bostonbubble.com

[john p]

Sounds like a staged open house to me and a little followup marketing by person with the "developers perspective". Developers are sweating bullets, don't insult everyones intelligence.

If true, it signifies that people are looking for an alternative to the tired crappy overpriced existing condo stock.

I'd be patient and monitor how many units are actually sold, not "are under agreement" told to you by the developer. You might find what others are finding in Florida, which is you could afford a 1-bedroom today and 6 months from now you could get a 2-bed for the same price....

[Condo]

John P,
You are exactly correct... Broker Open houses are pre planned events in which developers send out hundreds of invitations, advertise the event and typically give away some sort of raffle prize. With all that being said, turn outs are typical not what Harbor View experienced...indicating a great deal of interest.
I had no intention of "insulting everyone's intelligence", and frankly, I'm almost insulted by the tone and accusation. I am simply stating what I know to be fact. If developers were "Sweating Bullets" and as you indicate ( thus, they must be less than intelligent) you would not see developers such as Vornado, Tramell Crow, Samuels Brothers, Extell Partneers, Goldman, Beacon Communities, Wassrman, Cresset Development, Regent Battery, Pappas and Atlas Development... to name a few, very recently green lighting projects. That's an awful lot of "unintelligent" people.

You are correct. lets see these P&S's convert ...this typically takes more than a month .....as stated, the property just opened. That's great traffic, great numbers...and they are accurate figures. Furthermore, correlating the Boston, conservative, predominantly owner occupied market, to a FLA, 2nd / investment home, (72% investor market) is not even worth commenting on. They are completely different RE markets. They could not be any more different. This is precisely my point...... the press comparing completely dissimilar markets, without drilling into the fundamentals.

[BillK]

Condo,

No one here is trying to make the case that the major participants in the Boston Residential Real Estate business are dumb or unintelligent.

Just look back six years ago and you'll see a lot of market players who risked a lot of Money on Dot Com and Telcom companies and lost. Were the market particpants dumb - or were they hoping to just do one more Big financial deal and the Market shifted and they lost their bet?

There were other players who sold companies at the height of the Tech Bull Market and made the killing of a lifetime (for example, a company from Acton-MA called Arrowpoint was bought by Cisco for $6Billion in May 2000). Market players take these Big risks to make the Big Pay off of a life time.

Boston has never been a great town for employment and the census numbers tell the sad tale of a declining population for Boston for the last five years.

Again, I hope your right and I'm proved to be wrong. I love Boston and would love to see it thrive. But, Boston cannot continually lose Big employers like John Hancock, Fleet, Gilette, Poaroid, Raytheon (moving jobs else where), Fidelity (moving jobs to RI), Putnam (for Sale) and not see a down ward pressure on Real Estate. Combine this with higher interest rates and the over lending that Banks have been doing = downward prices for Boston Residential Real Estate.

[john p]

We get so much propaganda from the real estate industry and for some dumb reason, the FED and other government agencies move on the word of Realtor Associations and "industry insiders". People have been preyed upon enough. Future generations here in Massachusetts are going to pay the price. Greedy people have earned a bad reputation and they have to deal with it. Claiming to have a "developers perspective" is not going to be greeted very warmly after years where the developers have held the whip hand, inflated rents and drove up the real estate market. No one felt bad for the new buyers, so people won't feel bad for the bruised feelings of a developer when the party is finally over for them. You can still be a Capitalist and root for the little guy.

When you reread your list of companies putting projects in our pipeline consider a couple of things: first, it takes years to get a housing project to come out of the ground. All of the projects you speak about were planned when the market was rising. At the time, there wasn't enough supply to meet demand. Like the stock market bubble, developers are like the investors that jumped on board. The projected value of the properties are most likely higher than what they will most likely return now. Moreover, the longer it takes to sell the units eats away at the profits with the cost of capital and the opportunity costs of another investment vehicle. I am very happy that new buyers have more options now.

Secondly, my question is who is going to buy them? Typical first time buyers can't touch them, young people already in condos are having trouble unloading their own place, the school systems are terrible in Boston so young families aren't attracted to them, and I'm not sure if developers are interested in them (the stock market is growing faster than real estate now). I would imagine that most of the people at these open houses were curious neighbors, other sellers benchmarking their price points, etc. I know lots of young families that bought condos because they felt that they'd better buy into the market before they got priced out of it. Now, they are worried about the quality of the schools, the lack of community and neighborly respect many bad areas have i.e. people honking horns at 2:00 a.m. These families are all trying to get out of Dodge and get into a starter home in the suburbs but are having trouble unloading their condos.

Perhaps retirees might want to live in these new developments, but don't they want to be in the peace and quiet? For sure you'll have young professional transfers and wealthier new buyers that don't want to deal with repairs or weird tenant arrangements that you'd get owning one floor in a triple decker etc. I wonder what the condo fees will be like in these places?

Lastly, developers are usually fly-by-nights. Developer properties are usually built with cheap materials and building systems that break down. Except granite counter tops. Everyone gives you a granite counter top. Your toilet won't work, but you'll have granite countertops. When things do break down, they just make tenants pay higher condo fees. In many high end condo developements built in the last boom you had many units go Section 8 later on in the last market downturn. I'm told that you had crack dealers and hookers in some of those properties. Some pretty smart people were involved in the planning of those areas as well. Sadly, it may in fact be a better alternative to the overpriced basement condo in the triple decker.

Obviously, my opinion is jaded, so be smart enough not to take offense and consider the source. If you can filter out the tone, you may find a few valuable takeaways...

[Sarum80]

We can get a feel for how strong the downtown condo market is after this weekends auction that Folio is having for their remaining units on Broad Street.

Condo if you are right they should go at or above asking price. I'll be interested to see where they sell at.

[Condo]

Folio...great story, Folio. Failed project, not failing condo market.... for many reasons. Frankly, I have been waiting for someone to bring this up in this forum...which was only a matter of time. This project was problematic from the very start. There are so many issues with that property, forgive me if this entry does not flow properly. Folio was originally designed as a commercial building, with all the ear marks of a commercial building. Right down to the footprint of how it was situated on Broad St. That's a huge issue right there...trying to convert a commercial high rise building to an attractive , comfortable, residential building. While the building was under construction it was decided, with influence by Jon Gollinger of TCC, to change it into a residential property in order to compete with The Ritz Millennium, One Charles and The Intercontinental. Another problem you can see right off the bat is that Folio does not have the name, financial backing, hotel / amenities, views (except on the very top floors) or location of any of these three high end competitors. Buyers of such properties demand many if not all of these features. Floor plans are also challenged do to it's original commercial space concept. They experienced very slow absorption from the start, so they decided to slash prices on the lower floor units, hoping they would recoup the loss on the higher floor units, with views (so the jacked up the top floor prices), all units had a lack luster finish package...not to the level of the three competitors. The market flat out rejected the project due to it's lower end finishes, lack luster floor plans, lack of view, lack of amenities, and better value at the other three properties. The other three properties kept chugging along during all of these property specific issues. They were dead in the water. Not only that, they had very poor planning from the start of the residential influence...the developer had allowed many people close to the deal purchase "investment units" at a discounted price, which these folks were now unloading, undercutting the prices the developer was attempting to sell at. So, in essence, they were competing with themselves. Honestly, this project was a complete and total disaster from the very start. Not only that, but Jon Gollenger is using this auction to jumpstart a little know venture he is starting...called Velocity ...an auction house!

Gollenger, in a partnership with an east coast development co, whose name escapes me right now, made a ton of money in the 80's auctioning off property along the eastern sea board. He then retired to a golfing resort in FLA for about 8 years until the Boston market picked back up. I think the best case scenario, there is a huge turn out, and the units are sold for approximately 85% of the original asking price. This would be marketed as a "success".... however, insiders all know, this project was, and is, a tremendous failure.

[BillK]

Condo,

Doesn't the Folio project tell you anything about Markets - and the possible linkage between Commerical and Residential. The Market for Commercial space in Boston came to a stand still post 2000-2001. This is when the Residential construction building boom took of in Boston.

Why? Plenty of Banks willing to make loans to potential Home owners and cheap money to borrow for the developers.

I don't believe a city can have a declining Commercial Real Estate Market and have booming residential Real Estate market - the people need jobs to service their Mortgage payments. Boston is seeing a never before conversion of commercial space to residential space. This trend is occuring all over the United States.

Sadly, Boston has been is being transformed and its not all for good. I hear the Littlest Bar is the lastest casulty to the redevelopment of Boston. Replacing a Commercial properties with residential in this wide scale fashion will have a negative impact on Boston .

I think it will lower residential property values (increased properties = less competition)
I think it will result in the residential property owners paying even higher taxes.

Just my opinion and I'm wrong often.

[john p]

I just got back from New York City. A new "hip" neighborhood is in the Meat Packing District. Outside of a nightclub is a sign saying "be respectful to neighbors and keep noise levels down..." They renovated upper levels of commercial buildings into housing; the bottom floor had the club.

If we have bad mixes of residential with commercial and industrial areas, it will just turn into slums. A drunk’s favorite place to live is in an apartment by a liquor store... The South End and Brookline Village have a nice balance, but are a bit out of reach for regular folk. The culture of developers and community development people are so far apart so it is difficult to create a vision. Most government jobs are so political that they don't have the vision to begin with. Sometimes the weird mixes turn out alright like artist loft communities. The problem is that it is expensive for artists to afford Boston so you don't get the creative vibe of a city like Providence. Artist's vision is like a spark that can show how to turn lemons into lemonade. So instead of artists, Boston will have rich divorced males trolling the night clubs hoping to trade in to a younger model with fewer miles. So the fruits of our labors and our tax dollars for the big dig will go to these people....

I think that the Greenway (the open area above the Big Dig) has the potential of being gorgeous. Someone can have a short walk to the financial district during the morning and then over to Barking Crab for a beer or OVERPRICED STEAMERS after work. On the weekend you can stroll down the open parks or sit by the waterfront. I'm not sure how long it's going to take to turn the corner and make its way down to South Boston, people keep talking about it... South Boston has a nice waterfront and if the water ever got clean enough to swim in, it would be great. The problem with that area is that it is so crowded, too many cars for an area that was built before the automobile. Hopefully the Silver Line bus tunnel will help move people in and out of these neighborhoods into downtown.

The other corner that the Greenway turns down is the Charlestown/Everett/East Boston/East Cambridge area. I think their success may come if the other flank, Revere and Lynn become something. There is enormous potential there and even with this bubble areas on the ocean, near the city aren't getting a big lift.

Revere Beach was more of a "public" area with the amusements. Now with all the residential, you can't hang out on the beach after certain hours. The big thing in my mind regarding condos are that because real estate was hot, we got housing demand in areas that were better served as public serving areas i.e. shopping and waterfront related. The West End of Boston almost feels off limits because each housing area fences off the public. Some of those housing projects block and constrict the nice flow from the esplanade riverfront east to connect to East Cambridge and Charlestown. People who buy condos want to get a sense that the area around them is going to blossom. The reality is that they usually only want to live there for a 5 year window and it takes sometimes decades for visions to come to fruition. The value of the condo stock in Boston really depends on how your area will flow into the nice parts of the City. If a big housing block sits like a boulder in a public area like City Hall or the Moakley Federal Courthouse, it will choke the potential flow. So I guess we'll have lawyers and divorcees; that's enough to scare away the muggers.

Like Revere Beach going from the amusement/ public beach scene to "luxury" housing; the Boston area lost a public gem. How nice would it have been to have the Patriots play by Anthony's Pier 4? Boston is a city that serves Massachusetts now. Because everyone in the State and Country paid for the Big Dig and not just Boston, the public areas in and around the new development should serve the greater good. The connections to the local neighborhoods are what will raise their values. These big mega housing boulders will just cut the life force from them.

[Condo]

Despite the enormous challenges facing Folio, read prior posting for details, they faired well this weekend. It shows buyers are out and will buy at good numbers based on “perceived” deal or value they are getting. People are out there; ready, willing and able.... $24 mill in one day confirms what I have been saying. The traffic and interest is prevalent, folks just need to be motivated. These units went for 80% of the last asking price (just shy of the 85% I predicted earlier in this forum) .....in my opinion ,very close to what they were worth to begin with. Analyzing the deal by deal break down, no buyer got a "steal".

Total asking price of remaining units: Just over 30 mill.
Total minimum release price for remaining units: Just over 19 mill.
Total from auctioned units: 24 mill (all units sold)

[john p]

http://business.bostonherald.com/businessNews/view.bg?articleid=161259

According to the Herald's article "Condos going, going, cheap: Bidders get great deals on 31 units at Hub auction" it states:

"The 31 condos up for sale in the Folio building on Broad Street sold on average for 30 percent below their asking prices.

Some barely fetched their minimums."

Condo, right about now, I thought you'd be eating your shoe after claiming that Condo Sales were "very strong". Was that propaganda or an honest miscalculation? Maybe your head is ringing from the sound of the bubble bursting. (kidding). I see how you qualified your statement regarding the "problems" associated with the development, but 30 percent??????? You claim to have projected them to go for 85% (at best) of asking. Even that is not a reality in a "very strong" market. Your last post suggests that they got 80% of asking, the Herald reports 70% (big difference). How 30% of asking "confirms what you've been saying" in that it is a "very strong market" is confusing to me.

30 percent off of asking price. I'm bearish about real estate now, but that even surprised me. 30 freaking percent off asking. Broad Street is an awesome location too. WOW. If people still are bullish about condos in Boston, 30 freaking percent.....

[Condo]

John,
The Herald is flat out wrong with data. 80% of the last asking price is 100% the truth. Ask anyone who was there...look it up when it becomes record. Provide me an email and I will send you the Sequence Sheet provided by Folio. Again, this is my argument, the press is completely unreliable at times. What I failed to mention, was that this price does not include parking. 2 Spaces are available to each unit for 75K per space; one was originally included. If you factor that in...it brings it up to closer to 90-95% of asking. You are searching for anything to make this correlate to what you have been reading. Did you not read about the issues with this property? It was completely overpriced to being with. Again, a property specific problem. Are you challenging that this was not a good indication of people out in the market place buying condos!? I stated this was going to happen ...and it happened. No one has a crystal ball ....but c'mon, this was a solid prediction. "Some barley fetched there minimum" ...please, this is irresponsible reporting. According to the official sheet, the closest auctioned price to the "Minimum Release price was a penthouse unit: 1401, 2BR/2BA, with terrace, 1553 Sq Ft , Min release price $1,025,000 ....sale price (without parking) $1,086,000. AS I said .... no one walked out of the auction with some sort of astonishing deal. It's all perceived.... analyze the numbers. Finding the truth sometimes takes more than just reading a blurb in the Herald.

[admin]

Condo,

I suspect that you are calculating your numbers differently from The Herald. You used the total asking price and the total selling price to calculate your figure. The Herald may have calculated how far below asking each unit sold for and then averaged those percentages together. Those two approaches would lead to different numbers in most cases - the discrepancy could just be indicative that the lower priced units sold at steeper discounts as your method puts more weight on the higher priced units. This is not to say that The Herald is infallible, just that there isn't necessarily a contradiction here.

- admin

[westsidebubble]

[john p]

Condo, I don't want you to feel like you're being attacked by a bunch of angry bears. In reality, most people want to have a detailed knowledge of the truth and if the Herald didn't factor in parking spaces, it does impact their figures. I was even shocked by the delta. Quite a charge though, the press does try to employ due dilligence. Some very smart people writing for some serious financial magazines have indicated that the Boston market is this much overvalued (30 percent).

Are you developing condos in Boston or do you have condos on the market now? People are going to seek what it is they want to hear, but in the end they want to know the truth, so don't be discouraged if your viewpoint is different, people would be foolish not to consider it. Perception is reality though and you can shop around to find the right motivated seller right now.

I think most people reading these types of posts are looking for three things with regard to condos. First, if a condo was was/is the accurate price trend, which way are prices heading, and how much off of asking price is a reasonable offer. The first word that comes to anyones mind after reading these three questions is "DEPENDS". I think that there is an aggregate number that if you average it all up and you have a good feel for your price range and locale you can make a reasonable stab at it. Because "experts" can't do this and all you get is "DEPENDS, DEPENDS, DEPENDS..." Most buyers are trying to find the floor and make outrageously low offers. Why wouldn't they, who has a handle on it? The reason why I suggest this technique is one, it worked for me, and two the motivation of sellers "DEPENDS, DEPENDS, DEPENDS". If this Folio deal was the exception and not the norm, why wouldn't others seek other exceptions until it became the norm? Keep in mind this real estate market is fickle because it is driven not by experts like in a commodity market, but by regular joes who get swayed by propaganda. Propaganda drove it up. Because condos could drop so steeply in price before most people actually lose money (the floor), there is so much wiggle room that it's really like a freefall before they hit that floor.

My hope is that we find a balanced market here in Boston and we get off of this feast and famine cycle in real estate. During the feast, you get fly-by-night realtors, developers, people overspend and use their home like a bank machine etc. In a balanced market, the fair and reasonable survive. For the future of Massachusetts we want our environment shaped by fair and reasonable folks. We want people who play by the rules not to suffer because of fly-by-nights and market forces that flood them out.

[Condo]

I typically focus my thoughts, as they relate to this forum, on the local condo market. However, I thought the below, as published in Business Week ...hit on exactly what I have been conveying. Dissimilar national and local markets, vastly different fundamentals.

Mark Zandi, chief economist at Moody's Economy.com released a mammoth report on housing prices last week. There is no doubt that Zandi is one smart economist, who mined reams of data as a foundation to his predictions. He sorted through everything from employment levels in certain regions to historical housing price increases. He examined 379 markets. He comments that the catalyst for the overall unwinding of the housing boom is higher interest rates and the unraveling of some of the markets due to high speculation and short-term investors, or flippers with the objective of purchasing and then quickly selling those homes.
REASONS FOR PESSIMISM: Zandi's predictions for specific markets are sobering. The worst hit metro areas, he asserts, will be Cape Coral FLA, with an 18.6% decline in housing prices; Reno NV, with a17.2% drop; Stockton, CA, with a 15.7% fall. ( Clearly destination locations and / or 2nd home / investment home locations) To conduct his analysis, Zandi looked at the supply and demand of housing, changes in mortgage rates, demographic trends, the job market, and new housing (See Business Week.com, 9/19/06 "Can Wall Street Withstand Weak Housing"

Zandi expects San Diego to drop 8.4% and Washington to drop 12% through the second quarter of 08.

BUT IN BOSTON, THERE IS A SHARP CONTRAST: Zandi believes the worst is over. He estimates that prices declined 2.2% in the second and third quarter of 06, and that should be the end of the meaningful declines. "Boston's jobs market is coming back, and the CITY DIDN'T SEE MUCH FROTH ANYWAY" says Zandi. Similarly, he expects New York to drop 3.5% through the fourth quarter of 08.

Writers sentiment is changing and economists are starting to either calm their pessimism or flat out reverse their negative predictions. In my opinion ......We are turning the corner press wise to greener pastures, and folks are beginning to see through the fog and report what the data suggests. State of Fear ....it's not news worthy unless it terrifies the public.