Greenwich spec builders – just stubborn or do they know something?

416 Davis

416 Davis Ave

This is a beautiful house on Davis Avenue (south of Bruce Park) with nice views of tidal wetlands. The owner/builder listed it for $6.975 back in April, 2007 and kept it at that price all the way through December, 2008 before dropping it to $6.495. Today it’s listed for rent at $19,000.

I’m aware of at least a couple of offers extended and rejected on this house. They weren’t close to its then-asking price, but I figure it’s costing something like $300,000 a year just to pay the interest on the building loan, so why the reluctance to cut and run?

Builders are notoriously mule-headed: I’m involved in a deal now where the builder just refused to see reason until literally the day before foreclosure. I know of another guy who, after rejecting our offer with a string of coarse words that his granny would never have approved of and has now, nine months later, lowered his price to what we offered then. The owner of 23 Cornelius Drive, having listed his project for $11.5 million, rejected offer after offer for six years while the house sat empty and deteriorating and the offers lower until he finally caved last summer. And so on.

Which is not to say that the same fate awaits this house on Davis. It is really a fine house and there’s no particular reason to think that someone will appear who is willing to pay its price. But if and when he does, will there be any profit left?

8 Comments

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8 responses to “Greenwich spec builders – just stubborn or do they know something?

  1. AJ

    not getting mentioned on CNBC today on housing —

    Moody’s Expects Higher Losses on Alt-A and Other RMBS
    Research Recap
    October 30, 2009

    This ResearchRecap has been tracking the worrisome performance of Alt-A mortgages for some time, so it comes as little surprise that Moody’s is increasing its loss assumptions for these supposedly “close to prime” loans, along with Jumbo, Option ARM, and Subprime RMBS from 2005-2008.

    Moody’s said it now expects that a trough in home prices will not be reached until the middle of 2010.

    The impact of the revisions is expected to be significant for Alt-A, Option ARM, and some Jumbo pools backing securitizations from 2005-2007, with the most pronounced changes expected for the 2005 pools.

    Performance has deteriorated significantly in the last six to nine months, with loss severities trending higher than Moody’s previous expectations. The impact will be less pronounced for Subprime, but still notable for the 2005 pools.

    Other highlights:

    Since the first quarter of 2009, when Moody’s last announced revised lifetime loss expectations for the major RMBS sectors, several key economic indicators and performance metrics have worsened relative to expectations. Even though the Case-Shiller index reported home price gains for three consecutive months starting in June, Moody’s believes the overhang of impending foreclosures and the continued rise in unemployment rates will impact home prices negatively in the coming months.

    Moody’s Economy.com (MEDC) now forecasts a third quarter 2010 home price trough. When Moody’s last revised RMBS loss projections the trough was projected to occur at the end of 2009. MEDC projects a total peak-to-trough decline of 38% (versus 35%), compounded by muted subsequent home price growth of less than 5% in the year following the trough.

    Although the magnitude of forecast peak-to-trough decline has only worsened by 3 percentage points, the extended timeline will have an adverse impact on mortgage pools and stressed borrowers will continue to default at high rates.

    Adding to borrowers’ financial pressure, unemployment is now projected to peak at over 10% in mid-2010 and to remain in the high single digits for two years following.

    Borrowers’ refinancing options are still slim, and the benefits of loan modifications have yet to be seen due to the 5-month trial period during which modified loans must be reported as delinquent. In addition, modifications of loans owned by the GSEs have outpaced modifications of loans owned by private-label securitization trusts

  2. Anonymous

    Most one-off spec builders or homesellers have relatively tiny personal net worth

    Would not predict that anyone with such net worth is an adept negotiator or investor or trader

  3. “Builders are notoriously mule-headed”

    Maybe, just maybe, builders are soooo stubborn in slashing their price for every tire kicker that throws a # at them, because it’s there livelihood at stake. It’s not a game for these guys. They bought fair, built fair and feel they are entitled to costs plus some profit.

    What you’re asking them to do essentially is take a salary cut. Turn the tables and see how that rubs you.

    • christopherfountain

      I completely agree with you Duff, and I really do hate to see a builder who has poured his heart, skill, labor and fortune into a house on the losing end. And I am not blaming them for hanging tough (although 21 Cornelius is an egregious example of wildly overpricing a spec project). But when the handwriting’s on the wall, when a house is losing value every month and the interest payments are piling up, the idea of cutting one’s losses would seem to deserve more consideration than it gets. I’ve been through the process myself, back in 1987, when land my partners and I bought in Kent was depreciating at a 25% per annum rate and our interest payments accruing at 12%. It sucks, but we eventually threw in the towel because, even though we knew Kent property would come back, by the time it did, we’d have paid too much in interest to ever hope for a profit.

  4. Anonymous

    I am sorry to disagree with you Chris (usually I don’t) but this is one of the ugliest houses in Greenwich. The formal living and dining rooms are the size of a large closet. The flow is terrible and the so called water views are of marsh. Maybe worth in the 4’s for a person with no taste. I think it will rent (not for 19) but won’t sell for a long time!!

  5. xyzzy

    I have to agree with Anonymous. Looked at it back in 2007 and wasn’t impressed at all. My memory of the house was that its flow was horrid.

  6. Retired IB'er

    Sorry, but feel no pity for real estate developers, but than I very much live my life with the view that “he that lives by the sword, dies by the sword”, which IMHO describes real estate speculators (which builders who…. wait for it… build on SPEC are!!!!).

  7. Diva4ever

    Agree with Anonymous–house is ugly inside. Builder made some taste-specific choices (English pub/game room in basement, weird (giant) fireplace wraparound.) No WOW factor, just ewwww!