Details on Escala’s Exit from Fantasy Land

Kirsten Grind over at the Puget Sound Business Journal posted a more detailed update yesterday on the 180° strategy turnaround at the upscale downtown condo complex Escala that we mentioned a month ago.

Escala cutting condo prices by 50 percent

Downtown Seattle condominium tower Escala will lower prices by as much as 50 percent on unsold units, the luxury building’s new marketing firm said Tuesday.

Rennie Marketing Systems and the building’s listing agent, Bellevue-based Teambuilder, declined to release price cuts on each unit, but said savings will range from 20 percent to 50 percent.

“What the prices were has no bearing on what they should be for this market,” Mehr said. “We priced it as if we had a brand-new building today.”

This is quite the turnaround from April 2008:

Lexas principals John Midby and Eric Midby said prices are going up partly to send a message to prospective buyers: If they’re waiting to buy until prices drop, they’re reading the local market wrong.

That was some top quality denial, right there. Somebody was certainly reading the local market wrong, but it wasn’t the prospective buyers.

Back to Kirsten…

Escala cost $370 million to build and has sold just six units.

Just six units. Out of over two hundred and sixty. Considering the fact that they claimed in ’08 that around seventy units had sold, I suppose it was only a matter of time before they finally faced reality.

You can only live in crazy fantasy land for so long.

(Kirsten Grind, Puget Sound Business Journal, 2010.03.02)
(Eric Pryne, Seattle Times, 2008.04.26)


About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.

49 comments:

  1. 1
    Astro Kermit says:

    If you guys are curious, here is the marketing pitch they sent me. They are reducing homeowner membership fees by cutting back the staff for their bar, restaurant and spa to a as needed basis. The previous plan was crazy! Aren’t restaurants, spas and bars businesses that can sustain itself?? They were planning these businesses to not be profitable from the start. Amazing.

    =============================

    As a valued registrant, we would like to share with you details of the important changes happening at Escala Seattle. First and foremost, our pricing has been dramatically reduced. Below is a list of starting prices for our One, Two and Three Bedroom Homes.

    1 BEDROOM, 1.5 BATH, 952sf Homes starting at: $384,000
    2 BEDROOM, 2 BATH, 1607sf Homes starting at: $699,000
    3 BEDROOM, 2.5 BATH, 2442sf Homes staring at: $1,574,000

    In addition, we have taken a sustainable business approach to homeowner fees and services. The concept of Club Cielo, a five-star, 30,000sf club facility with outside membership, will now be available to Escala residents only. This decision has greatly reduced homeowner fees. All the while maintaining an unbelievable level of service and a greater level of security.

    What does this mean to you? In place of a fully-staffed Bar, Restaurant and Spa we are moving to a User-Pay system. Whether you’re planning a private party for your 40+ guests, want to schedule a fitness trainer or masseuse on Thursday or simply want to book the screening room – all can be arranged through the concierge and Columbia Hospitality. Where costs are involved, those fees will bill directly to you instead of burdening the entire Home Owners Association. The fitness facility, resistance pools and changing rooms are always available.

    There are many things that have not changed at Escala. These include access to an extensive amenity package, spacious homes with the largest decks of any downtown development and classic Seattle views. Combine all of that with Absolute-Value pricing and there is no other building like Escala in downtown Seattle.

    Our sales office opens to the public on March 27th, 2010. As an early registrant, we’d like to get you in prior to the March 27th date. Call 206.816.6300 to schedule an appointment with one of our new sales professionals.

  2. 2
    Eli Goldberg says:

    Reading the article only accentuates my own feelings of the insanity of the government’s attempt to “rescue” the housing market by keeping prices high.

    Escala received *200* calls after lowering prices. Well, duh! I’d buy a home in Seattle today if the prices fell another 20-30%. Wouldn’t touch them at current pricing.

  3. 3

    Check Out the New Big Condo Buildings at Night

    Then count the measly amount of windows with lights and people living in them….in some cases the buildings were built in like 2007/2008 and you’ll see like 2% of the windows with lights.

  4. 4
    The_Dude_Abides says:

    Truth & facts are stubborn little buggers…they just won’t go away.
    Hahaha Eli – I’m with you. I am now officially out of the condo market and will hopefully find a sfh some day. I saw a gutted ranch in Kirkland the other day and thought it would be worth $100k as is. Well, they wanted $324k. Maybe they forgot that it hasn’t been fixed up yet? Or am I all wet?
    Back to condo’s – my problem with condo’s are that they are filled with smokers.
    Keep pluggin away SB.

  5. 5
    David Losh says:

    Sorry, but condos in any major metropolitan hub sell for millions of dollars. Here is Seattle we have severely limited amenities in our down town core, but still our condo market seems cheap in comparison to other cities.

    Fact of Fiction?

  6. 6

    By Eli Goldberg @ 2:

    Reading the article only accentuates my own feelings of the insanity of the government’s attempt to “rescue” the housing market by keeping prices high.

    Escala received *200* calls after lowering prices. Well, duh! I’d buy a home in Seattle today if the prices fell another 20-30%. Wouldn’t touch them at current pricing.

    To me, the government attempting to “rescue” the housing market by keeping prices high is not only insane, but can only have the opposite of the desired effect. In fact, if the government really wanted to “rescue” the housing market, they should encourage lower prices. I’m not sure how. Certainly staying out of the marketplace altogether would have that effect, but that’s not what government does. Fine building owners for leaving buildings vacant if they are habitable?

  7. 7

    By David Losh @ 5:

    Sorry, but condos in any major metropolitan hub sell for millions of dollars. Here is Seattle we have severely limited amenities in our down town core, but still our condo market seems cheap in comparison to other cities.

    Fact of Fiction?

    Fiction. If they were so cheap, they would have sold. I think part of the problem, besides the general state of the economy, is that they built so danged many of them.

  8. 8
    DrShort says:

    All the condo auction have pretty much killed the condo prices in Seattle. The 5th and Madison auction coming up probably pushed them over the edge.

  9. 9

    By DrShort @ 8:

    All the condo auction have pretty much killed the condo prices in Seattle. The 5th and Madison auction coming up probably pushed them over the edge.

    That’s sort of like saying all the bulldozing activity in Haiti has destroyed the housing there.

    Stated differently, I think it was the building/conversion activity that destroyed the condo market. (Edit: I wrote this before reading Ira’s comment number 7, which apparently I agree with.) And again I’d note we went through this before in the early 80s.

    Does anyone know what the financing options are for these things? Do they provide financing for the bidders, pre-qualifying them, or is it more like a foreclosure auction?

  10. 10

    RE: Ira Sacharoff @ 6 – I think what they’re trying to do is provide a “soft landing.” As I’ve noted before, markets over-react both directions. The problem is the housing market over-reacting on the downside would take out the banking industry, which would take out the economy.

  11. 11
    DrShort says:

    By Kary L. Krismer @ 9:

    By DrShort @ 8:

    All the condo auction have pretty much killed the condo prices in Seattle. The 5th and Madison auction coming up probably pushed them over the edge.

    That’s sort of like saying all the bulldozing activity in Haiti has destroyed the housing there.

    True. I guess I was thinking the condo auctions forced their hand. They could no longer have any hope of fetching their asking prices.

  12. 12

    RE: David Losh @ 5

    One Major Seattle Problem Swept Under the Rug

    Besides enough ready qualified buyers and the horrifying money to fund them; parking. Assuming you’re talking downtown Seattle, where do we find parking for all the gypsy condo hoards?

    I see, they don’t own cars and can all walk to work or ride buses?

    LOL

  13. 13
    anonymous says:

    RE: Astro Kermit @ 1 – So what is the parking situation? Is it another $20K to buy a parking spot? It sounds like the restaurant, spa, and bar were so unpopular they were huge money losers being paid for by the HOA, so they are just going to leave the space empty but available for reservations.

    RE: Ira Sacharoff @ 6 – I don’t think the government is trying to rescue the “housing market” per se. I think they are trying to rescue the banks. Lower prices = more people underwater = more foreclosures at lower values = more markdowns on the banks books. IMO, helping the banks is a much stronger motivation for the government than helping builders, agents, homeowners, home depot, or anyone else. That means higher prices are more important than higher volume at the moment.

    I agree lower prices would help buyers, agents, furniture and appliance sellers, etc.

  14. 14
    Scotsman says:

    There’s a huge lesson here for all, especially those who believe that recovery is just around the corner. Simply stated, in the end, cash flow rules the day.

    The revenue needs to come in and the payment have to be made- there is no sustainable way to get around that fact. They have to sell the units to generate the condo fees, make reductions to the construction loan, etc. to keep the project alive even if it means selling them at cost or a loss.

    It doesn’t matter if it’s a bank, the corner grocery, or a fancy new condo building. You can try all the fancy accounting, subsidizing, cost shifting, etc. that you want but in the end cash flow still rules the day. Cutting prices here may be too little too late to ever make it a profitable project or even keep it from default but it at least buys time and keeps the illusion of viability alive.

  15. 15
    Astro Kermit says:

    Reading this quote:
    “prices are going up partly to send a message to prospective buyers: If they’re waiting to buy until prices drop, they’re reading the local market wrong.”

    It is still happening today. I just happened to stumble upon this property:

    2848 NW 90 Pl Seattle, WA 98117
    MLS: 2973

    Note the price history:
    Feb 25, 2010 $554,000
    Jan 19, 2010 $542,950
    Jan 07, 2010 $539,000

    http://www.redfin.com/WA/Seattle/2848-NW-90th-Pl-98117/home/12303808

    It’ll be interesting to see how the price fluctuates in the next couple of months.

  16. 16
    Astro Kermit says:

    RE: anonymous @ 13

    Sorry I didn’t get the price of parking. Are they not included? I’m so stupid to assume that is a given I didn’t even ask!

  17. 17
    shawn says:

    RE: Astro Kermit @ 16 – I remember hearing about bidding wars for condo parking spaces, back in the bubble days.

    San Francisco generates more revenue from parking fines than it does from property taxes. When lack of parking generates revenue for a city, you find that the city is not motivated to create parking spaces or greatly require new buildings to build adequate parking spaces.

    At my “rented” condo, I get one reserved and one extra non-reserved spot. The non-reserved is a free for all, so it might be filled up and tough luck.

  18. 18
    The Danza says:

    RE: Astro Kermit @ 15
    It appears they are chasing the market up…nice size lot though!

  19. 19
    anonymous says:

    RE: Astro Kermit @ 16 – I don’t know if they are included or not, but I know condo owners who have had to pay a significant amount extra for a parking space.

  20. 20
    Noz says:

    Isn’t Rennie the same douche who’s taken over the Vancouver condo market and turned a once beautiful city skyline into a clusterfk of phallic wealth symbols?

  21. 21

    By Astro Kermit @ 16:

    RE: anonymous @ 13

    Sorry I didn’t get the price of parking. Are they not included? I’m so stupid to assume that is a given I didn’t even ask!

    I paid $10,000 for a covered parking spot on First Hill back in 1978. I would assume a covered spot downtown is more than $20,000 today.

  22. 22

    By Noz @ 20:

    Isn’t Rennie the same douche who’s taken over the Vancouver condo market and turned a once beautiful city skyline into a clusterfk of phallic wealth symbols?

    I haven’t been to Vancouver for maybe 4 years, but I think their skyline is much better than ours. Their downtown was much more vibrant too.

  23. 23
    Astro Kermit says:

    By shawn @ 17:

    RE: Astro Kermit @ 16 – I remember hearing about bidding wars for condo parking spaces, back in the bubble days.

    San Francisco generates more revenue from parking fines than it does from property taxes. When lack of parking generates revenue for a city, you find that the city is not motivated to create parking spaces or greatly require new buildings to build adequate parking spaces.

    At my “rented” condo, I get one reserved and one extra non-reserved spot. The non-reserved is a free for all, so it might be filled up and tough luck.

    Yup, there was some data posted on it less than a month ago:

    http://blog.seattlepi.com/insidebelltown/archives/193874.asp

    In 2009, this tier system brought in $25,275,734 in parking revenue for the city.

    Here’s the top 5 parking revenue collecting neighborhoods in Seattle in 2009 (rounded up) according to SDOT:

    1. Downtown, $4.8 million
    2. Belltown, $4.4 million
    3. South Lake Union, $ 2.1 million
    4. Pioneer Square, $2 million
    5. University District, $1.9 million
    6. First Hill, $1.5 million
    7. Uptown (Lower Queen Anne), $1.5 million
    8. International District, $1.2 million

    ========

    Based on Kary’s post, factoring inflation, $10k would really be $32k today (not $20k).

    Okay, so using the Krismer Parking Index, and with the revenue comparisons above, Downtown collects 3.2x First Hill, so parking at Escala should be over $102,000.

    I bet Escala’s parking isn’t that expensive so think of it as posh living, cheap parking =]

  24. 24
    David Losh says:

    When you live down town parking is an issue, big issue. I was actually jailed for unpaid parking tickets one time when I lived down town. I was surprised by how much I owed, it was $1400. It cost $225 to get bailed out, but the judge told me, “Obviously Mr. Losh you have a complete disregard for the law.

    The next time I lived down town some years later is cost me more in tickets than a rented slot in a Diamond lot. You have to be vigilant, all the time, in down town. When you live, and work, there it’s easy to forget the meter, and parking lots expensive because they know they have you over the barrel.

    I’m happy to be in the suburbs, and avoid down town as much as i can.

  25. 25
    Ray Pepper says:

    “I was actually jailed when I lived downtown”

    I knew it!

  26. 26
    anonymous says:

    By David Losh @ 24:

    the judge told me, “Obviously Mr. Losh you have a complete disregard for the law.

    Did you stand there, light a cigarette, and say “What’s your point?”

  27. 27

    I just love that line of thinking. ” Nobody’s paying my asking price so I’ll show them! I’ll raise the price!”
    What can you tell someone like that? “Put down the crack pipe.”?

    By Astro Kermit @ 15:

    Reading this quote:
    “prices are going up partly to send a message to prospective buyers: If theyâ��re waiting to buy until prices drop, theyâ��re reading the local market wrong.”

    It is still happening today. I just happened to stumble upon this property:

    2848 NW 90 Pl Seattle, WA 98117
    MLS: 2973

    Note the price history:
    Feb 25, 2010 $554,000
    Jan 19, 2010 $542,950
    Jan 07, 2010 $539,000

    http://www.redfin.com/WA/Seattle/2848-NW-90th-Pl-98117/home/12303808

    It’ll be interesting to see how the price fluctuates in the next couple of months.

  28. 28
    Astro Kermit says:

    Crazy! How long were you in jail?

  29. 29

    By David Losh @ 24:

    When you live down town parking is an issue, big issue. I was actually jailed for unpaid parking tickets one time when I lived down town. I was surprised by how much I owed, it was $1400. It cost $225 to get bailed out, but the judge told me, “Obviously Mr. Losh you have a complete disregard for the law.

    An ex-girlfriend’s father was almost jailed for unpaid parking tickets–all tickets for the car he let his daughter drive! He was rather PO’d.

  30. 30

    RE: Ira Sacharoff @ 27 – I was advising an agent a few years ago on a pre-foreclosure situation, and she was running out of things to do, so she raised the price. The place sold on the eve of foreclosure.

  31. 31
    David Losh says:

    Parking down town is brutal. At 8AM the meter maids line up in all residential sections and start issueing tickets. Once they know your car they watch for it. So when you run an errand, and want to use the 3 minute parking, or 30 minute load and unload, you come back to a ticket. It’s a game.

    I was given the choice to pay the $1400, but once in front of a judge they reduce, or do away with the penealties.

    Not that I’m cheap, but really I am, so I opted for the judge, and spent the night in jail. That’s when I got the lecture with the next option to pay bail of $225, or spend nine days in jail. I paid.

    For some reason that resolved the tickets, with no need to go to court again.

    Now I pay any ticket I get in person and keep a reciept in my desk. My wife sent in a payment by mail about a month ago, and they never got it. We had to pay the penalty.

  32. 32
    Pegasus says:

    David Losh @ 31

    David in the past you stated you are all about having guns and staying out of jail. I would love to take a look at your books but somehow i think you don’t have accurate ones……fines lost in the mail….widower….condos in Seattle are cheap……money is everywhere…etc., etc. Don’t worry I am not with the IRS….just wondering what reality really is….? Is there a reality or just fiction?

  33. 33
    David Losh says:

    RE: Pegasus @ 32

    My life is like According to Garp. My mortality makes it that way. Watching my wife die at age forty set things in perspective.

    So I have travelled a bit and want to do more, but I do know that in other metropolitan areas condos in the down town core go for a premium.

    I have also said that our down town core is a blight compared to other cities. Our City Council has repeatedly looked for the cheapest way to do things, without vision. In my opinion they are only interested in who will give them the next campaign contribution.

    As far as the guns, that was a strategy I had before I remarried. It’s OK, the Fed keeps pretty good track of those types of investments. As a matter of fact my entire collection was confiscated at one time while I was out of the country, by the Bellevue police, and cataloged.

    The only reason I brought it up is because in 1996 or 1997 there was an economist who said that if the survivalists are right, gold will do you no good, he would rather have a gun. It also was about the time of the gun ban so it worked out. I sold for an after tax profit.

  34. 34
    shawn says:

    RE: David Losh @ 33 – one little thing David, it is downtown, one word.

    In SF parking is an art. You have the plastic bag over the meter trick, which is what you do to let the lazy meter maids know it is broken (even if it is not). However, the meter maids that care, will stop, get out of the tricycle, and put in a coin, if it works, the bag comes off and you get a ticket.

    It used to be that if you went in to fight a ticket and you provided a good story, then the ticket was tossed. I told a great story about pulling into the bus stop because I had run over some trash that was stuck to my muffler and smoking. So when I was putting the trash in the garbage can, I noticed I was getting a ticket and the meter maid would not stop. I was really using the ATM.

    Then you have the penny trick, use a pair of pliers and snip off the edge of a penny, put it in the meter, and it jams the meter with the time stuck at max time.

    You have the streets that have no parking between 4-6 for rush hour traffic on weekdays. From 4:00 to 4:30 they tow the out of towners who did not realize a street with meters also has no parking times, and they did not properly read the 12 signs. So from 4:30 to 5:30 the lane is open. From 5:30 to 6:00 the lane fills up with folks sitting in their cars waiting for 6:00. Sometimes the cops come by and make you leave, so you circle around for 5 mins, then come back. So the 4-6 lane is really just opened for one hour.

    Your short term memory must be good because you might park in any direction for any number of blocks. Average time to find parking, 40 mins. And if you try to steal a spot that someone is waiting on, expect flat tires and scratched cars. Never happened to me cause I never wanted to risk it, but it did happen to a pal of mine. You will learn how to fit into spots with a few inches in front and back.

    And this is just a small part of the story. Needless to say, for SF, it was worth it.

  35. 35
    shawn says:

    RE: Ira Sacharoff @ 27 – Some people think they can start a fire with a wet noodle. This strategy of chicanary is not practiced by smart people. I just pray it does not work on even a fool.

  36. 36
    Mikal says:

    RE: David Losh @ 31 – Parking is a step in living downtown. How many steps do you miss in representing people

  37. 37
    Scotsman says:

    RE: shawn @ 34

    That’s funny- reminds me of the time I spent in Philly PA many moons ago. Lots of tricks on the parking, especially remembering where the car might be. Philadelphia has a bit more of a gangster aura about it, at least in some places. There was no point in trying to keep a nice car. We joked that the most popular parking technique was the braille method, followed by the brute force method. People really didn’t care what they did. And it wasn’t unusual for whole blocks to be missing their meters- they would be ripped off the posts.

  38. 38
    ivan says:

    RE: DrShort @ 8

    In this episode of House Hunters, which aired in July 2008, they looked at one of the 5th and Madison units. The whole show is full of awesome Seattle real estate hyperbole. I had no idea I live in the Gateway District.

    http://www.hulu.com/watch/57207/house-hunters-downsizing-in-seattle

  39. 39

    RE: Scotsman @ 37
    Ah, yes, the city of brotherly love. When I was a kid, Phillies outfielder Richie Allen had to wear a batting helmet in the field because fans would throw glass bottles at him. And fans threw snowballs and booed Santa Claus at an Eagles game. WC Fields gravestone reads ” On the whole, I’d rather be in Philadelphia.”

  40. 40
    DrShort says:

    RE: ivan @ 38

    I was renting a unit in 5th and Madison back in 2008. In November 2008 when the economy was imploding, the landlord put the unit on the market. I believe he was asking around $620K. After a few weeks he got an offer and begrudgingly agreed to $560K. The agent noted that they were “giving it away”.

    During the inspection phase, the buyers backed out with no reason given. I had already found a new place to rent so the unit sat empty for a few months. In early 2009, it rented. At that same time, the owner stopped making payments. It was foreclosed on a few months ago and is now sitting there at $420K asking price.

    The landlord had invested in several new condo units in the area. Didn’t turn out so well.

  41. 41
    GV says:

    Obama could setup a new security agency for the purpose of analyzing his drone bombings of Pakistan villages, and to study the effectiveness of tripling US forces in Afghanistan. This could be based in Seattle. It would create jobs and residents for the condos. Nevermind that we’re all being taken for a ride and none of our military endeavors overseas provide any value to Americans whatsoever. American sheep have proven themselves–nobody speaks when it comes to funding agencies dealing with muslim boogeymen. Jobs! Cha Ching Seattle!

  42. 42
    Hugh Dominic says:

    RE: DrShort @ 40 – well that doesn’t make any sense. Over in the equity ladder thread, I learned that the key to building wealth was to pick up rental units and let the tenants pay your loan off for you.

  43. 43
    shawn says:

    RE: Scotsman @ 37 – It is wierd to go through that because later in life you find joy in having a parking space. At least it is weird to me because not most folks I know now would think how happy they are to come home and just park. But to this day, I really value parking spots.

  44. 44
    David Losh says:

    RE: Mikal @ 36

    My business is services, and services pertaining to Real Estate. A Real Estate encompasses many things, and investments. Domain names, which I also collect, are Real Estate.

    Buying property is an investment that we are currently waiting for. Buying property is best done during the cycles that make the most sense. There was a window last year when you could buy property to sell this year for a profit. It was a risk, but in hind sight the opportunity was there.

    Downtown condos also had thier day in 2005 and 2006. You could have sold for profits.

    In my opinion the biggest problem with downtown Seattle is Paul Allen. He has expanded the borders, confused the focus, and diluted the core. We have development from the International District to South Lake Union, and over to the Seattle Center. That’s a lot of territory with a lot of development to fill in.

  45. 45
    The Tim says:

    RE: ivan @ 38 – Oh, wow. That is rich. We’ve got our next Friday Flashback… Anybody else reminded of this when watching that episode?

  46. 46
    gloomy gus says:

    RE: The Tim @ 45 – Funny you should bring that up. Since the episode ivan linked gives the house-hunter’s name, it wasn’t hard to dig around the internet to find out this poor guy…sells insurance. Not that there’s anything wrong with that.

    He did pay what he claimed for the condo. Mortgage in place from what I can see.

    It appears he got title to that Queen Anne house whose appreciation he noted so carefully…in a divorce settlement.

    Looks like he tried to but didn’t sell his Queen Anne house. Defunct listing photos online suggest he updated the living room, kitchen (even adding a bay window), and bathroom from what what the program showed…to no avail, I guess. County shows him still paying taxes on it.

    Win some, lose some.

  47. 47

    […] now worth just $20,000 more than he paid in 2004. That’s a 4% gain in six years.Hat tip: ivanPosted in Local, News | Tagged 2008, flashback Posted by: The Tim Tim Ellis is the founder of […]

  48. 48

    […] smacked with a clue-by-four in 2010 and decided to join the rest of us in reality, announcing price cuts of 20 to 50 percent across the board.It sure is lucky that Seattle developers avoided the problem of a big oversupply […]

  49. 49

    […] a little tidbit that I found amusing. You recall the ongoing saga of the flailing downtown luxury condo Escala, right? As I was listening to Pandora the other day, […]

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