A number of readers have sent in this link to today’s Bloomberg article, written by my friend Oshrat Carmiel, on spec builders who are renting their creations when they can’t sell them. The story starts with the lady who built 63 Maple Avenue, discussed here from time to time, who finally threw in the towel and rented the place out for $13,000. Her carrying costs are $15,000, but she hopes to make up the loss when she puts it back on the market next March for $4.9 million, $500,000 higher than it was when it failed to sell this year. Good luck with that, ma’am. As I’ve written before, the house is built below grade on a very busy street with cheap(er) houses behind it. Neither of those conditions will change in the next nine months, so why should its price? The place will be older, used, and otherwise the same.
Carmeil closes her report with this quote, which I think nicely sums up the delusions of these builders:
Renting may not be wise for owners who eventually want to sell, said Mark Hanson, president of M. Hanson Advisors, a housing and mortgage research company in Menlo Park, California.
“It’s really doing nothing but delaying the inevitable,” Hanson said. “These houses are not going to double in price.”
A reader asked what was happening to the spec house at 1 Birchwood Drive but as far as I know, the answer is, “nothing”. The property came on as a building site priced at $1,600, 000 in early 2005 and in the height of that market was pursued by builders. The winner, and I suspect he regrets his luck now, took title with a bid of $2.017 million and proceeded to tear down what was there and put up an 8,000 sf ft (plus basement) house. He priced it at $6.495 in December ’06 and never dropped that price until it expired unsold in September ’07. He then switched brokers and repositioned it at $5.875 and again wouldn’t drop that price. The second listing expired in September 2008 and the house is either occupied by the builder or perhaps was sold privately – it hasn’t reappeared on the Multi-list and I don’t think it ever sold.
Regardless of its status, it’s revealing that a bidding war erupted for the opportunity to build on this site in 2005 and no one wanted what was eventually built, at least at the builder’s hoped-for price. What would it sell for today? I don’t know, but I’m pretty sure it would be considerably less than the last asked-for price.
45 Upland Drive
The builders of this place must hope so because they just dumped broker number two and have hired Mary Crist of Ogilvy’s shoppe to try and move it. Mary’s a pal so I wish her luck, but I’m sorry she couldn’t convince the seller to switch prices as well as agents. The price remains at $7.850 million, a level that so far has proved resistible to buyers. We’re into our fifth year of ownership on this project and the price has chased the market down from an original $9.250 million to $7.85. The land was purchased (via bidding war – heh) in 2004 for “just” $1.7 so there ought to be room here for the builder to cut his losses and run. I guess he’s got deep pockets and a will of iron.
41 Birchwood Drive
My own clients won’t. They don’t like the swamp that surrounds it and they don’t particularly like the street. I can see their point about the swamp, and I’m not madly in love with the layout of this place, but it’s well made and will work for someone who wants lots of house (8,000 sf, + – the basement) and not a lot of land to look after. It does provide an interesting snapshot of the history of our recent boom. 45 Birchwood, right next door, was listed at $2.795 in February ’04, hung around unwanted for 232 days and then a bidding war broke out and the lucky winner took it for $3.02 million. He fixed it up a bit and put it back up for sale eight months later in September 2005 for $5.7 million. That was a bit rich even for 2005 but he did sell it, finally, in May, 2007 for $4.9 million. Those were the days, for sellers.
But that was two years ago. This house has been completed and ready for a buyer to move in since April but so far, no one’s bit. The builder must be a man of principle and deep pockets, though, because he’s never budged from his opening price. I’m sure his neighbors are grateful.
634 North Street
A reader has expressed surprise that this house on North Street could dream of getting anything close to its asking price of $8.950 million, notwithstanding its easy proximity to the Merritt Parkway and its exits. EZ ON/EZ OFF certainly works for MacDonalds, so why not for (lots of ) sheetrock?
But convenience to transportation doesn’t always suffice for picky Greenwich buyers, and I fear for the future of some of the twenty-one spec houses currently for sale in town at $7.5 million and up. Forty-five Meadow Drive, for instance, enjoys direct tidal waterfront in Belle Haven but also has I-95 as a neighbor in its backyard. The fact that one could hop onto a trucktop and tour New England, free, so far hasn’t proved enough of a draw to attract a buyer, and the place sits vacant despite dropping its price from $17.9 million to a post-Madoff bargain price of $16.7.
2 Deer Park, 16,000 sf of house on bucolic Lake Avenue also provides an opportunity for car spotting, at all hours, but it won’t sell, even though its builder/seller has violated Mad Monkey’s rule and dropped its price below $1,000 sf. Give the man credit: he tried to move this stone collection at $16,250,000 but couldn’t do it, and has lowered his sights a tad to $14,750,000. It’s possible that Mad Monkey will grant him absolution because of this first attempt or even forgive him entirely because the shoulder of Lake Avenue is not the “truly prime” location that MM has now defined as his area of expertise.
Jordan Saper is moving his house somewhere in the sevens (maybe), but at the rate we’re going this year, these builders are looking at ten years of inventory. We all hope the market will improve a bit within ten years, but if not, the houses may still be around but their prices, and their builders, will not. Hmmm.
Circuit City is being liquidated, at a loss of 30,000 jobs and every penny of stockholder equity. This is the idiot company that fired all its tech-savvy employees and replaced them with minimum wage workers, the better to drive customers away, so its collapse is hardly a surprise. The same genius CEO who devised the “abandon all knowledge” staffing plan rejected a private equity offer of $17 per share in the beginning of 2005. It reminds me of the spec builder who last year refused a bid of $7 million for his unsellable North Street project in January, only to be forced to sell it for $4.5 later that summer. At least his lenders recovered some of their investment – I suspect that, as this year progresses, lenders are going to look more and more like Circuit City shareholders. Ouch.
I was out of the office much of the day today showing houses and it seems to me that there are still a lot of sellers who don’t understand what has happened to prices. They really should get out with their agent and look at houses priced below theirs. If the agent is careful in her selection, her seller will see better houses than his, for far less money, and even those aren’t selling.
I can’t help you with market conditions but I guarantee you that if you’re priced at $6.9 million and there is a better house – better design, better location, better grounds, asking $5.4, that owner’s will sell long before yours does.
The most egregious example of this is a new spec house that came on for $14 million when those agents who saw it thought $7.5 was its top price. Two years later, the builder still has it listed for $12 million which may be testimony to his deep pockets but not to his common sense. What I thought might be worth $7.5 in 2006 is probably worth less than $5 now. That’s got to hurt, if I’m right.
26 Taconic Road
26 Taconic is a nice house – it has its problems, but don’t we all? It’s been up for sale since September 2006, first at $7.895 and now, 2 1/2 years later, 25% less – $5.980. Buyers seem scarce so it’s also available for rent – that started at $20,000 and today it’s dropped to $17,000. So: can’t sell it away, rent it away, when does he try giving it away?
I wonder if this house’s difficulties cause any sleepless nights for the builder of the 12,000 sf spec house around the corner on Byfield lane? That one hasn’t hit the market yet but when it does, it might land with a thud and a splash. Ow.
49 Hillside Drive, new construction that’s been for sale since September ’07 (when it was still under construction) has drifted down from its original asking price of $5.990 million to, today, $4.989. That spares it from being included in the other 54 (53, now) spec homes on the market asking $4.995 and above, but that’s about it.
48 Parsonage Road was built on land that sold for $2,440 million in May, 2007 in what was probably the last hurrah for Greenwich land sales for the foreseeable future. The builders offered their new house for $7.850 in May, 2008 and couldn’t sell it so yesterday they knocked almost a million dollars off the price, leaving it for now at $6.895 million. That’s not likely to do the trick in this market, but do you remember when “pre-construction pricing” offered a discount from the finished price? Things are quite the other way around now.
Just to start the new year off on a cheerful note, I looked up some statistics for new, unsold construction that’s languishing on the Greenwich Multiple Listing service. There are, as of today, 54 houses built since 2005 for sale at prices ranging from $4.995 million up to $25 million (and many more below that but just for fun, we’re going for the top here). In all of 2008, 17 houses with those criteria sold, and of those 17, only 7 sold in the last six months. And of those 7, only 3 sold in the past 90 days. Which three were those? The lovely and oft mentioned 480 North, which sold for half its original $9 million price, 16 Beechcroft which sold for 75% of its original $8 million price and 205 Clapboard Ridge which is still under contract so no final price is yet known. But it started at $12.250 million waaaay back in 2004 and its last asking price was $7.975. One can speculate that its ultimate selling price will not be making its builder happy. I’m guessing 60% of ask.
So fifty-four spec houses which are certainly not going to sell for what is being asked, even though many of them have already slashed their prices dramatically. If the past three months proves a good predictor for the coming year, we’re going to see some builders and their lenders in serious trouble. And maybe some bargains, too.
UPDATE: What if the market comes roaring back and regains the torrid pace of the all-time sales year, 2006? I just looked that up – 27 houses built between 2003 and 2006 with a minimum asking price of $4.995 sold in the entire year. So we’re looking at at least a two -year inventory here and that’s if we recover fully. I don’t think we will. Not this year.
Driving around in the snow today (my theory about mounting snows on my car keeping storms away let me down, this time) I was struck by the number of new houses still under construction, many of which are spec projects (as an aside, my guide to all things real estate related, Frank Farricker, tells me that those two new houses on the Merritt, one on North Street the other on Riversville, are both owner built. How odd.). I understand that, once you’ve started construction you can’t just stop because market conditions have changed but the last thing we need right now are more new houses on more bad lots and most of these are on bad lots.
So what happens to all these houses no one wants? Some are bound to be bought, eventually, by lucky homeowners who will get something originally priced at $5 million for $1.5 million and live there happily. Others will be tied up in litigation for years as lenders, builders and limited partners duke it out and fight over who should take the loss and some will, I think, never sell. Would you pay $1 million for a house if, as an article I read recently suggested, it was going to cost you $500,000 to heat it and maintain the landscaping? I think not, if you have a $1 million house type of income. And those few remaining rich individuals who are undaunted by that size of bill will insist on, and will be able to get, a house on better land. I think a number of these houses are going down, eventually.
When I mentioned this house yesterday I didn’t remember seeing it and so I was – reserved – in my opinion of value. A commentator who obviously had seen the place took me to task for my mild tone so today I drove by and sure enough, I realized that I had taken did a tour of the house when it first came on. I agree with my reader.
It’s not an awful house by any means, and Lindsay Drive is a good address so this house has some value. I don’t think it’s going to sell for anything close to $13 million, though, and that’s why I didn’t remember it – when confronted with a wildly optimistically priced house I tend to dismiss it and assume I’ll give it fresh attention when the seller gets real. So what should this go for? I don’t know, but I might start at $5 million and see what happens (I’d put that offer in long distance, just in case the builder has a violent reaction). Remember, the seller has another project on Davis Avenue Ridge Street that is “locationally challenged” (the best idea I’ve heard for it’s ultimate disposal? Chop it into four separate units, because it’s already in the R-6 zone) and that financial millstone should, eventually, affect Lindsay Drive’s price too.
Or not – God looks after drunks, fools and builders with solid fiances, so perhaps He’ll send someone out from the city who perceives a higher value here than I do.
A reader informs me that the builder of 45 Upland Drive hosted an antique show/wine party there the other night, hoping, one supposes, to draw potential buyers. A house on Cognewaugh tried the same thing last Sunday. These events draw people, but are those people buyers? It’s possible, I suppose, and it certainly enables the listing agent to show that he’s doing something to move the damn thing but my personal advice is, if you can’t sell your property in two years, lower the price.