The second Terrazzo style condo auction has been booked as predicted, but this one is a little bit more surprising. I am not necessarily shocked that it is the West End building, but I am totally floored by the number of condos being auctioned…45. The December 5th auction will include 5 one-bedroom units, 25 two-bedroom units and 15 three-bedroom units. The retail value of the condos range between $385,000 and $948,000.
Let me first reiterate what I have been saying about the West End condo building for the past 3 years – this is an excellent quality building built by a group of local developers led by John Coleman Hayes, but the individual condos were built too large for this market averaging over 2,100 square feet. The interior feels more like a home than a trendy condo offering buyers a different product in a different location, but it turns out that few wanted to trade in their 4,000 square foot homes for a 3,000 square foot condo that costs twice as much. Perhaps more condo buyers did, but could not sell their home in this market.
The West End is a 12 story, 72 unit, luxury condo tower that only has sold a half dozen condos to discerning buyers. Why didn’t more of these condos sell? The answer is simple. This building is a victim of the real estate perfect storm plus developer/sales team mistakes.
1) The developer built this building without pre-selling the condos
2) The economy then turned sharply downward
3) The sales team had a poor marketing effort that was slow to tell the public about the building
4) The developer and sales team failed to create a “want and need” for this product in Midtown
5) The condos where larger than the market demanded
The auction is the next chapter
Jerrold Pedigo Realty and Auction has been tapped to run the auction, wait a second, who? Jerrold Pedigo that’s who. When I Googled “Jerrold Pedigo Realty“, I was also shocked that a company website did not come up in the first 20 search results. A LinkedIn profile containing 1 connection did appear though.
Who is this Jerrold Pedigo fellow and why did John Coleman Hayes choose this outsider to auction these condos? Well, I actually have no earthly idea, which is a problem. As most of you know, I am a partner in a real estate auction company called RealtyTrust and I have never once run across Pedigo in any of my dealings, conversations or research. Not that I know everything, but wouldn’t you want a proven company with specific area knowledge and expertise to run the show? I sure as heck would.
West End Condos making similar mistakes?
As with preconstruction decisions, there are several mistakes being made right out of the starting gate in the auction. I covered the first possible mistake in choosing the auction company above, but let’s talk about the auction and auction announcement.
1) The auction has been officially announced and none of the details are finalized. The only firm information is that there will be an auction of 45 condos on December 5th, 2009. We do not know if this is an absolute auction, if there are minimum bids, reserve prices, what time the auction starts or even what type of auction it will be – oral outcry, bidder’s choice, sealed bid, etc.
2) There is a website for the auction, but most of the pages say “page temporarily unavailable”. In other words, there is no complete information available. Is anyone else starting to see the issues?
3) During the time that the building has been for sale, three different real estate companies provided representation. Pilkerton, Worth and finally Zeiltin. I fear that a similar game a music chairs may break out with the auction entities involved.
4) Attempting to auction 45 condos in a single day is overreaching in my opinion. There is no way there are 45 luxury condo buyers who are currently in the market to buy an expensive condo by the end of the year. The Terrazzo was going to just squeak by with their 30 condos, but 75 less than 2 weeks apart is unrealistic for this mid cap market.
Clearly, I don’t have all of the details or have all of the back story, but I am not getting a good feeling. More to come as I analyze the effect of the West End auction on the Terrazzo auction and vice versa.
BTW – I am calling this auction a liquidation as they are selling more than half of the 72 unit building. A true auction would aspire to obtain the highest and best price for the seller. This is a bank REO-esque liquidation sale.
November 12, 2009, 9:14 pm
I posted this comment regarding this development on an earlier thread:
The Nashville condo market is imploding. The Nashville Business Journal published a story on its website today indicating the luxury 72-unit West End condo development by John Coleman Hayes is auctioning off 45 units on 12/5/2009, 2 weeks after Terrazzo offers 31 units at auction. The terms of the sale, e.g., reserve or absolute, are not final as now. If you've ever been interested in buying a Nashville condo at a REASONABLE PRICE, you may be able to do so within the next few weeks. Both developments appear to be high quality and appeal to a slightly different audience. The website for the West End auction is up, with a few tabs still under construction.
Given the paucity of details about this auction or liquidation, however you want to characterize it, one gets the impression it was thrown together rather quickly, and possibly after Terrazzo announced its auction. I believe the impact on that auction will be substantial–you may find few, if any, buyers willing to offer the reserve established by the developer. This has all the makings of a slow-motion train wreck.
November 13, 2009, 12:39 am
I like your slow motion train wreck analogy. A sale like this needs to be executed with laser point accuracy and military like precision…I am very worried for this sale. It kind of reminds me of Barbaro in the Preakness Stakes 2 years ago.
November 13, 2009, 9:24 am
Well, this is where things get good. West End has larger units and better location than Terrazzo and now they are undercutting the Terrazo sale. They probably don't want to put out the terms so people will wait and not buy at Terrazo if they think there is lower reserve price or no reserve price at West End. I guess this will help the November/December sales of condos and median price. All I keep thinking is that the Icon and Velocity is probably screwed at this point. Their prices will need to be cut at the first of the year. However, as a young professional in Nashville, I find this a great opportunity to consider buying now. You will get to pick what project appeals to you the most and actually have a chance to get it at a decent price.
November 13, 2009, 11:19 am
There is no doubt that all of this activity is benefiting condo buyers who will probably be able to purchase condos at the lowest prices in the history of this market. The end of this year and beginning of next year will be an incredible time for buyers…which leads me to prognosticate that 2012-2013 will be a great time for condo sellers.
November 13, 2009, 5:19 pm
Either way, if it brings people to the Gulch that's a good thing.
November 14, 2009, 9:55 pm
This is true.
November 15, 2009, 8:53 am
“They probably don't want to put out the terms so people will wait and not buy at Terrazo if they think there is lower reserve price or no reserve price at West End.”
Gus good point. Although the West End Auction will reap the benefits of what you said, it was probably not a strategic move, but dumb luck by the farm & land autioneer, Jerrold Pedigo. Also very stealth of Jerrold not having a website for his auction company or himself. At least one that can be found.
Jerrold Pedigo islisted in the Rutherford County Chamber as “Jerrold Pedigo Realty & Construction”. He has a Realtracs email listed indicating he is a Realtor. He seems to be a Murfreesboro guy.
I'm struggling to find security in this construction/realtor/farm auctioneer auctioning off the bulk of condos in a $75 million development. Seems a little risky to me, even if Jerrold was doing it for free, not charging anything for a friend.
The West End is still twice the product that Terrazzo is, the location being equal just different. The Terrazzo was a HUGE mistake. Try standing in a $800k unit when semi trucks RIPPING by, the noise level is unreal. The freeway side of the Terrazzo will be heavily discounted forever. 116,000 cars a day pass by a hundred feet below, check it out at TDOT. It is NOT POSSIBLE to have a casual conversation between two people on the freeway facing side balconies without raising your voice. And hows that air quality? Again 116,000 cars tearing by pumping out exhaust that rises up for you to breath. Any LEED stuff they did is completely negated and was a sales farce. Unless they replace ALL THE WINDOWS with higher quality soundproof ones and install some type of white noise generator the Terrazzo will forever be for renters and idiots not having the forsight to care about air quality and noise pollution.
The West End is a great product, we'll have to see how ole' Jerrold does with it. The success of any good auction is done 99% by the premarketing. So far it doesnt exist.
Hey Jerrold buddy, any ads in the Wall Street Journal?
November 15, 2009, 9:18 pm
I toured the units at the West End. They are gorgeous and appear well constructed. In my opinion, they're more upscale than Terrazzo and are in a far superior location. That being said, I don't think a one will sell at the “auction” on 12/5/2009. Why? According to terms and conditions distributed in the packet to persons viewing the units, both the buyer and auctioneer must approve the sale of any unit and the sale may be stopped by the developer at any time. Has anyone been to an auction where the auctioneer had to approve the sale? (I haven't.) There's no reserve established, i.e., a price above which the units will sell. If you ask me, this is nothing more than an invitation to make an offer, which the developer will consider and, if too low, reject or counter. The developer is taking no risk and other than his advertising costs (nowhere near the amount Terrazzo is spending), he's not out anything. I don't even think he's out an auctioneer's fee, since each offer at the “auction” is subject to the auctioneer's approval. In other words, it's negotiable. At first, I thought the lender was behind this “auction”; however, I no longer believe this to be the case, at least not yet. If this were a legitimate auction, it seems to me some reserve in the general neighborhood of FMV would be established. If the developer is seriously interested in selling these units at today's FMV, he's doing an swell job of keeping it to himself. According the the Tennessean, only 5 of 72 units have sold in 18 months; at some point the lender's going to pull the plug and sell the remainder for whatever they bring. That's the auction I'd be interested in, not the one on 12/5.
November 15, 2009, 9:47 pm
Wow – what a total load of crap. I agree, the real action will occur when the bank gets involved for a genuine auction, if need be.
November 16, 2009, 7:10 pm
More on the terms of the West End “auction”: (1) There's a 10% buyer's premium (to pay the auctioneer); (2) you get one garage parking space for a one or two bedroom unit, and two with a three bedroom unit; (3) the documents related to the HOA won't be made available to prospective bidders until the day of the auction, nor, apparently will the contract, the terms of which shall be nonnegotiable; (4) prospective bidders are directed to the Davidson County Register of Deeds to conduct their own due diligence; and (5), no sale shall be subject to any contingencies, including financial, appraisal, or inspection contingencies. Plus any bid is not binding on the developer, who, along with the auctioneer, has the absolute right to reject any and all bids. As I said earlier, I'd be astounded if he sold a single unit on these terms.
November 16, 2009, 6:25 pm
November 16, 2009, 9:06 pm
That's not an auction, that's sellers fantasy circa 2005. But who the hell do they think they are these days?
As for the “no contingencies” business, this is standard boilerplate crap that will not protect the developer from any latent & patent defects discovered during inspection, problems with unmarketable title, lis pendens or a host of other matters that could arise during the executory period.
Also, if the buyer signs but can't get financing by closing and the developer tries to keep the deposit, I'd like to see how the court views this 'heads I win tails you lose' BS arrangement.
November 16, 2009, 9:43 pm
In addition to the general terms, the portion that upsets me is the auctioneer's 10% buyer's premium. This is equivalent to a real estate agent listing your home for a 10% commission and not offering to split that commission with the buying agent. This buyer's premium structure has been in place for individual land auctions for quite some time, but for an auction company to have the audacity to take 10% of each transaction a total of 45 times in one day is just plain greedy and is ultimately hurting the sale, the building and John Coleman Hayes. My assumption (yes I know what happens when you assume) is that Mr. Hayes has paid a marketing fee to the auction company to cover the auctioneer’s out of pocket marketing expenses -this is the traditional arrangement for marketing expenses. If that is true, then this rural auction company has now *attempted* to turn an urban luxury high-rise auction into a traditional cow pasture sale. If I were the sell or the BANK, I would demand that the buyer’s premium be reduced to 5% in order to give bidders room to bid higher on the condos.
November 16, 2009, 10:34 pm
Sounds like they're doing a lot of this as up front scare tactics to try to keep the flakes away from making off the cuff bids that they've no intention of honoring.
November 20, 2009, 12:58 pm
November 27, 2009, 8:57 am
Grant:
I enjoy your blog but as the original brokerage firm retained by the building's developer, I must take exception with your comment above “The sales team had a poor marketing effort that was slow to tell the public about the building.” Our client, the building's developer, was responsible for marketing and advertising. Unfortunately, there was no advertising budget and the lack of sales attested to that fact. The absence of serious promotion of this auction does not surprize me.
November 27, 2009, 9:22 am
Jimmy, thank you for the comment. Obviously, I am unaware as to the specific details of any marketing arrangements and I know you to be one of the highest quality brokers in Nashville. Clearly, whoever was responsible for the marketing decisions made several rather large mistakes in both their marketing plan and implementation.
November 27, 2009, 2:57 pm
Grant:
I enjoy your blog but as the original brokerage firm retained by the building's developer, I must take exception with your comment above “The sales team had a poor marketing effort that was slow to tell the public about the building.” Our client, the building's developer, was responsible for marketing and advertising. Unfortunately, there was no advertising budget and the lack of sales attested to that fact. The absence of serious promotion of this auction does not surprize me.
November 27, 2009, 3:22 pm
Jimmy, thank you for the comment. Obviously, I am unaware as to the specific details of any marketing arrangements and I know you to be one of the highest quality brokers in Nashville. Clearly, whoever was responsible for the marketing decisions made several rather large mistakes in both their marketing plan and implementation.
January 13, 2010, 10:42 pm