A couple of quick items that I found interesting, then a long overdue update on our friends at NRES:
– 365 Pine Street downtown just listed for $225,000. This is the first attempted resale of one of the Holcomb Townhomes. It was purchased as a short sale from the developer for $159,900 on 21 April 2010.
– It looks like Reno is exploring taking back the block of Mill Street they abandoned for the Siena project a decade ago. City Council takes up the issue Wednesday, literally one hour before the Siena auction takes place.
– Speaking of the Siena, $250,000 deposits and qualifying bid packages were due to Innovation Capital, the advisor’s on the sale, by noon today. The official auction at the Bankruptcy Court is scheduled for 1 PM Wednesday. The Court’s document approving the sale is pretty interesting if you have been following the Siena backstory.
– The lender who foreclosed on the Somersett Town Center has now filed a $9M deficiency judgment suit in US District Court. Looks like it is getting personal.
For those of you new to the blog, Page Ventures and their successors NRES 1 and 3 (and now 2) have been aggressively buying properties at Trustee’s Sales on the courthouse steps and then flipping them. I’ve updated the spreadsheet on their activity since I last reported on them in July. New sales since my last report are in blue, and purchases are chronological. Page Ventures is pretty much closed out expect 2 properties I’ll discuss below. NRES 1 had been superseded by NRES 3, but is once again the most active fund.
NRES continues to kick butt and take names. Their gross profits are still averaging about 40% (I figure their net profits are running at about 25% when transfer taxes, commissions, and fix up costs are accounted for). Considering they are churning the funds 3-4 times a year, that works out to a 75-100% ROI. Try that with a certificate of deposit.
I admire these guys’ fiscal acumen a great deal, and think they are generally a positive in our market. but there have been some bumps along the way:
– 649 Alpine View in Incline Village is a rare misstep. Purchased for $658,750 on 7 October 2009, it is not showing up as sold and has vanished from the MLS. I believe the price had been reduced to $675,000 last time I saw the listing active.
– Will 593 Dyer have a happier ending? Currently listed at $699,900, and purchase for $539,476 on 7 September 2010.
– 2525 Lake Ridge recently listed as a vacant lot for $94,900. If you don’t know the history of the dual deaths and fire at this property, a bit of history can be found here.
– 3065 Markridge also hit the market again recently for $239,900. Page Ventures bought this property for $186,201 on 25 March 2009 and had it originally listed at $249,900 (less than 4% drop in a year and a half?) This property ran into problems when a complaint and later a judgment was filed. Trustee’s Deeds are pretty blind transactions, but this one seems to have been handled a bit insensitively.
Coming soon: The return of the IHOP house and 533 Crystal Park – contractors who tried in this market and failed. Plus anything else you want to hear about!
Martin
“Plus anything else you want to hear about”.
What’s the status of that lot on the corner of Maybery and Canyon Dr.?
Carleton
Also, can’t wait for the update on 533 Crystal Park. When this place came on the market about 18 months ago or so at $725K, Bantering Bear suggested the seller ought to “smoke another bowl, dude”.
Once again the Bear was right and yet another delusional builder developer type goes up in smoke, so to speak.
bob_c
533 crystal park sold for 437000 on 10-1 per assessors website
rule of thumb—do not live next to freeway—bad for your nerves, bad investment
smarten
So Mike –
Thanks for the update. You state, “the lender who foreclosed on the Somersett Town Center has now filed a $9M deficiency judgment suit in US District Court.” Does this mark the first you’re aware of in Washoe County?
smarten
Subsequently read the lawsuit Mike – thanks for the link! Pretty darn interesting. $9M is allegedly owed under the original note. But because the FMV of the security at the time of the trustee’s sale was about $4M [notwithstanding the fact some $3M+ was realized from the sale], the amount of the claimed deficiency is $5M+. But there are guarantors of the original note and their claimed liability is for the full amount of the indebtedness [$9M] – nearly twice as much as the claimed deficiency.
Now the party seeking the deficiency [according to the complaint] is an assignee of an assignee of the note. It is also the party on who’s behalf the trustee’s sale was conducted. It also has a name [Eagle SPV NV 1] which to me, is surreally similar to our friends NRES 1. The former assignee of the note records a NOS on June 30[, 2010]. The noticed sales date is July 30. On July 13, the Town Center is appraised for $4.04M. On July 22, Eagle SPV purchases the note secured by the mortgage then in default for an unspecified sum [it would be interesting (at least to me) to find out what that sum was, and the terms of payment]. After a couple of postponements, the sale takes place on September 14 [less than 60 days after Eagle SPV’s purchase]. Eagle credit bids in $3.232M [realizing it instantly has an $800K (if not greater) deficiency].
Don’t know the solvency of the guarantors but potentially, this transaction will dwarf anything Page Ventures/NRES has been able to pull off. Hope you’ll follow the story Mike.
Reno Ignoramus
Hi Smarten,
I am aware of at least two other deficiency lawsuits that have been filed in Washoe County. Both, however, like the Somersett Town Center case, are on commercial properties. I have still not yet heard of one single deficiency action brought against a residential borrower.
I suspect there are more commercial property deficiency action cases out there that I am not aware of.
Mike McGonagle
I have been running into residential deficiency judgment case occasionally, though I don’t have a way to really search for them. Most are being file at the Justice Court level where the maximum award is $10,000, but filing and trying the case is much cheaper than at District Court level. WFB filed one today – search the RGJ classified ad section under Legals for “731192”. Most of the cases I’ve bumped into are being filed by the local banks and credit unions, not the major banks.
One of our readers came up with some interesting stats on NRES. They are running at a 37.5% gross margin on the 141 properties they have resold. Average time from the recording of the TD to resale has averaged 69 days for the properties they have sold, and stand at 99 days for the properties still in process. On the houses they have flipped, the average TD price was $165, 075 and the average sold price was $277,010 for a gross profit of $61,936. Great stuff, Steve!
bob_c
i get confused who is whom at somersett—-in laymans terms who
is suing whom and will that impact the golf course and/or the hoa?
is the case strong?
i’m trying to guess what impact this will have on the somersett community
and the country club
John
Mike , stop letting your dog s*it in my yard on your weekly walks. TIA
Mike McGonagle
I was at the Siena auction today. Here are some quick thoughts:
Siena Hotel Spa Casino was sold at an auction at US Bankruptcy court for $3.9M. This figure is “free and clear”, and the court will determine the distribution of the proceeds at a later date. The court did authorize that the outstanding liens for property tax, sewer fees, gaming fees, and RSCVA be paid from the proceeds immediately to allow the transaction to close within 48 hours. This will leave about $3.5M to be split among the creditors. It looks like RE Reno LLC who own the $50M loan will get nothing in the end.
There were 3 bidders: Northern Nevada Asset Holdings (new owners of Silver Club in Sparks), Stratus West LLC (a division of Stratus Gaming?), and the winning bidder Grand Siena LLC. This entity is controlled by David Colvin from Las Vegas, who is also the principal behind Gaming Arts (www.gamingarts.com). There are reported to be 5 investors total. One, Jay Meilstrup of Reno, is president of http://www.gametech-inc.com/.
Randolph
$3.9 million for the whole place, land and building included.
Maybe they will turn it into “luxury condos” and sell the units for $600 a sq. ft. since they aern’t making any more land, and it’s a totally once in a lifetime opportunity, and everybody wants to live downtown.
Oh wait, it isn’t 2005 anymore is it?
Cornell
3.9 million for the whole place. If that doesn’t describe the sorry state of Reno’s gambling industry, nothing does.
Martin
Hell, people pay more than that for houses up in Smarten’s neck of the woods.
YoLeven
Always wanted my own craps house. Wish I had the $3.9M for that one. Or…maybe I could just wait a few years and get it at an even better discount……
Mike McGonagle
You have to ask what is the better investment – the worst house in the best neighborhood (Virginia Street Nugget?) or the nicest house in the worst neighborhood (Siena)? For the last several years, Siena has been operating basically without paying property taxes, gaming taxes, hotel room taxes, utilities, sewer, mortgage, land lease, casino lease, or their vendors and STILL couldn’t make it. I’m not so sure the new owners got a steal, but for now, this is a big win for downtown Reno. Not so much for the investors that backed the construction and operation of the Siena. There is significant wailing on the investors site at http://www.barkinvestors.wordpress.com where a $50M investment has been completely wiped out. There is a new comment there from a source I trust with more new information from today’s proceedings:
“A couple more observations:
– Innovation Capital took home a $300,000 commission on the $3.9M sale. Terms were $200K plus 2% of the sales price with $300K being the minimum. This over and above their generous consulting fees, and both come out of the gross sale proceeds.
– If I were a REL or RER investor and I’m not, I’d be questioning just what IC brought to the table and if this auction was too rushed. Yes, they show a good track record in this sort of transaction, but it isn’t like they did a national campaign or placed “casino for sale” ads in the RGJ. Combining the statements in court by the 2 IC reps, they contacted or were contacted by 46 parties about the sale. 35 nondisclosure agreements were sent out, and 16 were signed and returned. This resulted in the 3 bidders (there were no disqualified bidders).
– The BK court was right to allow an accelerated sale in my opinion but maybe this was too accelerated. The Order approving the sale was just posted by the court yesterday afternoon, clarifying the terms of the sale as being free and clear and not subject to Barney’s parachute or the other Leases, liens, judgments and Executionary contracts. Not everyone has PACER as their home page, and the ambiguity of what the Order really meant killed the financing of one qualified bidder that I know of, and perhaps others.
This is a bittersweet evening for me. When JR and I first hooked up through the magic of Google, we often discussed our common objectives in publicizing the Siena story, though also knew those objectives might sometimes be in conflict. For me, getting the Siena into the hands of someone, anyone, who could keep it open for the benefit of Reno and its workers and residents was primary and it looks like that has happened. JR was on board with all that, but of course maximizing the residual value of the REL and RER investments his primary objective. It’s unfair that I “won” and he as your proxy “lost” today. I wish the result could have been more mutually beneficial, but the cards were stacked against your cause.
So I know you aren’t happy campers tonight, and this was but one battle in your war. But if I can leave you with at least a bemused grin, I will share with you one more detail I learned in court today – Andy “King” has amazingly girlish hands. Seriously.”
GrandWazoo
Mike – how does anyone know that the new investors are not another Fernando Leal type of “investor” and they just let this thing sit dark for 5-10 years until they convince themselves that the $3M investment was just a mistake or downtown Reno just turns out to be the next San Francisco after all?
Think I’m wrong – how’s the King’s Inn doing lately?
Slattery
I have an idea for the investment group that lost $50 million on the deal. Just rename themselves Goldman Sachs and then ask the Treasury for a bailout.
I’ll take a fee of 300 basis points for structuring the deal.
Norton
You have hit upon, perhaps unwittingly, the whole problem. When Virginia Street is the “best neighborhood” this city’s gambling business is in serious trouble. Take a walk, (in the daylight for safety reasons) heading north on Virginia Street from the river to 4th street. Count how many street people you encounter on your stroll past the pawn shops, the 3 for $10 tee shirt shops, the dive bars, the liquor stores, and the decaying remnants of what used to be, 40 years ago, thriving casinos.
3.9 million was not a steal.
Harvey
And just today the Gaming Control Board announced that Washoe County’s gaming revenues for September of 2010 dropped, again. They were down 5.3% from September of 2009, which was down from September of 2008, which was down from September of 2007.
Guy Johnson
The new owners of the Siena plan to open a “a five-star property catering to “high-demand customers” willing to pay high-end prices”. Check out the front-page story in this morning’s Reno Gazette-Journal: Siena buyers plan to make it five-star hotel
Sully
“a five-star property catering to “high-demand customers” willing to pay high-end prices”
In Reno?
Guess that lawsuit against Microsoft gave them too much money to play with.
Baccarahh
5 star across the street from the Lakemill Lodge which features the homicide of the month?
You cannot build a 5 star place in a 2 star environment. These guys apparently have absolutely no idea of what business they think they are in. This is disappointing.
REreno
Lakemill changed hands on 7/1/2002 for $2,024,150. There are 123 (or 121, the count varies) at $120 per week = $64,000 per month in gross income. The purchase was at $16,456 per room.
Siena sells for $3,900,000. At 214 rooms, that works out to $18,225 per room. If you factor out each property’s retail and parking facilities, Siena was probably cheaper per room than the Lamekill (typo, but I like it!). 5 star, schlime star – the most profitable use for the Siena would be “boutique” weekly rentals!
RichardH
These guys would have a greater chance of success if they tried to resemble Baldinis and Tamarack Junction than the Four Seasons at the top of the Mandalay Bay. I worked in Vegas for 30 years, and I also wonder if these guys understand what business they are in. Do any of them have any experience in the hospitality/gaming industry?
I hope this place is open a year from today.
Carleton
Maybe the Siena could joint venture with the Cal-Neva to assert dominion over Center Street. But then, given Cal-Neva’s grind joint status (hotdog and a beer for $1.50), the overall rating would probably have to drop to 4.25 stars.
Walter
A 5 star hotel on Lake Street in Reno? Why there has not been this much delusion since Fernando Leal thought Sierra Street was Michigan Ave. and people would pay $500 a sq. ft. for condos overlooking the Kings Inn.
CommercialLender
I have a bit of a soft side for Siena as they tried and did for a time contribute to the cleaning up of that part of downtown. I’ve stayed there before and was quite safisfied with both lodging and food. It was not, and likely will never be, a 5-star hotel. Yet for this downtown location it was and hopefully will again be a net benefit to the neighborhood.
$3.9M or $18K/room is a fantastic deal, in my opinion. It will take money to reopen and rebrand, but I think they will do nicely with that basis over time. There still today exists little decent commercial debt available for such a hotel for various reasons including it is not stabilized and performing, it is not a flagged hotel, and its is ironically too small for most lenders. But a cash buyer with decent rebranding strategy and equity to ensure it happens to plan, should stand to do fairly well over the next ~ 5yrs. That said, attempting a 5-star business model will likely result in huge costs that could be problemmatic.
My guess is they try to rebrand it possibly with a major chain, then sell the second they can. I hope we don’t watch it go the way of the Virginian. By the way, anyone have an update on the Virginian?
Phil
I agree that the new owners would do much better to model the Siena after the Station properties in LV than try to be the Four Seasons at Mandalay.
The recent experience with the Station properties shows how difficult that market can be. But to think that big roller ‘high demand customers” are going to come to Reno instead of Vegas or Macau is downright absurd. Look around folks and see what Reno has to offer the high end client. High end gaming clients don’t want to ski.
SamM
I suppose it depends on what they mean by “high demand customers”. If they mean customers who want more than the Cal-Neva hot dog and a beer, customers who are upper middle class and who want first quality rooms and restaurants and entertainment, but are willing to get here by themselves, then I wish the new owners the best of luck. Best of luck.
But if they are talking about the premier high end gaming customers with $500,000 in markers set aside for them, then the new owners better open up the checkbook and go out an buy a jet airplane for twice what they paid for the property. Because those customers don’t fly commercial.
Cornell
The Peppermill, the Atlantis , the Legacy/El Dorado can’t get the premier gambling customer to come to Reno. You think the Siena is?
Puh-lease.
OttoHeinz
So these people think they can make the silk purse out of the sow’s ear. I will buy some popcorn. It should not take very long to see how this ends.
Mike McGonagle
There is a new post up at http://rereno.com about the Siena sale. For what it’s worth, the sale did NOT close on Friday as required by the 48 hour closing requirement in the deal (though 5 of the 79 Deeds from Friday haven’t populated yet). Did the court allow more time due to Veteran’s Day? Did the BK attorneys not clear the property tax, sewer, RSCVA and gaming commission payments that are required to let the closing proceed? Cold feet on the part of the buyer after reading all the comments on the RGJ (and even here)?
KedefedyNeilk
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