And now they’re finding themselves in a somewhat “warmer” place.

You suggest that the it would take 30 years to pay the debt off with some nice assumptions made.

One of your nice assumptions was that the cost of capital is zero. I am going to suggest that the cost of capital is greater than zero. (We could debate deflation/inflation, and so on…)

Without going further on this topic, let’s look at the return on investment, assuming that the $23.6 million is the total investment, average of $1,700 rent.

1700 average monthly rent per unit x 86 units x 12 months per year = $1.75 million annual rent.

1.75/23.6 = 7.4% return on investment.

Given that the 7.4% is an idealized number that is an upper bound, and does not include normal operating costs, 5% vacancy, and so on, I personally would not touch it. Given that the fixed costs are fairly high, the potential for negative returns is far too likely.

Again assuming the $23.6 million, I know this has been discussed in the past, but I’d like to see more like 2.83 million in annual rent (ROI of about 12%–monthly rent 1% of investment/market value). That’s about $2,750 per unit, on average. Truth be told, the $23.6 million is probably a low number. In other words, the developer probably put some of his own cash in the game. Thus the rents would likely need to be over $3,000 before this becomes financially attractive to an investor.

In other words, the rent only covers the cost of capital, and it is insufficient to cover paying the principal down.

It might be interesting for you to do a post on the Winners and Losers of this game. For example, there were some home owners who made out nice. I suggested to a friend to sell in December 2005 and move to treasury instruments. He sold, put his money in treasuries, and now pays his rent with the interest from the government’s printing presses. Clearly he was a winner in a big way.

On the other end of the spectrum are those who bought at the top, the developer discussed here, and countless people who thought they could finance their way to prosperity with housing equity that was always positive, no matter how often a withdrawal was executed. Divorce, bankruptcy, and other ills soon follow. Oh, and let’s not forget the millions of baby boomers who invested in the ‘mortgage backed securities.’

YOU GOT IT DAVID

There were many families that couldn’t understand why I picked a lower priced home in 1999, when I qualified for twice the house. Wellllll…..the way RE prices are going, they respect me now and wave at me. Ohhhh, and my 9 and 11 YOs, back in 1999, actually had over a hundred kids in a fenced playground and park to interact with from 1999 on [fenced HOA with security too]. Where ya going to find that, even in the $300K apartment village, Hades, its all mostly DINKs there?

Another good reason for buying low and smaller, besides mitigating current investment losses and massive property tax with mass energy waste/cost too; imagine trying to sell a $300K unit today, let alone a $600K house in a collapsed wage mitigated job market with banks turning into Scrooges. And IMO, its only going to get much worse.

By the way, the homes in my neighborhood were selling immediately in a week in 2006-2007, Kent or no Kent….that HUD home across the street has been for sale at $110K the last year…..rebuilt with a $29K price increase the last week…..I’ll let you know if it sells….LOL

They may have to reduce it to $100k to get a buyer, but imagine buying a $300K condo and having to reduce its price to $150K to sell it…LOL

The whole idea of town home permitting was that the price point would be about $160K up to $225K. When the units started selling over $300K developers thought they had died and gone to heaven.

I would like to add anyone with young children to the list of those who don’t like stairs. There’s a good two year period when you get grey hair anytime your kids go anywhere near stairs. They have mobility but not cor-ordination = real big risks for bad falls on stairs.

It’s in kent for crying out loud. Kent!.

Most people arent really that afraid of stairs.

I was disgusted.

Buy the $139K reconditioned Hud home next door to me in Kent….the sheet rock may smell of mildew from a two year chronic unheated vacancy, but at least its a 1400SF rambler design [comparable to a 1800SF split level in living space] with a dinky lot [at least it has a lot]. And better yet, no neighbor with a wall next door to scream at you to turn your TV down from low to inaudible.

It has new rugs, mahagony floors, new kitchen counters, new exterior panels, newly painted inside and out, etc, etc….

Makes these type of dinky sized two story apartments with stairs to climb [and take up mass SF living space] look like horrifying trailers with no land. Those upstairs bathrooms [water heaters and washers too] are wonderful too: when the toilet flap jams open and the toilet simultaneously clogs with water continuously pouring out destroying the downstairs ceiling and rugs….and its not if it happens, its when it happens…LOL

http://seattle.bizjournals.com/seattle/stories/2009/07/20/daily51.html?ana=yfcpc

http://www.redfin.com/VA/Oakton/2836-Jermantown-Rd-22124/unit-47/home/9519204

http://www.redfin.com/VA/Oakton/2954-Paddock-Wood-Ct-22124/home/9519872

http://www.redfin.com/VA/Oakton/9977-Cyrandall-Dr-22124/home/9836911

LOW COST LOOKING COMMUNITIES PICTURED IN TIM’S ARTICLE

But the $300K price tag is anything but low cost. With property tax and such, what would the monthly cost be on these apartment homes? $1800-2200 or higher with a lower FICO [probably the type of buyer it would attract too].

Just save your rubles and RENT.

In the 1980s and 1990s until about 1998 I spent a lot of time in community meetings. They are in the evening, great networking, and a way to see future development trends. It’s a part of the Real Estate business, it’s the main reason you pay a Real Estate agent, you pay them to know what’s going on.

Any way, these town houses were to be low cost housing units as a buffer between larger NC 30, mixed use buildings and residential. NC30, 40, 50 or whatever went by the wayside. Including commercial spaces was a disaster on many levels, that makes no difference here. The point is that “cluster” housing is what was proposed, but row houses is what we got.

Municipalities love these easy to permit, very dense, housing units for the permit fees and tax base. Police and Fire Departments called them hazards. It made no difference, after the first few were permitted everybody started building them.

The low cost of construction and land acquisition soon gave way to the $350K price tags. $160k was the number first bantied about. Now even in South Everett Plygon Homes had a line up to buy town houses at $199K.

These will be blights. Municipalities were warned. Our City Council was warned, but developers packed the meetings and gave campaign contributions. The other thing was how the meetings were structured. Community meetings were held in neighborhoods. People complained, howled, and got all worked up. Police and Fire representatives called them rats nests for criminal activity or stated you can’t get a fire truck into those driveways. Then the policy meetings were held down town at 2Pm or 4PM.

We have a lot of community work to do. Many neighborhoods are now in danger of having criminal enterprise set up shop in any one of these town house settings. There was no infrastructure required in these “residential” clusters other than a sidewalk out front. It’s something that will need to be address far beyond just the resale price.

So, should we consider the development of the last 5+ years a lost cause?

When we were looking we excluded anything built this century. I’m sure there is some stuff built this century that is decent quality and layout, but it wasn’t in our price range.

Although if they ever built the promised “South Beach-inspired party pavilion with jetted spa, plasma TV, fireplace and BBQ,” it is well hidden.

The latter is subjective, while the former is not.

There were great development plans for Kenmore. The hold up was that darn 522 corridor which they are just now expanding.

Just like Aurora at 85th, the wait for development is taking longer than people thought.

I hope that with the change in the market, new developments are actually desirable to live in. A series of boxes jammed together with no yard or balcony makes no sense if you’re going to live so far outside of Seattle. I don’t think it makes sense in Seattle either. I can’t wait to see desirable properties again, something you can actually live in – something you actually WANT To live in.

I think you are being too hard… some people would love to live in a storage unit. The homeless, for example.

Believe it or not, we have a similar development on the edge of town in Pullman, WA, bordering endless wheat fields. 2 bedroom “luxury” townhomes with ZERO yards, not even a backdoor. Just a small balcony over the driveway with just enough room for a grill.

Lived on 75th for two years up the street opposite the PCC. Nothing like the weekly sound of gunfire at 3:00 a.m.

75th is on the 40 yard “nice stretch” of aurora.

http://blog.seattlepi.com/realestatenews/archives/174470.asp

And yes Kary, 85th and Aurora is the very worst of Seattle’s townhome ghettos and home to some of the ugliest construction every forced on a city this side of Kiev. Disgusting.

I hope that with the change in the market, new developments are actually desirable to live in. A series of boxes jammed together with no yard or balcony makes no sense if you’re going to live so far outside of Seattle. I don’t think it makes sense in Seattle either.

I’d agree, even with the last sentence. There’s a project that I think was built a few years ago, and probably all sold, on 85th, just east of Aurora, if I recall correctly. Ugly, ugly, ugly.

Never mind. I misread the artcile.

Maybe it’s just me, but I thought the article a little unclear. Columbia State Bank, First Sound Bank, and Venture Bank are not filing for bankruptcy, they are attempting to force Mastro onto bankruptcy.

They could have sacrificed about 5 of those and spaced them out a little better. Instead they look like glorified 3rd world housing. They could also have made the streets a little wider too. When I look at those it does not look like “Home Sweet Home” at all.

So I think the biggest reasons they arent selling is of course, the price. But almost as important, there is “more to choose from” and those just look awful. Also, they look as if they were rush built for profit.

http://www.urbane-redmond.com/

I live in Lionsgate, just kitty-corner to this development, and I watched with interest while it was being built in 2007-2008. I signed up for their mailing list and they sent out mail near completion stating that the townhomes would be listed in the $800k(!) range when completed.

They were on the MLS for several months, and as far as I know not a signle unit was ever sold. A little while later, a sandwich board went up outside stating the units were now available for lease. I talked to someone in the “leasing office” there and they said the units were going for ~$1800/month. Since that’s many hundreds of dollars a month more than I’m paying for a similar sized unit across the street, I just shook my head.

Today, there are people renting there, but not many. There appear to be many vacant units there. None of the business storefronts they built have businesses in them.

I’ve been watching these townhomes for over a year now:
http://www.redfin.com/WA/Seattle/309-27th-Ave-E-98112/home/18659189
The developer put actually zero thought into the design (except maybe how to maximize revenue). They couldn’t even RENT these things, I saw them on craigslist for months. I wonder how long these get-rich-quick development will even last – will they be standing in 10 years?

http://seattletimes.nwsource.com/html/businesstechnology/2009492112_mastro18.html

But then I looked at the pictures. I can’t really say what my thoughts are about those.