107 responses so far ↓

• 1 The Tim // Nov 20, 2007 at 11:19 pm

  Great post.

• 2 seattle67 // Nov 20, 2007 at 11:33 pm

  I like your optimism, and think you’re dead on with your ideas. However, it’s going to take a lot of political pressure to change the mindset of Seattle’s ‘build in-fill development now and we’ll deal with it later’ city land use policies.

  Aside from periodically updating zoning height limits downtown and adding a few new environmental requirements, most of our city’s planning and development work goes into ensuring buildings conform to code, rather than how they fit into a larger long-term vision for the surrounding community.

  When any new private building goes up in this town, unless it is in a specific area the mayor and/or the council care deeply about (like say the Pike Place Market or Pioneer Square), almost no energy goes into thinking about how the new building will compliment the surrounding neighborhood. The only times this consideration happens outside these areas is when an ethical developer actively wants it to happen.

  If Seattlites are as smart as you suggest, hopefully they’ll start sending mediocre developers a message by not buying into carelessly planned developments.

• 3 tomasyalba // Nov 21, 2007 at 12:24 am

  “…contingent we build the infrastructure.” If he’d only led with that phrase, I could have skipped the freshman-marketing-major worldview and be in bed by now.

• 4 Downtown Guy // Nov 21, 2007 at 7:40 am

  Tomasyalba, I do understand my posting was “verbose.” And, I agree with you that I should have perhaps lead with “contingent we build the infrastructure.” I want to create a compelling argument, however, with supporting detail by looking outward at other major cities vs. looking inward, as Seattle is shamefully known for doing.

  For the record, a “freshman-marketing-major” I am not. I write too poorly to be considered something with such high standards :-) I appreciate your commentary, and thank you.

• 5 Kristin // Nov 21, 2007 at 7:53 am

  Downtown Guy,
  I found your blog quite insightful. I’d like to hear your ideas about other areas - like perhaps Oregon? I’m working with someone right now who is planning to break ground on a condo project in the city of Corvallis. Thankfully, he realizes that it’s not Portland, etc, and is wanting them to be priced so they will sell. I’m curious about demographics. Who do you see is buying condos today. As someone else referred - is it mainly DINKS?

• 6 Downtown Guy // Nov 21, 2007 at 8:46 am

  Seattle67, I am completely on board with your thoughts. Essentially, are you suggesting that Seattle adopt a “Vancouver-esque” model? If so, care to join me in a fight for a better downtown?

• 7 happy renter // Nov 21, 2007 at 9:49 am

  Admittedly, I began to dismiss the post as soon as I read “…I see tremendous potential in the Seattle market for prices (and product offering) to soar even higher”. But I found myself nodding in agreement by the end. Thanks Downtown Guy for writing this and thanks Matt for posting it.

• 8 nitsuj // Nov 21, 2007 at 10:06 am

  Nice post! I travel quite a bit and always found Seattle’s pricing laughable for what they are offering in return. Funny you used Chicago as that was one city that really stood out to me as the pricing seeming absurdly low.

  Vancouver-esque, if we could be so lucky!

• 9 Downtown Guy // Nov 21, 2007 at 10:51 am

  Kristin, in my experience I would envision Corvallis as a family-centric community, meaning most households will typically necessitate more room for children, toys, a yard to play, communal areas, a garage for cars and storage, etc., I believe you would be more successful committing to a “DINK” strategy for marketing. I make this suggestion based on the assumption the condo community does not have a large yard-like area for playing, two-car garages for vehicles and storage, and large square footages for everyday living as most condo communities do not. Condoss are usually smaller and promote a “hiving” kind of lifestyle, which is good for those who do not have children, or for those who are retired or empty nesters. If, however, the condo community to which you are referring will have the amenities I mentioned, you may have a shot, as long as pricing is RIGHT. Families will not pay more per square foot to gain smaller spaces. Economically it isn’t conducive to the lifestyle they seek.

  I think it would be a tough sale to appeal to families with children in a town like Corvallis. It is challenging to reconfigure the mindset of family-centric communities to a “hiving” mindset, even though I feel it certainly has its advantages. Therefore, in this instance, set the target for those DINKs or the like-DINKs. Corvallis has not yet accepted a true downtown-lifestyle-hiving model. Once a hiving model is accepted in a community, it becomes easier to create and market these kinds of communities to families. So, it may be a while before you can really get families to widely accept condos as a viable alternative to single-family homes.

  I hope this helps. Your thoughts?

• 10 Downtown Guy // Nov 21, 2007 at 11:10 am

  Happy Renter, thanks for the support! I can get a little carried away. I’m curious, though, assuming you are a renter from your blog name, what are your thoughts/predictions for the condo market in Seattle? I find it insightful to get feedback from both condo owners and those who rent. I believe somewhere in the middle is the solution. Care to share?

• 11 Dan C. // Nov 22, 2007 at 1:33 pm

  Downtown Guy

  I don’t think you want to open up that can of worms. I think you can view some of these opinions from a ton of past posts on here.

• 12 Downtown // Nov 23, 2007 at 10:59 pm

  apples to apples….Dallas is twice the size, um maybe, does that mean it is better and has more to offer???….condo developments are a function of economics and profitability….they may have better finishes and design elsewhere but what are developers paying for the land, entitlements, and construction costs…those are the bigger issues….developers build condos for hopefully a 10% profit….this is universal…condo developers in Seattle are not getting over on buyers like you think they are…they are subject (constrained)to the dynamic of the local market….

• 13 Downtown Guy // Nov 24, 2007 at 7:40 am

  Downtown,

  Apples to apples. I agree completely. Actually, Dallas is WELL over twice the size of Seattle as I was being conservative. Feel free to look at the statistics. I am very well aware of the costs of land, entitlements and general construction costs - and in some elements these costs are the SAME or LESS as those cities I have mentioned, excluding Dallas. That’s why I speak in terms of percentages, not hard dollars, from what developers costs have risen as opposed to what one is now paying. Speaking to me of economics with respect condo developers is comical. I can assure you I understand what the developers are clearing in Seattle and other markets - and it ISN’T 10%. As I stated before, the line of business I am in dictates I work with these guys. Condo developers are hard pressed NOT to clear a minimum of 30% in Seattle. Nice try, though. You sound like you may be working FOR the developers as opposed to WITH the developers.

  Once again, it goes back to what I stated earlier - we’re all tired of hearing the SAME excuses you just presented as its becoming rather transparent to consumers. Thanks!

• 14 seattle67 // Nov 24, 2007 at 11:13 am

  DG, Good follow-up on the ‘economics’ post. I’m tired of hearing ‘it doesn’t pencil out’, ‘it’s not economical’ or ‘developers build condos for hopefully a 10% profit’ as excuses for why certain developers can’t make any changes to their plans to better fit into their surroundings. What we should be doing as a city is really looking at the costs and in the places where a developer’s improvements would benefit the surrouning neighborhood, we should be giving them tax breaks for making those improvements.

  Anyway, in response to your earlier response about working to make a better downtown. If you’re willing to expand that to making a better Seattle, count me in.

• 15 Downtown // Nov 24, 2007 at 8:22 pm

  first of, Dallas metro is 6M and the Seattle is metro is 3.9M, that is easy math, Dallas is not twice the size

  bro, I don’t don’t know of anybody pulling 30% off of any multi-family development….30% would be the very rare exception…sometimes developers don’t even make money on their investments…in general, the average profit margin is about 10% on a condo development in Seattle….and how do you substantiate for your mystery research into land, entitlement, and construction costs for all of these markets???

  I can tell you right now that there is a margin between construction costs between building in Dallas and Seattle….

• 16 Downtown // Nov 24, 2007 at 8:34 pm

  and yes, I work with developers as well…the only 30% margins I have seen are for repositioning apartment buildings and that is on a PROFORMA basis…I have worked with most of the big players in town…..keep in mind all developments are a function of profitability (even affordable housing), if it does not pencil, it does not happen…..everything else is a secondary concern…..30% in this market and cycle just does not exist….sorry charlie…

• 17 Downtown Guy // Nov 24, 2007 at 9:13 pm

  Downtown,

  I really don’t know how to put this. Shall I number the ways in which your response is, again, lacking in support? Let’s start!
  1) I claimed Dallas is twice the size of Seattle. And it is. You are comparing metro populations, which is like comparing all of Seattle & Tacoma combined with say Dallas and Fort Worth combined. That wasn’t my point, so please don’t confuse it again, and don’t try to confuse others.
  2) I am not your “bro”
  3) Banks would not lend developers money to proceed should a developer not pull a “provable” profit of at least 20%.
  4) I will certainly “substantiate” my, how did you put it? Oh yes, “mystery” research when you gladly do the same. I can tell you this much, I personally lend the developers from coast to coast the money for these projects and manage their asset portfolios as well. Is that enough, or shall I continue? Care to share your position as well?
  5) Absolutely there IS a margin difference between construction costs between building in Dallas vs. building in Seattle. I had mentioned that in my earlier post. 6) You’re confusing “margin” as a terms of PERCENTAGE of costs having risen vs. what consumers are paying in each of the two markets. Also, have you forgot the OTHER markets I mentioned, such as Chicago, New York, San Francisco?
  7) I agree AGAIN with you that 30% would be a very rare exception for developers to clear. I stated earlier that developers are hard-pressed NOT to gain at LEAST 30%. Typically, its even higher, or, believe me, I wouldn’t lend them the money to build it. And yes, its because of this reason alone that I have to consider land costs, entitlement, and construction costs. Oh, there are SEVERAL more you failed to mention, such as risk costs, marketing costs, costs associated with variances for market conditions to alter during construction, risk adjusted return on capital, and several more to mention prior to actually handing over the first installment.
  8)The “Big Players” in town, as you put it, are small guys in the grand scheme of developers. In fact, most are in the lower 20 percentile when compared to other markets.
  9) As you said, “if it does not pencil, it does not happen.” Well, no developer is going to risk reputation, company assets, bad press, and possible bankruptcy, even though it happens on occasion.

  So, if you’re saying these developers are lucky to pull a10% margin, then YOU’RE
  crazy for believing that they would risk it all for such a lousy ROI. THAT is the part that simply just DOESN’T “pencil out.”

  Sorry to inform you, but it appears you don’t have a firm grasp on the developer’s true profits. I don’t like being presumptuous, but in my dealings you really sound like a marketer (like someone who works for Dean Jones or Leslie Williams) that sells the condos and has to believe everything the developer tells you, or you’re a developer yourself and you don’t want the word to get out just how badly people are getting screwed around here.

• 18 Downtown // Nov 25, 2007 at 5:45 pm

  I’m not even going to bother with this, chump….ps, I’m also a construction lender and have worked with a institutional developer!!!!!! what firm do you work for????You should know better???

• 19 happy renter // Nov 26, 2007 at 11:00 am

  Downtown,

  I subscribe to the school of thought that says the market will continue to slow and prices will stay flat or go slightly negative for a period of 3-4 years. I am currently planning to buy in 2011.

  …and of course I humbly admit that I could easily be wrong.

• 20 Evan // Nov 26, 2007 at 11:11 am

  I believe the answer falls somewhere in between.

  yes, at 1000/psf there would be a wide profit margin, but we really can’t support many of those units in this maket. San Fran/NY this is not.. People greatly overestimate the wealth of this region. $54 k median per year is well below SF/NY. and there just aren’t that many $1million-$2million condo buyers out there - and that share is now getting split with Bellevue.

  So back the real world, developers hitting $500-$600 psf are not seeing 30% margins or anything close to that. My educated guess tells me Cristalla was in that range when costs were lower, as was the Cosmo. Four Seasons and 1521 will likely hit that margin range because they are hitting the high prices but I think they are also absorbing a large % of those buyers. Escala could too, but they’ve presold 1/4 of those units. this project will be a baromoter for downtown high-end development because of the large number of units, which exceeds the others.

• 21 mhays // Nov 26, 2007 at 12:23 pm

  Construction prices have risen more quickly than this guy thinks.

  Furthermore, here are some differences in cost factors between Seattle and some other cities:

  1. Our projects pay sales tax while others’ don’t.

  2. We have earthquakes and therefore more expensive structures.

  3. Our land is more expensive than some cities’.

  4. We require much of our parking to be underground.

  5. Projects that use our new height bonuses pay large fees to do so. In some cities new housing is actually encouraged rather than discouraged and taxed.

• 22 mhays // Nov 26, 2007 at 12:27 pm

  Dallas is not twice our size. It’s a metro of 6 million compared to 3.8. Depending on which version of “metro” is used.

  Population within city limits isn’t a useful measure. Dallas annexed a lot of their suburbs, but that says nothing about the size, role, or merits of its downtown. Which is actually pretty crappy, with extremely small residential numbers despite Trinity.

• 23 mhays // Nov 26, 2007 at 12:33 pm

  The ENR index shows construction costs up about 50% in three years for Seattle. This matches what we see as a general contractor.

• 24 tomasyalba // Nov 26, 2007 at 2:18 pm

  Anybody else find it interesting that two self-described construction lenders can’t agree on what the fundamentals of their business are, and can’t argue on any more effective basis than a pi__ing contest?

  If I knew my assets were being managed or lent by anyone this juvenile, I’d take a close look at my risk exposure.

• 25 Dan C. // Nov 26, 2007 at 2:22 pm

  Construction/Building business fundamentals flew out the window years ago…they no longer exist.

• 26 downtown // Nov 26, 2007 at 3:30 pm

  who is talking about underwriting guidelines???? This about building costs and realized developer profits….every bank has a different committee anyway, it sounds like he might be an equity lender…2 very different things, if that is the case….

  we don’t don’t even lend on condos anymore….we play by the same rules and every bank wants to see 20% profiit (proforma) margin but we don’t live in a perfect world and things don’t always go the way they were supposed to…

• 27 Downtown Guy // Nov 26, 2007 at 3:48 pm

  Tomasyalba, point well taken, and shame on me for getting into a pi_ing contest. You are absolutely correct. I am only trying to let others understand the prices they are currently paying simply do not correlate and are quite excessive when compared to the rate at which construction prices have actually risen - not what developers and those that support the developers want you to believe.

  I shy away from naming the firm for which I work or those developments for which I review as anonymity to a degree is my only safeguard of continuing what I do and for the protection of those I do manage. I apologize for creating such a heated argument.

  Dan C., I concur - yes, construction/building business fundamentals AND ethics flew out the window years ago.

  In response to mhays. WOW, there’s those same excuses AGAIN. Let’s recap mhays comments and I’ll lend some balance:

  1. Our projects pay sales tax while others’ don’t.

  RESPONSE: Cities such as San Francisco, Chicago, and New York ALL pay the sales tax, and some at even a higher rate

  2. We have earthquakes and therefore more expensive structures.

  RESPONSE: Last time I checked, and I could be mistaken here, San Francisco has a higher frequency of damaging earthquakes than Seattle

  3. Our land is more expensive than some cities’.

  RESPONSE: Seattle’s land is simply not more expensive than New York, San Francisco, or Chicago in the downtown environments

  4. We require much of our parking to be underground.

  RESPONSE: I’ll give this one to you. You’re lucky to get parking in New York

  5. Projects that use our new height bonuses pay large fees to do so. In some cities new housing is actually encouraged rather than discouraged and taxed.

  RESPONSE:Maybe you should look at San Francisco’s SOMA effort where they’re all paying the fees to do so too with even higher height restrictions

  All cities have their ups and downs, advantages and disadvantages. Seattle is not unique or special in this respect when considering costs. Its an element the developers are taking full advantage of here in Seattle when they consider our downtown core market to be in its juvenile state and buyers are still not fully aware of the situation before us.

• 28 Downtown Guy // Nov 26, 2007 at 3:54 pm

  mhyas, one more thought for the day. If the ENR shows Seattle’s construction costs up 50% in the past three years, then why are developers now charging 94%-110% per square foot of new construction today than they did just three years ago? Sounds to me like they’re riding this one as far as the ignorance of the downtown emerging market will allow. Sounds to me like, YEP, a 30%+ margin is CERTAINLY there as I’ve been stating. The numbers don’t lie.

• 29 What the ___!? // Nov 26, 2007 at 4:37 pm

  Maybe the discrepancy above between the two industry insider’s that commented earlier is that they are talking about different types or magnitudes of construction. It’s going to be completely different for a commercial office tower developer and an amatuer flipper of 1970s residential properties.

  One thing is for sure, if large-scale developers only made 10% on their deals, they wouldn’t be building. That’s ridiculously low! You have to compensate for all that risk. Imagine if a local (Seattle) developer saw a $150 million condo tower project fall apart… they go bankrupt! To compensate for that risk, they have to earn something well north of 10%. Otherwise they just aren’t being compensated for the risk they are taking!

  BTW: I don’t doubt that a lot of developers pro-forma ridiculous rental-rate increases or obscenely low operating expenses or brag to their developer friends about their pro-forma returns instead of their tax returns… but bottom line: they have to be compensated for their risk.

  FWIW: I submit a faintly-remembered anecdote:
  I remember reading about a local developer in the PSBJ or DJC (Was it Schnitzer? I searched forever for the article… can’t find it, argh!) saying that they had a simple 25/75/125 model… They look for projects that they can start 25% equity, 75% debt, and then sell for 125%. That’s 25% return for the project (and 100% for their ROIC).

• 30 D.C.U.K. // Nov 26, 2007 at 4:45 pm

  right on downtown guy. your points are consistant. you make good arguments using the words of your opponents against them. i think prices in seattle are outta whack with salaries of the buyers and what these jerks are probably earning. yeah, right, all these developers are buidling these towers in the mere hope they can barely get a return. we all know that is b.s.

  i think what downtown guy is saying is accurate. his argument is not that seattle is more or less expensive to build in. his argument is the developers costs have risen but it does not justify the prices they are now charging. your opponents are confused!

• 31 What the ___!? // Nov 26, 2007 at 5:02 pm

  I also need to respond to mhays:

  “5. Projects that use our new height bonuses pay large fees to do so. In some cities new housing is actually encouraged rather than discouraged and taxed.”

  Sorry, if it wasn’t worth it, no one would build over the old limits. Based on the number of 400′ towers proposed, I’m going to guess that developers don’t have any problem paying the fees for added heights.

  Not to mention that the idea that the City should be giving away additional building heights to developers without asking for a small (or large) fee for public benefits in return for that additional building height (and additional revenue) is kind of obscenely selfish. Existing property holders in downtown would see a massive benefit… all I ask is that some part of that massive windfall come back to the City so that it can provide some of that windfall (that the City itself created!!) to the general public in the form of amenities.

• 32 Matthew // Nov 26, 2007 at 5:38 pm

  DG,

  Great post. Keep up the good work.

• 33 jo // Nov 26, 2007 at 6:20 pm

  Why does everyone care about what kind of margins the developer is getting?

  Say you get a raise at work, a 15% raise. Do you ever go back to the employeer and tell them you think you only deserve an 8% raise?

  Developers will charge whatever they will be able to get. If people are willing to pay that (and that’s been the case in Seattle), then they’re going to. To say they are “taking advantage of us” is lunacy. No one is holding a gun to anyones forcing them to buy.

  Don’t like the price or offering, don’t buy it. Simple as that.

• 34 cosmo seattle // Nov 26, 2007 at 7:37 pm

  Downtown Guy- nice to get a little insight into the developer/ment perspective. you seem to read this blog and it’s great that you’re using it in this fashion. couple of questions for you:

  a) do you think local developers are reading urbnlivn?

  b) in your post you suggest that we “begin demanding better design, better architecture, amenities, and finish options for [our] interiors.”

  i agree with this sentiment. but i wonder what it would take. slacking demand could help but generally there seems to be enough that the “just don’t buy it” approach isn’t working. any thoughts?

• 35 downtown guy // Nov 26, 2007 at 7:44 pm

  Jo, I can understand from where you’re coming. Why care you ask? What are our options as consumers at this point? The reason I care is because I would like to live in a community with a diverse cross section of demographics, including high-end luxury and TRUE affordability for families and those that earn less than six figures a year.

  I do currently own in downtown Seattle, and yes, I recently signed a purchase and sale agreement in the amount of $1,400,000 for a small two bed/two bath on pre sale for a luxury downtown development to be completed in 2009. Yes, the price was well over $1000/square foot. I believe in the market taking care of itself. My income provides me the opportunity/luxury of buying what I chose. My concern, however, is for the working-class, families that would like to be downtown, and the median income household. The reasoning as to why one should consider margins is simply because consumers need to be aware of what they are purchasing. If developers would act responsibly/ethically, they should just be honest about it. Otherwise, they should just leave the excuses at home and use the argument you just presented (why does everyone care about what kind of margins the developer is getting?).

  As for your argument using a raise at work as an analogy, that doesn’t even make sense. A raise at work is an incentive to one for a job well done and it has been EARNED by YOU, the ethical employee, as the company recognizes a value in your workmanship and would like to keep you as long as possible. How does that compare to the purchase of a tangible good when being subjected to misinformation by these developers? Are you saying we should just pay it and be dumb and happy? That doesn’t seem to make much sense. What’s wrong with being educated?

  Would you pay $50,000 for a Toyota here in Seattle if you knew you could buy the same Toyota in Chicago, or wherever else for that matter, for $30,000? Of course not! The reason you ask? Because you know and understand that the costs of that car to the manufacturer is probably somewhere around $20,000. So, you negotiate the price downward a bit, if you’re not a sucker, and sign the papers, still knowing the manufacturer is making a healthy and respectable profit margin. So, why would you do the same for any other product that’s up for purchase? Unless, THERE IS NOT ANOTHER OPTION for consumers, as there are no TRULY affordable options for those in Seattle that want to live downtown when prices of real estate are compared with salaries earned. When I say “taking advantage of us,” its not lunacy, its called capitalism. I believe in capitalism. I don’t believe we’re being forced to buy into these projects. I do, however, believe if we want to live downtown, there are incredibly-limited options for those who are “have nots” comapred with the “haves.” That is the point.

  I can see you are a person that believes in free-market economics. I am too. But with that comes responsibility of those that have much (that includes consumers and developers alike). There is a responsibility of the developers to “give back” and not, as you put it, “charge whatever they will be able to get.” How does that create a more livable or better downtown environment.

• 36 downtown guy // Nov 26, 2007 at 7:57 pm

  Cosmo Seattle,

  Absolutely, developers and those associated with them are reading urbnlivin.com. Why else would people defend the high prices with a mediocre offering? LOL I love it when I see a posting where one ademently defends horrid selling tactics. One can almost immediately presume it is not a consumer responding.

  It is my hope they read our thoughts and maybe even “sweat” a little that the word is getting out with their shady practices and misinformation. In the past few weeks, I have to say I think there are several people that feel that way.

  Unfortunately, I agree with you that in the short-term, the “just don’t buy it” approach isn’t working. But there are reasons for that. The primary reason is that many of the pre-sale condos on the market have been negotiated with contract pricing with their finishes two years in advance. There’s not much that can be done about that but to wait it out until the units on the market right now are “sold.” Many of the buildings we’re seeing today coming to market have been in the works for years and they’re not going to “change horses in the middle of the stream.”

  But, I do believe the the “just don’t buy it” approach is working to a degree as I know many high-end developments in downtown are happy to get 3-5 sales in a month! That sends a message LOUD AND CLEAR the offering they have isn’t “all that.” It will ultimately prompt change for future developments. In fact, I know some developments in downtown are considering making changes to the finish levels they currently offer, making them more cohesive and higher quality as sales have been slow. Its a start.

  I believe that as developers read this kind of information, or listen to what one has to say face-to-face, they will get the picture and the product offering will ultimately change in time. It WILL take time, though. Probably three years to begin seeing significant change in their offerings.

  slacking demand could help but generally there seems to be enough that the “just don’t buy it” approach isn’t working. any thoughts?

• 37 mhays // Nov 26, 2007 at 8:00 pm

  So you admit the 18% figure was wrong then.

  Your 94-110% figure sounds like different types of units. It doesn’t make sense if you’re counting similar units. Perhaps you’d share with the group your method for this, since it’s so counterintuitive? Exactly which projects did you consider “similar” enough to compare apples to apples?

  Anecdotally, the Belltown unit I put money on in 2007 is $535/sf, while the Belltown unit I pre-bought in 2000 was $329/sf. Both are middle-class housing and both are 12-story concrete, but the new place is a little nicer than my current place.

  Your other arguments use the standard car commercial tactic: bigger payload than Chevy, more room than Ford…but rarely all the same things together.

  San Francisco and New York are more expensive than Seattle because they’re among the few places that combine most of the same cost factors. Obviously I wasn’t saying they’re cheaper. I was referring to the collection of other US cities that are cheaper than we are.

  Construction labor costs can be a huge factor, with a ratio of 6/1 depending on city, union or non, and trade. Lack of fees is big for some cities. I believe that Chicago and Dallas are known for much easier entitlements. Even the typical large jobsites in Dallas make things cheaper by simplifying construction logistics.

  Regarding developer economics, two points:

  1. Developers face huge costs before they ever sell a condo. They buy land, pay for staff, pay architects, and basically spend millions, including their own equity as well as borrowed… The land value can usually be recovered, but otherwise they can be out millions. These costs are factored into every development, including the cost of assuming risk.

  2. If it’s so easy, and so hugely profitable, why aren’t other developers getting into it, and why are there fewer groundbreakings these days?

• 38 Downtown guy // Nov 26, 2007 at 8:26 pm

  Mhays,

  What 18% figure are you referring?

  Once AGAIN, you make it about expensive or cheaper. Do you understand what a margin is? If not, then this discussion will be completely lost on you (and I feel it already is as you’ve demonstrated you don’t understand margins). If you don’t understand, please, for the sake of us all, say so.

  I understand you were referring to other US Cities cheaper than Seattle. Big deal. “Cheaper” is about cost of living. I’m talking margins, okay? Other cities margins, more expensive AND cheaper, contain profit margins far less than Seattle.

  In response to your “points” may I make a couple? Here goes:

  YOU WROTE:
  1. Developers face huge costs before they ever sell a condo. They buy land, pay for staff, pay architects, and basically spend millions, including their own equity as well as borrowed… The land value can usually be recovered, but otherwise they can be out millions. These costs are factored into every development, including the cost of assuming risk.
  RESPONSE: THIS IS THE CASE IN EVERY DEVELOPMENT IN EVERY CITY IN THE WORLD. This is not an argument that is exclusive to Seattle. How many times do we have to go over this? My point is if a developer in Florida, who incurs the expense of every item you just listed, will make roughly $.19 on every $1 sold. In Seattle, that same developer would make $.30+ on every $1 sold, EVEN IF ITS MORE EXPENSIVE. That is called a MARGIN. There is your first lesson in it.

  2. If it’s so easy, and so hugely profitable, why aren’t other developers getting into it, and why are there fewer groundbreakings these days?
  RESPONSE: Well, last time I checked, downtown Seattle is a SEA of cranes, pulling cranes from other states as the state is now running low. So, other developers ARE getting into it. There are fewer groundbreakings these days because, well, here is another lesson in economics… Have you recently heard of the new issue that’s hit the nation’s housing market? Now, I know its only been on every news channel, every paper, every blog, every media outlet imaginable for about 6 months now. Its called the sub-prime mess. Although Seattle has not fallen MUCH to this mess, its still GREATLY affecting our market as we have tendency to lag the nation’s trend by as much as 8 months. Buyers are cautious right now with the devaluation of the U.S. dollar, the ever changing rate environment that continues to push the dollar even lower, and the fact they truly feel prices are out of reach. Also, there’s only so many people in Seattle that can afford the prices of the downtown condos as they exist today. The number of units coming to market represents the higher income bracket. This has created for a buyer’s environment - not a sellers environment. What happens when this change takes place, though, is a rather sudden slowing of any kind of purchasing activity. Then, buyers ultimately realize they’re now in the “drivers seat” and will begin making bids at much lower prices the developers will initially discount. This process will go on for a period until developers realize the trend has indeed changed, and they will begin taking best offers at lower-than-original asking prices.

  Mhays, I must ask you a question. If its NOT so hugely profitable as you have implied several times, why are there so many developments getting into the downtown market of Seattle as it is right now? Because they all want to make a lousy ROI? I would hope not. Because they’re civil servants that are willing to take a risk for all of us? Ummmm, NO. I’ve often found in business you do something because its the path of least resistance for the maximum return possible. That is how a free market works. As I’ve stated, this is great if you do it in a responsible and ethical fashion. Unfortunately, though, there comes a point where the offering must change as the market will dictate.

• 39 Downtown guy // Nov 26, 2007 at 8:30 pm

  Mhays,

  The 18% figure - I see now. You mean from my original posting. This number is not inaccurate. I gave you the benefit of the 50% increase in pricing as you stated from the ENR index in order to make the point. If you use the 18% figure, it solidifies my point even further. Either way, you lose on this matter.

• 40 mhays // Nov 26, 2007 at 8:32 pm

  First the 18% question. I’ll quote you directly: “I too understand that prices have certainly increased to develop these communities over the past 3 years. In fact, I know EXACTLY what its increased. Care to know the number? Its rougly 18% higher today in Seattle than it was three years ago.”

  Why don’t you read your previous posts before asking this type of question?

  The ENR cost index is about construction costs. Land costs have also skyrocketed in Seattle. Design fees have risen. Even entitlements have been taking too long due to City workload.

• 41 mhays // Nov 26, 2007 at 8:41 pm

  On to a couple more:

  Groundbreakings: I’m sure most people see a sea of cranes and think things are busy. But as a contractor (marketing staff), I’m more interested in what’s breaking ground today and in the next year or two. Some condos are breaking ground these days, but nowhere near as many. The bar is higher. Also, FYI, apartments have begun to take off, some of our biggest projects are senior housing, nonprofits are always building housing, we’re in a major office building boom, and labs and hospital additions are going up… The number of units going up in Downtown Seattle right now is less than early this year as 2005-2006 projects complete.

  Design and development costs are greatly impacted by local variations in process. In particular, the RISK of incurring these costs is exponentially higher the longer and more intense the process. Basically, if it takes 18 months from concept to groundbreaking, you can easily miss the market and never break ground.

• 42 Downtown Guy // Nov 26, 2007 at 8:41 pm

  Mhays,

  I can no longer spend time on your “arguments” as you clearly don’t understand profit margins. I just gave you a lesson in profit margins, and you’re still only talking about costs. Are you deliberately trying to confuse these people with costs alone? I hope not because that would make you unethical and you would lose the limited “credibility” you’ve lent to any argument you’ve made.

  Those land costs have gone up all over the place - not just Seattle. Design fees have risen in all cities. Entitlements have risen in all cities and are also taking longer in other cities as development has increased significantly. IT ISN’T ABOUT THE COSTS! Its ABOUT THE PROFIT MARGINS!!!

  You should learn about this concept before posting another blog about margins. You just don’t understand them. I’ll entertain a discussion with you when you indicate you grasp/understand what a profit margin is. Thanks! :-)

• 43 mhays // Nov 26, 2007 at 8:49 pm

  None of my posts has talked about margins, except the “why aren’t we flooded with projects” point.

  Your point about the subprime situation impacting the Downtown Seattle market is useful because it counters your profit margin assumptions. If the lending market is reducing the number of buyers and the prices they can spend, how does that not impact profit margin, risk, and financing costs? Of course it does.

  Though actually it’s not subprimes directly, as much as the tighter standards for jumbo mortgages, and the return to normal supply/demand for all types of housing locally, resulting in flat prices, and declines in some submarkets and subcategories.

• 44 PDXPaul // Nov 26, 2007 at 8:52 pm

  Downtown guy,

  Wait, did I miss something or did profit stop being revenues-costs? So why again can’t we talk about cost margins when talking about profit margins?

• 45 mhays // Nov 26, 2007 at 8:53 pm

  I don’t care if your posts are all about profit margins, because you weren’t clear on that point. I answer what you say, not what you mean.

• 46 Downtown Guy // Nov 26, 2007 at 8:57 pm

  Mhays,

  I think you came a little late in the conversation. It turned to profit margins about 4 days ago. Please just stop. Stop for us all. You’re clearly a marketer and placate to the ignorance of the market. You’re defending what here? Really, what are you defending? Shady practices? it doesn’t surprise me as that’s what you’ve been using in your elementary arguments. Thank you.

• 47 mhays // Nov 26, 2007 at 9:09 pm

  Since you don’t understand “cost”, you’re trying to turn it all to “profit margin”.

  No, I won’t get out of your way. If you can’t handle debate, you might take your own advice.

  I’m not going to respond to the comments about my integrity. But it’s an interesting statement about yours.

• 48 jo // Nov 26, 2007 at 9:22 pm

  “Would you pay $50,000 for a Toyota here in Seattle if you knew you could buy the same Toyota in Chicago, or wherever else for that matter, for $30,000? Of course not!”

  Yea, but if I had to live in Chicago to use that Toyota I wouldn’t. I’d gladly pay the extra 20k to use it in Seattle.

  That analogy doesnt make any sense.

• 49 Downtown Guy // Nov 26, 2007 at 9:45 pm

  LOL Can I get an AMEN from anyone that clearly sees jo and Mhays as peers? You both should stop. And Mhays, you’re really not in my way. You’re just annoying as you don’t get it. SUCH a marketer. Tell me, is it Williams Marketing or Real Logics/Urban Condominiums for whom you work? What about you jo?

• 50 CP // Nov 26, 2007 at 9:51 pm

  amen, downtown guy! jo an mhays are a friggin’ joke and most of us think their idiots. don’t waste anymore time with them. we are all sitting back and watching them dig their own holes. you dont need to respond to them anymore. its been fun reading it all but dont waste anymore energy. they are trying to pull you off subject! you ROCK!

• 51 Mac Daddy // Nov 26, 2007 at 9:56 pm

  Aaaaaaaaaaaaaaaaaaaaaamen! DT Guy has this debate covered and well made his points.
  Here’s a message for mhays an jo… Shut the F&#% UP already. You could well both be retarded.

• 52 jo // Nov 26, 2007 at 9:58 pm

  “I do, however, believe if we want to live downtown, there are incredibly-limited options for those who are “have nots” comapred with the “haves.””

  And I’d like to own a place in the Upper West Side in NYC. But I can’t because I can’t afford it.

  No one has a right to live anywhere. Move somewhere where you can afford what you want.

  Developers have no responsibility to “give back” - they’re in business to make money. How would you feel if the company you worked for planned next year to “give back”, and as a result of doing so, froze all salaries for that year? There’d be an uprising.

  Everyone always know how others money should be spent.

• 53 jo // Nov 26, 2007 at 10:01 pm

  If Mhays is a software engineer for a small to medium sized company then I guess you can consider us peers. :)

• 54 mhays // Nov 26, 2007 at 11:05 pm

  Nope! General contractor marketing guy, and condo owner and second-time buyer.

  Will DowntownBoy get back to debate, or is he resorting to nothing but insults now?

• 55 d // Nov 26, 2007 at 11:06 pm

  ok downtownguy
  Ill give you an amen, and I will pray for you, so you can better handle someone challenging your ideas without you falling apart, you post a ” commentary ” and when anyone “comments” on anything contrary to your brilliant act of stumbling on the fact that developers charge what they can get, you cry ” you just dont understand margins ” talk about LOL

• 56 EconE // Nov 26, 2007 at 11:26 pm

  I’m kind of curious why there haven’t been more 3BR units thrown in with the mish mash of condos over the last few years. Seattle Heights had a few if I remember correctly. (It was 14 years ago that I toured the building).

• 57 Downtown Guy // Nov 27, 2007 at 7:46 am

  Mhays,

  Here’s an interesting excerpt from NPR that answers your question 2 and supports some of the points I’ve been making. It was on this morning. I really think you should have a listen.

  As for your comment, “Your point about the sub-prime situation impacting the Downtown Seattle market is useful because it counters your profit margin assumptions. If the lending market is reducing the number of buyers and the prices they can spend, how does that not impact profit margin, risk, and financing costs? Of course it does.”
  RESPONSE: it doesn’t counteract my argument at all. In fact, I already said in response to your question that buyers will stop buying for a short time period until they realize they now hold the power and developers will have to drop their prices (which in turn would naturally reduce profit margin, duh. Hence the reason why developers are going to have to begin and ALREADY ARE dropping prices in some downtown new-construction developments. It actually lends credibility to my argument that these guys clearly have more than a 10% profit margin by which they can play, or they wouldn’t drop prices at all as they would begin losing money. They would simply walk away. Developers have simply tapped the market for all the high-end-price condo buyers at this point, and the sub-prime mess isn’t helping as existing home buyers that may want to move downtown cannot sell their houses.

  The sea of cranes in downtown right now is due to a significant rise of purchase power from that of only 18 months ago with the market conditions as they were. They “sea” may not have existed THEN, but almost every crane you see now is as a result of it as these have been in the works for at least that amount of time. Now, that has all but dried up, and buyers are waiting. Many developers got on board in its prime, jacking up prices as rates were low and knowing that people could make that monthly payment, even with the increased price (which naturally increases their profit margin). Rate environments change, and developers just haven’t wanted to drop that price yet. Well, now they’re going to have to do it. I am certain though, that someway, somehow, they’ll be able to make it happen, even with that horridly low profit margin they take upon themselves as their civil duty. YEAH RIGHT! LOL

• 58 Downtown Guy // Nov 27, 2007 at 7:47 am

  Mhays,

  Here’s the link to the excerpt I was speaking of in the previous blog…

  http://www.npr.org/templates/story/story.php?storyId=16650420

• 59 mhays // Nov 27, 2007 at 8:49 am

  Neither of those counters my points at all. And I already did listen to the story.

  It’s not debatable that fewer condo project are breaking ground. You either have the information or you don’t. Of the 1,900 or so condos underway between Mercer, First Hill, and Pioneer Square, how many started in the last six months? 34. “Alex” and nothing more. Others might start in the next few months, but unless I’m missing one, that’s it so far.

  Price reductions? This blog has noted some in existing buildings. But not in planned buildings that I recall. Please provide examples of planned buildings that have lowered prices.

  Lowering prices near completion does not necessarily allow profit. They simply look at the cost of not selling vs. the cost of selling. Carrying a dozen units for several months can be expensive…fine if prices are going up, but bad if prices are stable or falling, or they have cash flow issues. In some cases they’re simply trying to limit their losses.

• 60 Chris // Nov 27, 2007 at 9:14 am

  DT guy,

  this is a pretty ignorant statement if you really are a banker:

  “it actually lends credibility to my argument that these guys clearly have more than a 10% profit margin by which they can play, or they wouldn’t drop prices at all as they would begin losing money. They would simply walk away”.

  Huh???

  Of course developers (I work for one) would sell as slim, no, or sometimes less than zero margins? Why, because its better than the alternatives - defaulting on a construction loan, runing relationships with equity partners or having an even worse margin on the land, as land residuals fluctate much more greatly than the prices of the final products. I know of San Diego developers that wanted out of the market, liquidated product and lost money - eg negative margin on cost. They paid off the c. loan, and paid back most equity investment and washed their hands of it. Its a recourse construction loan, and someone has to sign the guarantees. It may not be the development group, but if they leave the equity with the tab and “walk away” they won’t get a deal again.

• 61 Downtown Guy // Nov 27, 2007 at 9:17 am

  Chris,

  Let me clarify. I am referring to a situation where an entire building or most of a building has not yet sold. In situations where the building is mostly sold, I would agree with you.

• 62 Downtown Guy // Nov 27, 2007 at 9:21 am

  Also, developers walk away from projects all the time when market conditions turn. That does not necessarily inhibit receiving deals from banks in the future for developments as almost all developments are formed under an LLC, protecting the developer’s assets and “good name.”

• 63 Carol // Nov 27, 2007 at 9:53 am

  I clearly see Downtown Guy’s points and he has been quite consistent from the start. Keep it up DT Guy because you have these guys grasping for reasons to “make excuses” as you put it. Don’t let the peripheral subject matter they keep sprucing sidetrack you. You must be doing something right; therefore they are oh so anxious to silence your candor and perspective. I am a professor of economics at UW and would love to have you come talk to my classes. We have been using this as a prime example in our discussions.

• 64 BBB // Nov 27, 2007 at 10:04 am

  I think Mhays could be, and I am just stabbing in the dark here, retarded. He doesn’t’ understand simple economics and lending practices of FIs. He is full of it, and himself for that matter.

• 65 Scott // Nov 27, 2007 at 10:11 am

  I see the point to both sides. Although, I must admit downtown guy seemingly makes more sense overall.

• 66 Scott // Nov 27, 2007 at 10:15 am

  Aaaaaaaaaaaaaaaaaaaaaaaaaaaaaamen, Downtown Guy! Awesome posts!

• 67 Chris // Nov 27, 2007 at 12:33 pm

  @#52. As am I - I’m talking about anytime after the start of construction once loan docs are signed. Do development deals go under occasionally, yes. Is it a preferred avenue vis-a-vis breaking even of coming out slightly upside down? - absolutely not.

  @#53, Give me a break, everyone knows the developer behind the project. How would walking away from a project leaving the equity /bank holding the bag constitute preserving a good name?

  What kind of deals do you do?

• 68 Downtown Guy // Nov 27, 2007 at 2:30 pm

  Chris,

  Believe it or not, there is a REASON the developers form LLCs for each development that comes to fruition. They certainly don’t do it for the fun of it. The reason an LLC is formed for each and every site is for protection of the developer. The development itself becomes its own entity to win or lose, protecting the developer of many liabilities should something to wayside. Of COURSE we know and understand who the developer is and in what projects they are involved. But each development itself is reviewed as its own if it is presented as an LLC to the bank. The numbers within the proforma belong to the LLC. Get it straights and get back with me with YOU actually go through the process of obtaining a construction loan for a multi-family development. Merely working for a developer doesn’t make you an expert from the loan side of things.

• 69 Are mediocre condos in Seattle the result of the ’soft bigotry of lowered expectations’? » Smarter Neighbors // Nov 27, 2007 at 3:16 pm

  […] A really good discussion is taking place on urbnlivn.com right now about the quality of condo developments in Seattle and whether consumers and city officials here simply aren’t asking enough from developers. The debate is going back and forth between this opinion and the another side which says that Seattle is getting exactly what is profitable for this marketplace. […]

• 70 jo // Nov 27, 2007 at 3:17 pm

  So now we’re on to criticizing the developers for forming LLC’s? What’s next, criticizing developers for being a for-profit corporation?

  Heaven forbid they actually take a measure to protect themselves against liability. Shady I tell ya.

  DowntownGuy - got a question for you. Why didn’t you take your 1.4m and buy a place down at White Center or Delridge rather than downtown? You’re preaching the need to make downtown Seattle more economically diversified, yet you’re only adding to the problem.

  Put your money where your mouth is.

• 71 Downtown Guy // Nov 27, 2007 at 3:45 pm

  No criticisms of LLCs, again, little jo, just explaining the situation with the protections of developers. I’d like for you to directly quote me where I’m criticizing the developers for taking this precaution. Looks like you don’t disagree with that point, though.

  I choose to spend where I spend. No explanation needed, other than I prefer downtown. Let’s make our downtown for eveyone to enjoy, not just the “richies.” If you feel that me buying in downtown is adding to the problem, that’s your issue to deal with. The issue is the developers aren’t providing housing that people outside of a 6-figure-per-year demographic can enjoy. You’ll understand one day.

  By the way, you continue to really side with these developers but I noticed how you skirted around the KIND of company for which you work. A software developer can be for any one of a number of companies. I wouldn’t trust a word you write from this point anyway.

• 72 tomasyalba // Nov 27, 2007 at 3:47 pm

  This thread gets better every day! Way to go putting it up front, Matt. Who knew?

• 73 scrubfree // Nov 27, 2007 at 4:13 pm

  DowntownGuy, if that really is your name…. Where do you come up with this s#!t, you just sit around cleaning out your cupboards all day thinking of ways to stick it to developers? You say Seattlites are educated, but if they truly are why has nobody thought to pursue your sentiments further and demand product equivalent to what is being sold in the aforementioned cities? Know what I think? I think people in this city ARE smart, but complacent and will settle for generally anything that is handed to them.
  I absolutely think there should be affordable housing for the decent working class who are all driven from the city where they work because prices are too high.
  And another thing, “DowntownGuy”, you mentioned there should be a grocery store downtown, what’s the point when all you fools just drive around everywhere anyway?

• 74 Chris // Nov 27, 2007 at 4:21 pm

  I …shouldn’t…take…the bait…..but this is too much entertainment

  “Believe it or not, there is a REASON the developers form LLCs for each development that comes to fruition. … The reason an LLC is formed for each and every site is for protection of the developer. The development itself becomes its own entity to win or lose, protecting the developer of many liabilities should something to wayside. Of COURSE we know and understand who the developer is and in what projects they are involved. But each development itself is reviewed as its own if it is presented as an LLC to the bank. ”

  By protection, I hope you don’t mean being able to sign on loan docs, begin construction and walk away with little consequence, because that’s what it seems like you’re implying. Ultimately a developer can’t lose more equity on a project thna what is in ther LLC but some member of company has to sign the loan guarantee and be on the hook for the debt (as you of course know, right ;) since the LLC is never capitalized enough to secure the loan on its own, as you seem to imply. You’re also conflating the concepts of legal and financial liability. LLCs provide greater protection from the former.

  “The numbers within the proforma belong to the LLC. Get it straights and get back with me with YOU actually go through the process of obtaining a construction loan for a multi-family development. Merely working for a developer doesn’t make you an expert from the loan side of things”

  The project returns have to be underwritten on its own terms but with respect to the the financial capacity to complete the project, the organization signing the loans, not the LLC, is underwrittten by the bank. But you know that, of course, being a banker and all. I’m no expert, but I have enough experience securing financing to at least know the basics. And I have some good cocktail conversations with securities lawyers.

• 75 scrubfree // Nov 27, 2007 at 4:24 pm

  Chris,
  You’re right, you shouldn’t have taken the bait….You don’t know what you’re talking about.

• 76 Mike2 // Nov 27, 2007 at 6:44 pm

  By protection, I hope you don’t mean being able to sign on loan docs, begin construction and walk away with little consequence, because that’s what it seems like you’re implying.

  Well, that’s exactly what it means. A friend of mine spent years working in construction defect law in Seattle and a good deal of the legal wrangling involved sifting through all these dissolved LLC’s that originally developed the properties. 80% of the cases involved water damage caused by improperly installed siding and flashing.

  If you read through some of the legal paperwork on these new developments, you’ll often find that the contracts are worded so that the contracts are between the buyer and the LLC. You’ll also see that the development company clearly states that that all obligations are to be fulfilled by the LLC, and the developer is not liable. (subject to the courts interpretation of course if it comes to that)

  By the time the LLC is dissolved, all of the construction loans have been paid off and the banks are out of the picture.

• 77 Downtown Guy // Nov 27, 2007 at 9:06 pm

  Chris,

  You’re absolutely correct! You are certainly no expert. You need to go back to school. You are quite SADLY mistaken when you make false claims to the world that the organization (developer) is the entity being underwritten by the bank. You’re an absolute fool for making this commentary. The LLC, eh hem, let me explain what that is to you. Its a LIMITED LIABILITY COMPANY. Can you say that? It indeed stands as its own with the numbers as compiled by YES the developer, but it will in no way create a financial obligatory duty to the developer itself to “make good” on the loan should the developer default. People within the developer’s firm can certainly be the primary signatures on the loan for the LLC, and they typically are the primary signatures, but acting at that point as a direct representative of the LLC. Additionally, it will HOLD HARMLESS to the developer and its assets should a default ensue. You are CLEARLY lying to the world when you make false claims you have done the securing of financing to at least know the basics. This is multi-family lending 101. If you don’t that, then you’re outta your league.

  If you want to continue implying I’m not a banker for multi-family developments from coast to coast, I’ll just imply the same as you have absolutely nothing to do with any developer in town. See, its that simple! Just that, you really don’t have a leg to stand on with your elementary rant. What are you protecting anyway?

• 78 tomasyalba // Nov 28, 2007 at 10:37 am

  Soon, each comment on this thread will begin with “Your mama’s so fat, she…”

• 79 Dan C. // Nov 28, 2007 at 11:24 am

  Well Downtown Guy, you sure are a big, swinging d*ck. I am glad you have educated all of us on the intricacies of construction financing. I can now rest easy that SOMEONE knows what they are doing in this city.

  Since you are so concerned about everyone else…what company do YOU work for? Since you can afford a $1.4 m condo downtown. Maybe you should put on a class at the next urbnlivn meet up, since you seem have the time to argue and educate all of us on this blog thread?

• 80 mhays // Nov 28, 2007 at 12:18 pm

  The LLC holds the contractual relationship, but the LLC’s related firms are part of the due diligence performed by anyone evaluating the LLC (lenders, general contractors, etc.).

• 81 Downtown Guy // Nov 28, 2007 at 12:27 pm

  Dan C,

  You seem really upset the word is getting out. If you’re going to imply I am not what I say I am, then all I ask is that you back up what you claim you do. I think that’s fair. I have no apologizes that I can afford what I can afford. My point is I feel we can build a better and more diverse downtown without catering/marketing only to a specific, high-income demographic. It goes back to responsible development.

  Jo, in the same context are you saying someone like Bill Gates is “adding to the problem” and he shouldn’t be a philanthropist because he holds the a large share of the wealth in the world? That’s EXACTLY what you’re saying.

• 82 Dan C. // Nov 28, 2007 at 12:32 pm

  I was just stating that I am glad you are here to educate the unwashed masses on real estate lending. Perhaps if you said who you work for, people on here my use your services?

  I don’t know what this means: “I ask is that you back up what you claim you do”.
  I never said anything about what I do. The only thing I am backing up is my ass on the dance floor.

• 83 Dave // Nov 28, 2007 at 1:48 pm

  OMG - this thread is off the hook! Matt you had better post some new topic soon or the next meet up could end up with a little blood on the dance floor. ;)

• 84 EconE // Nov 28, 2007 at 2:09 pm

  Easy boys…if you start referring to things like “big swinging dicks” you’ll upset Matts parents and all the other sensible folks up in the frozen tundra to our north.

  I mean really…with all the Canoodlians reading this blog they might get the idea that we Amurikans aren’t the most polite bunch.

  Oh…wait…we aren’t.

• 85 nitsuj // Nov 28, 2007 at 2:16 pm

  Your momma’s so fat she can’t fit into Downtown Guy’s $1.4mm condo’s parking spaces!

• 86 Downtown Guy // Nov 28, 2007 at 2:27 pm

  Dan C.,

  Thanks, but I would be at severe risk if I stated the company for which I work. Nothing would make me happier, but I do have bills to pay. Nice comments, though :)

• 87 mhays // Nov 28, 2007 at 2:47 pm

  Interesting, another 30 old posts suddenly showed up.

  Mac Daddy and BBB, exactly which posts of mine do you disagree with? Naturally you’re not just groupies, but you have actual knowledge or ideas to share…right? Carol too, if you were referring to me. I’m seeing a lot of “fight the developers” (and contractors apparently) but remarkably little content behind it.

  Furthermore, I haven’t said much that’s controversial.

• 88 jo // Nov 28, 2007 at 2:47 pm

  Your momma’s so fat she’s the reason that DowntownGuy has so many bills to pay.

  Oh, and by the way…I work for a gaming company. ;)

• 89 BBB // Nov 28, 2007 at 2:56 pm

  I defer everyone to read Mike2’s comments on November 27th, at 6:44 p.m. in the blog. He and DT Guy are both accurate when speaking to the reason the LLC’s are created. I live in a downtown condo where my windows started leaking just two years after I bought it. I had no recourse but to pay a huge amount of money to get them fixed.

  This is awesome! The only people here that want to dispute the factual points DT Guy has made are the people that are in downtown and connected to the developers to make the money. Pretty messed up, don’t you think?

• 90 BBB // Nov 28, 2007 at 3:04 pm

  mhays i disagree with almost all the b.s. you have said. you haven’t given any supporting detail to anything you claim. it sounds like you just make it up as you go along and hope everyone believes its the truth. i respect what dt guy is saying because i am a consumer of the crappy work and crappy condos being built in seattle. i paid almost $700 a square foot two years ago and this place sucks and the LLCs protected the developer. So F&$% YOU, dickie!

• 91 jo // Nov 28, 2007 at 3:33 pm

  don’t like it, don’t buy it

  can’t get much more simple than that

• 92 scrubfree // Nov 28, 2007 at 3:36 pm

  Hmmmmmmmm. I am confused (not unusal for me) about how this has gone sideways. When I originally read this post I thought DGuy was campaigning for educated buyers, finishes worthy of Seattle’s skyrocketing prices and overall community betterment. Now it seems there is a lame fight being pursued as to why LLC’s are formed. I was inspired and thought perhaps if DGuy worked for developer a desirable product could be realized in this market. How about that DGuy? Anymore thoughts?
  I am curious about one more thing: Get your cupboards cleaned out yet?

• 93 scrubfree // Nov 28, 2007 at 3:42 pm

  yum. i just ate the best lunch.

• 94 Downtown Guy // Nov 28, 2007 at 3:44 pm

  Scrub Free,

  What did you have for lunch?

• 95 scrubfree // Nov 28, 2007 at 3:45 pm

  A hot pocket.

• 96 BBB // Nov 28, 2007 at 3:47 pm

  I gotta hand it to him, at least DT Guy has a sense of humor.

• 97 Matt // Nov 28, 2007 at 4:11 pm

  As you can probably tell by now I’ve been on vacation and just approved a huge number of comments for this comment record breaking thread.

  I don’t have an hour to sit down and read all the comments but I have seen some comments that as EconE points out would likely offend my parents.

  Please keep any further comments civil or else I will start to delete comments! :)

• 98 mhays // Nov 28, 2007 at 4:29 pm

  I think some of BBB’s “So F&$% YOU, dickie!” comments might qualify for deletion.

  BBB, you want background? The 50% escalation figure is from ENR Magazine, the top journal for such things in the US. The 34 condo units started in the last six months is clear to anyone who watches the Downtown market…anyone know of more?

  So basically you’re an angry buyer and hate LLCs. That’s your business. Now please explain how this relates to me, aside from your PMS about anyone with any relation to building stuff?

• 99 mhays // Nov 28, 2007 at 4:31 pm

  Oh, and please let me know which of my other points you want supporting information for. It’s not controversial stuff.

• 100 BBB // Nov 28, 2007 at 5:01 pm

  I do not agree with your rambling why LLCs dont protect the developer. You are ridiculous.

• 101 mhays // Nov 28, 2007 at 5:51 pm

  I didn’t say anything of the kind. Of course they protect the developer. All I said was the lender’s or contractor’s due diligence required knowledge of the firms involved in addition to knowledge of the LLC.

  Let me guess…everyone you’re “against” is responsible for every post you don’t like. Not impressive.

• 102 mhays // Nov 28, 2007 at 5:52 pm

  BBB, if you’re going to cuss me out you’d better have more than that. Or was this just an uninformed tantrum?

• 103 Chris // Nov 28, 2007 at 6:19 pm

  THREAD SUMMARY……

  DT Guy- Developers have huge margins and are not being held accountable for quality. They could build with some combinations of better quality/lower prices if they accept lower margins

  Mhays- Margins are slimmer than you (DT Guy) think, due to cost escalation

  DT Guy - No prices are rising faster than costs, so margins are not smaller than they used to be several years ago

  DT Guy- they guys have more than a 10% profit margin by which they can play, or they wouldn’t drop prices at all as they would begin losing money. They would simply walk away.

  Me - No, actually, developers might drop prices even if means having a very slim margin or slightly neg margin b/c its better than defaulting on consrtruction loan

  DT Guy - LLCs protect developer from liabilities, so that can walk away from upside down projects

  Me- No, when your equity partners and rep are in the balance, or worse your the signatory on a c. loan guarantee, you’d rather have zero margin than walk away

  so, DT Guy, please respond to this last question, if you’d indulge me:
  If you’re a local developer, have raised $ from equity partners you plan to deal with again, and lets assume one of them signed the loan guarantee, and your project is 80% complete but due to falling prices, you might have minimal to no margin on cost, do you “walk away, as you say??

• 104 mhays // Nov 28, 2007 at 6:50 pm

  A lot of true stuff there, but I said nothing directly about margins. Just cost. And that groundbreakings have been slower due to market conditions.

• 105 Downtown Guy // Nov 28, 2007 at 6:58 pm

  Earlier in the blog, I answered your question, Chris. I wrote to you:

  “Let me clarify. I am referring to a situation where an entire building or most of a building has not yet sold. In situations where the building is mostly sold, I would agree with you.”

• 106 scrubfree // Nov 28, 2007 at 7:59 pm

  Let me clarify: I had a delicious dinner!

• 107 Downtown Guy // Nov 28, 2007 at 8:55 pm

  Scrubfree,

  What did you have for dinner? I’m curious…