A declining buyer market, compounded by an absence of any marketing, conspired to undermine sales at a high-profile condominium project in the suburb or Bremerton, Wash., where Seattle-based M.S. Cavoad Co. recently disposed of more than one-third of its units by auctioning them to the highest bidders. But this project's relative failure isn't stopping the developer from moving forward on other condo developments.
Mark Goldberg, its chairman, tells BUILDER that his company has three 17-story towers-two with 100 units each, the third with 114 units-that are working their way through the development process in anticipation of a turnaround in this area's currently sagging housing market.
But before construction ever gets going on them, "there needs to be a reduction in excess inventory, here and nationwide," says Goldberg. "Prices in Seattle have held, but the [sales] volume has been way down." (Last year, sales of existing homes in Washington state fell 16.1 percent to 120,760 units, their lowest level since 2001, according to the Washington Center for Real Estate Research at Washington State University. In February 2008, the latest month for which data are available, Washington's housing starts were off from the same month a year ago by 37.2 percent to an annualized rate of 34,000.)
Soggy market conditions did in one of M.S. Cavoad's projects, a 66-unit, four-story $24 million waterfront condominium development called The 400, which was started at the end of 2005. By Jan. 1, 2006, "we had 25 sales; people were ordering before you put a shovel into the ground," recalls Goldberg. However, by the end of that year, a total of only 50 units had been sold, and a dozen of those deals went south by June 2007, when buyers couldn't sell their existing houses.
Goldberg now admits that his company made a big mistake by not budgeting any money to promote The 400. "Bremerton is an emerging market, but not that many people know about it." And as the area's housing market tanked, Goldberg and his partner, Chris Raftery, M.S. Cavoad's president, decided to yield and put The 400's unsold inventory of 28 condos up for bid. The Kitsap Sun, a local newspaper, reports that all but six of the homes were sold during the April 20 auction, which was conducted by Real Estate Disposition Corp., an Irvine, Calif.-based auction house. (A report on NBC Nightly News last month about Bremerton's condo market, which mentioned The 400, may have piqued interest in the auction, which registered more than 1,000 prospects, a portion of whom were from other Western states, according to the Sun.) Most bids were significantly below the homes' market-rate listings: For example, a two-bedroom unit with a full water view, which had been listed at $919,000, fetched $600,000 as its highest bid; a smaller one-bedroom listed at $259,000 received a high bid of $160,000.
The newspaper quoted Bremerton's economic development director Gary Sexton as saying that the auction could be seen as a good sign for this city because it clears out unsold inventory. But Goldberg isn't reading too much into the auction's purpose or results. "My partner and I acknowledged that not every project is going to be a home run, and that sometimes getting out of Dodge with your clothes still on is the best you can hope for."
M.S. Cavoad is not likely to start building any of its towers, which will include retail space, until mid 2009 at the earliest. But one lesson Goldberg learned from his recent ordeal with The 400 development: His company has set aside "several million dollars" to market any new projects, he says.
Learn more about markets featured in this article: Seattle, WA.