Another Developer in Distress
Last week it was a 16-unit building in East Williamsburg, yesterday it was a hole in the ground in PLG and today the fire sale by a developer under pressure is on the western edge of Bed Stuy. The developer behind the six-unit, Scarano-designed condo at 354 Franklin Avenue (aka 120 Lexington) is now offering…
Last week it was a 16-unit building in East Williamsburg, yesterday it was a hole in the ground in PLG and today the fire sale by a developer under pressure is on the western edge of Bed Stuy. The developer behind the six-unit, Scarano-designed condo at 354 Franklin Avenue (aka 120 Lexington) is now offering 25% off to anyone willing to buy all six units. The building itself is 8,500 square feet, with 7,000 square feet of residential space. $2,300,000 gets it all. Details here.
I know “all these details” because I can see them from the street.
I don’t really like to see people loose their shirts, but if you’re going to be greedy and cynical, sometimes it comes back to bite you.
the bubble brought in a lot of people who decided to try their hands at development. In 2005, a developer could sell any piece of crap so a lot of developers made crap to sell. I dont know anything about this developer or the developer on Ocean Ave., but it seems they were tempted by the same promises of high returns that caused many to sign mortgages they couldn’t afford.
Yes, they got into trouble on their own, but we can still have a bit of sympathy for them.
Anyway, how on earth do you know I haven’t visited?
Serpentor,
And you would know all these details as to how the project was constructed because you are a……ah yes professional a..hole.
Go visit the place and then maybe your comments will have some merit.
The person was let out of their contract since you must know.
The windows don’t match. Or line up. The whole place is made out of cardboard and aluminum. Franklin is a freeway right there and those wacky decklets on the Franklin side are just going to be soot covered smoking decks.
The developer is in trouble because the building is shoddy and anyone can see that. And, I am pretty sure that no one is paying $2700 for a one bedroom apartment on the G train just yet.
Still: I’m confused. The last time this building came up, didn’t someone claim to be in contract on a second floor unit?
Ozymandius, I’ve no doubt that my figure is below the money that the developer has put into the project but in a default scenario the lender will take what they can get.
I’d also be surprised if it did go for $1.4m at the end of the day – someone will feel they can make the numbers work before that point. My number was what I feel it is fundamentally worth. I’ve missed out on plenty of real estate deals because someone else thought they could push the numbers further. What is happening in the market now is vindicating the position that I took.
In my assumption, I took a 20% haircut for rent. This was to account for a coming fall in rents – a combination of falling demand and increasing supply – and to increase the cushion on vacancy (4% including management is far too low). Assuming the rest of the expenses are okay, this is a rent roll after expenses of c.$100k. If the project return is 7% then this equates to an enterprise value of $1.4m.
In better financial times, you could juice up your return on investment with a higher debt component (reducing your denominator) and lower interest payments. Is any bank going to lend money on a project like this at less than 7% in this environment? Unlikely. And because you’re taking the risk, your required rate of return should be higher than that of the bank – hence my use of 7% as the baseline.
The tax treatment for depreciation affects your net return but not your gross return so your equivalent gross will be higher than 7% but that depreciation offset is there for a reason – it’s to account for the wearing out of the asset over time. It’s tempting to make no provision for this for a decade (it is a new building after all) and then take the big hits when repairs are due but it doesn’t negate the fact that it should form part of your calculation.
I’m not saying the building has NO value but if you sunk $2.3m + fees into a new business, you would want to get more than $100k (or even $136k if you use their numbers) for the risk that you are taking.
Yes the news is bad and people are scared. But some of the idiots on here don’t seem to have a brain. Until recently, everyone wanted to be a polly anna and now everyone wants to be a chicken little.
Clearly the developer is in trouble and is going through a sequence of price cuts. But for people to suggest that this is not an attractive purchase at any price is ludicrous.
1.4MM price gives much more than a 7% return. Especially when you factor in the tax treatment for depreciation. We’re well into double digits and this is after discounting the rent rolls by 10%.
Get a life folks. Look at the return that you’re getting on your saving accounts or in the market right now. There are a lot of damn good buys out there is you have liquidity. Those that do will make a shit load of money and the rest of us will sit on the sidelines and cry about it.
According to DOB website, this is a Scarano building WITHOUT a Certificate of Occupancy. No wonder there is a fire sale.
Just wait a little while and you can buy as many as you want from the courthouse steps for really big discounts. There is no way I would pay a single cent for anything for sale in the city right now – no matter how good it looks compared to the last 5 years in terms of price. Like the headline from the other day, it will be cheaper tomorrow. Until the economy recovers you’d be a fool to throw away money on a receding asset that may or may not ever recover even to the price you paid for it – at least in our lifetime. But hey, if you have money to throw away go ahead and jump in. Does anyone on here thinking these are good deals even own a TV or read the news?