider buying a 1543 sq. ft. unit for $70K.
SkrapGuy
On March 14, 2006, Diane posted that the Riverwalk was trying to close out its inventory. She said that there were some 2 bedroom units still available in the $464K-$547K price range. I suspect that it was one of these units that went for $70K at auction over the weekend.
So what’s an 88% digger in price among friends?
God I hope we NEVER again see the frenzied crap that occured in this bubble.
How would you like to be the person who paid over $700K for the
Walter
A 1543 sq. ft. Reno downtown condo for $70K is actually sensible IMHO. I never thought it would happen that the word sensible would be used in the same sentence as Reno downtown condo.
We are making progress in the effort to return sanity to the market. Why I believe that even BB might have to agree that $45 a sq. ft. is in the realm of the sensible.
FutureRenoHomebuyer
Heavens to mergatroids. I’ve been as bearish as a grizzly coming out of hibernation for many years now. But if I had the opportunity to buy that downtown condo at $70K ($45/sq.ft.) I would have jumped. Congrats to the buyer.
Sympathies for the poor guy/gal who paid $225K, but I’m sure they can afford it, given today’s respectable lending standards…
inclinejj
Did they have the whole dog and pony show with the guys running around the room in tuxedo’s..
Did you spot any shill bidders in the crowd..
I stopped going to these auctions about 15 years ago
BanteringBear
The wannabe “investors” of the past several years are getting their collective @sses handed to them. It’s hysterical. There are plenty of long time local players getting wiped out, too. I know of three REALTORS, mothers of guys I went to school with, who are in short sale or foreclosure. They have been in the business for more than 30 years. How’s that Kool Aid taste now?
Walter
I would say that with that unit going for $45 a sq. ft., there were no shill bidders…..:)
Reno Ignoramus
Bear, there are many realtors taking huge baths right now. Many. I could name 9 or 10 I am personally acquainted with or aware of, but in deference to the practice on this blog that we don’t disclose names, I won’t.
Carlo
$45 a sq. ft. Wow.
Now we know why these auction companies almost never conduct a real auction, that is one without a reserve.
It’s just such a b!tch when we find out what properties are really worth in a real auction.
Reno Ignoramus
Somewhat tangentially related to auctions and foreclosures comes the news that the legislature passed into law the foreclosure mediation bill yesterday. Most interesting is the “produce the note” aspect of the bill that requires lenders to appear at mediation with the actual note and deed of trust. What if the note has been sold to a hedge fund in Singapore?
No doubt this bill will be another opportunity to observe the law of unintended consequences as this process evolves over the next several months. For those borrowers who elect the process and are willing to pay $200, it will no doubt slow down the foreclosure process. Whether it will any good in the long run remains to be seen. It will no doubt take until 2011 to have any sense of whether this program is accomplishing anything other than delaying the inevitable.
SkrapGuy
The only thing this bill is going to accomplish is to require the lender to come to mediation, and thus perhaps solve the “I can’t get the bank to respond to my phone calls” lament that we hear all the time.
But after that, this bill suffers from the you can’t make chicken soup out of chicken sh-t problem. So the lender agrees in mediation to a loan modification. Six months later, the borrower is back in default. Do they go back to mediation again? And again?
This is a bad idea based on feel good politics. Yet one more govt intervention that delays the market from cleaning itself out and finally hitting bottom.
wrm
I WAS A BIDDER AT THE AUCTION. READING THE FINE PRINT THE SELLER CAN WITHDRAW EVEN AFTER THE 10 PER CENT DEPOSIT WITHOUT PENALTY. I DO NOT BELIEVE THAT ANYONE BOUGHT ANYTHING…
BanteringBear
Really, wrm? So, this was a shill auction with reserve prices, masquerading as an absolute auction after all? These are precisely the kind of scummy tactics that give the real estate industry a black eye.
Arlo
It may be that the opening bid “winner’ who saw his “investment’ drop 15% in an hour will back out if he can. But I think that anybody who was really interested in owning one of those places might be satisfied with the $45/sq./ft. price. $70k for a 1540 sq.ft. condo is about where the Smithridge condos are right now on a per sq. ft. basis.
Only problem is prices are still falling, not rising.
DownButNot Out
Arlo, It sounds like the ‘seller’ can back out, not necessarily the buyer. The $225K bid might be the only one they do take. Assuming that wasn’t the shill to begin with.
3niner
This is why so few people are willing to deal with a real estate auction.
First, the seller / auctioneer makes the prospective buyer jump through hoops to bid, this often includes putting up substantial sums of money for the privilege of bidding.
Then someone can “win” a bid, and discover that they haven’t really bought anything, because the seller decided the winning bid was too low.
If auctioneers want serious buyers at their auctions, they should try having serious sellers. If the winning bidder can’t back out, the seller shouldn’t be able to do so either. If there’s a reserve, tell everybody what it is before the bidding starts. If it’s too high, nobody will bid, and the seller might learn something.
3niner
This is a bit off topic here, but the NAR is excited about “pending home sales” being up. It seems to me that this could easily be an artifact of the way that “pending home sales” is counted.
Short sales are becoming an increasing factor in the market. They tend to take longer to close, which increases the chance that a given “pending” sale will be counted in more months than would be the case in a normal sale. Also, short sales have a larger chance of falling through, which means that the same property could be “pending” again a month or two later.
Does anybody have thoughts about this? I can guess what BB thinks. 🙂
wrm
The 225k bid was canceled because the bidder misunderstood the instructions or something to that effect…?????
billddrummer
To 3niner,
You’re right, and I hadn’t considered your view of the statistic. If more short sales are in the pending pipeline than normal, then as the older shorts stay ‘pending,’ the new pendings entering the cycle will boost the percentage pending without a corresponding sales uptick.
Let’s see what happens when June existing home sales are published. Perhaps the higher pending number will stay high, but sales won’t follow (as they would in a ‘normal’ market).
Great point!
CommercialLender
Wait ’til the recently higher rates cause more borrowers to not be able to close on their loans, instead wait to lock rate and close until rates come back or scramble to find more downpayment. Then pendings will also increase artificially.
Martin
3niner,
Another thing to observe is that the NAR plays a game with these figures. They always announce a “pendings sales figure” to get maximum media coverage, and then about 5 weeks later they revise the numbers downward. The revision downward never gets any media coverage. The NAR also does this with sales numbers. Always announce a big number, then revise downward about 5 weeks later.
The new home builders do the same thing. Announce a certain number of new homes sold to a lot of fanfare, and then revise downward weeks later to no fanfare. You would think that even a half awake reporter would call them on this, but it never happens. It is one way the media plays along with the hype. It happens here in Reno as well with the RGJ.
GreenNV
My understanding of the MLS is that a property goes “pending” as soon as the offer is accepted by the seller. In a short sale, pending does not mean (or even imply) that the offer has been accepted by the lender.
There were some scary short sale statistics on SF Gate a couple weeks ago. Only 30% of accepted short sale offers are being accepted by the lender. Of those that do get accepted, 60% later fall out of escrow due to contingencies, inability to get financing, or the buyer just getting fed up with the process. Combined, only 12% (1 out of 8) of owner-accepted short sales go on to close.
Think this might be skewing the NAR and RSAR pending statistics a bit?
billddrummer
To GreenNV,
Good point, and shows why it pays to pay attention to the revised numbers, not just the originally published figures.
I read a financial newsletter that points to the direction of revisions rather than the originally announced number to tell the true underlying trends for published statistics.
Sounds like we should all do more digging when the headlines come out.
RenoRetiree
I still think there is a huge potential market for downtown condos costing $70K, but the way to achieve that is NOT to have some idiot developer spend $500/sq.ft. building 1000 sq.ft. luxury units and then auction them off for $45/sq.ft. during bankrupcty proceeding, but rather spend under $150/sq.ft. on studios with measuring 400 sq.ft. so as to make a profit. I believe $150/sq.ft. is doable with new construction, at least now that construction costs have come back to earth. The Riverwalk and Bellevedere should have been able to come in way under $100/sq.ft., given that they were redeveloping existing buildings. If they blew past this number, it’s because they got extravagant.
1543 sq.ft. for a single person is absurd in Reno, other than for a very small number of people. And 2.5 baths is even more absurd. Does everyone have diarrhea nowadays so you need 3 toilets in case you have a party and everyone has to go at the same time? Sorry if offend people by being scatalogical, but this just blows my mind. This is a condo, after all. The farthest distance between any point in the condo and any one of the baths can’t measure more than 50 feet, even counting the stairs. If you have 2 baths, then even if one is occupied, you still have one in reserve. Someone else can do the queuing theory analysis of waiting times, given various assumptions on time spent on the toilet–I forgot all my math long ago.
It was obvious to me years ago that there is a strong trend towards downsizing and lightening up amoung Americans. McMansions and autos use lots of scarce raw materials and the world is running short of these, especially with China and the rest of the third world now competeting for resources. But we can’t just do nothing. So we have to shift to consuming something that doesn’t take so much raw materials, such as services. Downtown Reno condos fit right into this trend. Instead of consuming a McMansion and multiple gaz-guzzling autos, you consume restaurants and entertainment services, which use lots of labor but few raw materials. The idiot developers got the part about downtown living right, but they screwed up when they tried to replicate the McMansion trend in their condos. Oh, well. Maybe they’ll do better next time around. Maybe they’ll take the Riverwalk and Bellevedere and separate those multiple level 1543 sq.ft. units back into their original sub 400 sq.ft configurations.
Tom
Reno Retiree, do you possibly remember when Dick Graves built the Roomettes at the Sparks Nugget, little cubicle rooms on the rooftop of the club, with fold-out shelves and closet showers? That was in the `60s. My Dad thought it was great, because they were dirt cheap and left him with more craps table money. But even he soon tired of the cramped size over a long week-end–and he wasn’t in there much over the week-end. That is an extreme example, obviously, but I think there is a point along a scale when you can create too small of a unit.
For a retired couple, I don’t think 1,543 feet is extravagant; for a single person maybe a smaller size as you suggest would be workable, but 400 feet seems pretty small to me for a permanent abode for even one person. A 750 ft apartment condo unit could be workable for one, I think. Somewhere there is a happy balance and once that were determined, I agree that downtown would be a workable location for such condo units for the right buyers.
BanteringBear
The fantasy prices for new construction, be they condos or houses, had little to do with the materials costs, and everything to do with the fact that builders/developers grotesquely overpaid for land. The bubble was in land, not houses. That’s why they were cramming the largest house with the highest end materials on the smallest lot possible- to try to squeeze out a profit on a piece of dirt which never had any business selling for what these idiots paid.
billddrummer
Corus Bank is on the block in anticipation that they won’t be able to raise enough capital to keep from getting seized:
http://www.bloomberg.com/apps/news?pid=20601208&sid=adSAcFTQx8Jo&refer=industries
They’ve also hired a unit from BAC to explore other purchasers.