SLU prices raising?

July 27th, 2007 · Comments

Ben and Ashley (I guess Vulcan doesn’t like me anymore. Sad, I like getting press releases from developer’s marketing companies) let us know that as of August 1st the South Lake Union projects (Enso, Rollin and Veer) will begin holding back inventory and raising prices. It’s basic econ 101. Decrease supply and prices will go up!

Is this strategy justified? You be the judge…

Enso has sold 70 of 100.

Rollin has sold 53 of 208.

Veer has sold 54 of 90.

(This data is a about a month old but it’s been a slow summer so it can’t be that off)

Bonus link: 22 West Lee units on Redfin. On Wednesday they cut the price of two units by $25,000 and two by $50,000.

Other: Summer has been busy so sorry posting has been slow. I’m headed out of town for a few more days so see you Monday.

Popularity: 16% [?]

Tags: Enso · Rollin Street · Veer Lofts

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Viewing 25 Comments

christiangustafson 1 year ago 1 point
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This is a very exciting development! Now we can be truly world-class like Miami! Seattle condos have the amazing ability to appreciate before they even exist!

Rollin, especially, at about 25% sold. Maybe Paul Allen has done well enough so far with sales that he's just desperate at this point to find some way to throw a spanner in the gears and muck it all up. Paul will find a way!

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Rachel 1 year ago 1 point
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Wow christiangustafson we believe that you are a real blog reader...

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Dan C. 1 year ago 1 point
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Sounds like desperation 101 to me. Make more money before the creditors come calling.

With sales ratios like those, how could you possibly justify an increase in price? Perhaps they are following the "prestige pricing" model of Hermes, LV, Mont Blanc etc.

Has anyone read "The Madness of Crowds" or "Irrational Exuberance"?

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Brian 1 year ago 1 point
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This will almost surely backfire. The only potential this has to work is in a really hot market - when sales are slowing decreasing supply may have the effect of sustaining prices but only at the cost of additional inventory.

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Chris 1 year ago 1 point
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70 sales on Enso is strong. Tightening credit is having a big effect on potential buyers forth other two. 15-30%, depending on who you ask, of the potential buyers have in essense disseapered recently

I'm glad its Vulcan that has several big holes in the ground and not some other less capitalized group. they have a vested in interest in the quality of the neighborhood so are (IMHO) less likely than others to leave a cratered project.

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Dan C. 1 year ago 1 point
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Chris,
I agree with you...Vulcan does have a vested interest, along with city backing, to finish the SLU project. That being said, they have not broken ground on Rollins and Veer correct? What if they just never start due to decreased demand? What happens to the buyer? (Does anyone know what happens here?)

Remember...even well capitalized group have left projects in the dust. (Tech Tower in 1999 comes immediately to mind, seven year hole in the ground)

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Dan L 1 year ago 1 point
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Dan C - All three projects are underway, in fact all 3 already have cranes up. How can you view those sales numbers as reason for desperation? 70% sold at Enso, 60% sold at Veer and 25% at Rollins (a fair number considering the overall number of units), all within the first few months? Considering they've got 1-2 years until the buildings open to sell the rest of that inventory I'd say they're doing fine. Developers are smarter than you're giving them credit for: if 70 of 100 units have sold at Enso, why not mark the remaining 30 up 10%? Sure, they may not sell these 30 as quickly, but they've got plenty of time and the decreased supply should balance out the higher prices. At least is the case with Enso.

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Dan C. 1 year ago 1 point
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I wasn't aware that they had broken ground...I haven't been to the area in a bit.

I realize that in traditional economic thought a decrease in supply equals a decrease in demand. Traditionally real estate demand has been very elastic, but in recent months has become extremely inelastic. You have massive amounts of inventory (near an all time record in seattle) entering the market, yet demand continues on a steep downward pace. One complex's inventory is not a micro-market within itself, yet a component of the larger market as a whole.

Although I am not a developer, I would think that keeping prices at a moderate level would allow you to sell you inventory quicker in a declining market with declining demand and get the project off the books, while all other condo complexes flounder in the RE downturn.

Whether or not you believe a downturn is occurring is for another thread altogether :)

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Dan C. 1 year ago 1 point
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EDIT:
I realize that in traditional economic thought a decrease in supply equals an increase in demand.

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jo 1 year ago 1 point
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It's safe to say Vulcan knows more about the market than any of us on here, and if they are confident enough to put millions on the line by reducing inventory and raising prices, I think that's a pretty good indication on how exactly well the market is doing.

:)

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seattle67 1 year ago 1 point
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They've definitely broken ground, I was at the Whole Foods last weekend and peered down into the hole that will someday be Rollin Street.

These projects are probably the least risky of the major developments in town because they have one thing the other's don't - a ton of city investment in making sure South Lake Union is a success.

However, where I do think Vulcan will have challenges is with its next round of buildings after these three go up. I think there's change brewing within Seattle that's going to slow down the kind of development we're currently seeing.

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Dan C. 1 year ago 1 point
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seattle67, agreed. The City will not let anything bad happen to Vulcan...after all, Nickels entire administration has been built around these buildings and that stupid street car. :)

What will be interesting to see is how Henry Leibman approaches development in SoDo, watch for that to be the "next big thing" in both office and residential development.

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mhays 1 year ago 1 point
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If a developer has deep pockets and isn't worried about cash flow, it's to their advantage to sell later rather than today. Assuming there's appreciation of course, but most developers (or at least the ones who've been breaking ground lately) are making that assumption. Therefore, why not sell at 2008 prices?

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Phil 1 year ago 1 point
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I just don't have the same faith in developers being able to time a market that some do. Developers are in the business of building, not holding onto land, and usually overreach at some point. Can you say London's
Canary Wharf?

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Dan C. 1 year ago 1 point
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Phil,

You and I should hang out. :)

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EconE 1 year ago 1 point
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Whatever.

Maybe I'll rent in one of those buildings next. I wonder how many of the Enso units were sold to specuvestors.

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Dan L 1 year ago 1 point
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EconE - not many would have been sold to investors. This latest wave of development has brought with it much tighter restrictions (actually ANY restrictions would be tighter than what there was before which was NOTHING). Most current projects are requiring investors to identify themselves as such, and they are limiting the total number to 5-10%. Additionally, there are restrictions such as a no-rental policy for the first year, and any profits made from sale of the unit within the first year will be split or given in their entirety to the developer. These covenants vary by project of course.

I'd also suggest that this is a factor in the slow-down we've seen in new condo sales: 2 years ago some projects had 20 or even 30% investors, now it's limited to 5%. Developers have wised up to the fact that 50 MLS listings competing with your last few units for sale(ie the penthouses at Cosmo) doesn't help.

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mhays 1 year ago 1 point
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Furthermore, anyone who buys in 2007 knows that the days of fast-rising prices are over. Therefore, it would be rediculous to buy a new unit to flip right now. (In contrast to flip buyers in 2006, who we're merely optimists.)

People who buy today have "middle" assumptions. We think prices won't fall, and might grow a little. That's a recipe that ensures that most buyers plan to live in their units, and are buying without urgency.

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newbuyer 1 year ago 1 point
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Rollin and Enso are definitely more than just holes in the ground at this point. The cranes have been up for about 2 months and lots of work has been taking place. The webcam at the rollinstreet.com website shows time-lapse pics if you wanna check it out. Pretty exciting...

At Rollin Street it is time to choose upgrades, finishes, etc... so I have no worries of this project being abandoned!

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jo 1 year ago 1 point
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As far as I know there hasn't been a single project abandoned in Seattle which has presold condos

You guys have nothing to worry about

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richard 1 year ago 1 point
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Until the first one there aren't any. I doubt we'll see any large projects abandoned until there are more finished units on the market.

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Matthew 1 year ago 1 point
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It never happens until it happens.

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Chris 1 year ago 1 point
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Developers are deal driven. If the financing is available, you do the deal and work to create value that makes the deal work, even if the market is movng away from you. Have you seen the movie the Perfect Storm? Why did they die when anyone with perspective would not advise that they go out in the storm? Because they fish to eat.

How else could you explain why are developers still building homes in CA's inland empire?

Its nearly impossible to time the market, IMHO, given the two-year period from concept development to breaking ground, and another 12-18 mos of construction. The market was impeccable until recently, so there was no reason not to break ground. Now its a race to complete and sell. Raising prices helps retain the presales they have and attract new buyers becasue they have "momentum" to sell.

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newbuyer 1 year ago 1 point
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have prices gone up at Rollin?

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Kelly Nutt 1 year ago 1 point
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I am not sure. I have found a place there that I want to purhase. I have been looking at it for the last few months, and the price is still the same, and I do believe it is the same price when it was available in the summer.

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http://www.kellynutt.com