Longtime PaperEconomy readers will remember that I have been following, with a little Schadenfreude, the events surrounding the “luxury” condo-retail hybrid development attached to the new Natick Mall in Natick Massachusetts (read here, here, here, here and here).
Well… a lot has transpired since I last weighed in.
The developer, General Growth Properties, having filed for bankruptcy and facing the difficulties posed by mounting liens from unpaid contractors, is now desperately trying to rid itself of an estimated 178 unsold condos (out of 215 total units).
This past Sunday General Growth Properties held an auction in which 400 attendees had an opportunity to bid on these condos at dramatically reduced prices.
In fact, some bidders nabbed units that appeared to them to be significant bargains… and by all accounts they were when compared to the prices that were paid by the buyers of the only 37 units that sold in the market prior to the auction.
The local media reported the event with some fanfare too as bidders walked away with discounts as large as 64% off the original list price.
But what the current media attention failed to communicate is what a total and absolute disaster this project is including this failed auction.
Consider that for an auction event that saw prices paid reduced by a minimum of 36% and as much as 64% only 55 of the 178 units sold!
Not only did the highly publicized auction draw only 400 potential bidders, only 13.75% of them considered a 36%-64% discount worthy of a bid!
Assuming that all 55 auctioned units carry through to closing, that would put the total number of units sold to 92 or 43% of all the units… So even with dramatically reduced prices 123 or 57% of the units remain vacant.
This puts the Nouvelle buyers, including the recent auction bidders, between a serious rock and a hard place.
A second auction may bring more attention but certainly even lower prices.
Yet without a second auction (or third or fourth…) General Growth Properties will be forced into either leasing the units or selling them to a third party that will inevitably lease the units.
If the remaining 123 units were leased the development would have an owner occupancy rate of at best 43% putting it squarely in the column (… i.e. well below 50%) of a risky condo building from a finance perspective and making it possibly nearly impossible for the current owners to either sell (i.e. for their buyers to get financing) or refinance their units in the future.
The condos sold at auction while appearing to be a solid deal may turn out to be as much of a financial disaster for the bidders as it has been for the developer.