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Fire-sale prices for luxury Center City condos
By Alan J. Heavens
Inquirer Real Estate Writer
Price break on luxury condos in striking glass tower in Center City. Best offers over $250,000 considered.
That's the strategy for moving 40 of the 178 units still unsold at the Murano at 21st and Market Streets, to be sold at auction for sums 50 percent below their original list price later this month.
Take the 1,405-square-foot, 23d-floor unit originally listed at $995,000. It could go for $485,000, less than what it would cost to build today, said Jon Gollinger, president of Accelerated Marketing Partners, of Boston, which is handling the sale for Murano's developer, Thomas Properties Group Inc.
"These are preposterous numbers," Gollinger said of the prices, which are based on his analysis of the Philadelphia high-rise condo market. "But there is disequilibrium in the market, and the only way to get it moving is to try to provide an extreme-value opportunity - a once-in-a-lifetime event."
The sale, set for 1 p.m. June 27 at the Westin Philadelphia, 99 S. 17th St., is not an auction with absolutes, said Gollinger, who markets high-rise condo buildings nationally.
"If the reserve published minimum bid is $250,000 and no one bids above it, the condo sells for $250,000," he said.
Business has lagged at the 302-unit Murano, which was completed last year. So far, only 124 units have sold, and 112 have gone to closing, according to the city's Board of Revision of Taxes.
Yet Gollinger said that the auction would not be a "clearance sale" and that he hoped by selling the first 40 units, the remaining ones would go quickly.
"I'm just allowing the market, not the developer, to set value, based on what we know to be the critical mass," he said.
By analyzing the entire market, Gollinger said, he found that $249,000 is the price buyers should find most compelling.
What happens to those who have already paid full freight for their condos?
Gollinger planned to address that last night at a closed meeting of Murano's property owners.
"Of course, we wanted them to know what was going on before we began publicizing it, but we are counting on the fact that people who bought into the Murano were looking for a particular lifestyle," Gollinger said.
"The nature of the economy means that the building otherwise wouldn't be full for two years, and by doing this, the homeowners would be able to take control of things sooner," he said.
Kevin Gillen, vice president of Econsult and a Wharton School of Business fellow who studies the Philadelphia housing market, said the Murano's developer may be taking drastic action to avoid even greater pain.
"Murano may be playing the recourse game," Gillen said. If a condo developer reduces its debt to the lender to a certain level, but then sales fall below target - usually 80 percent of total units - the developer has no other recourse than to do whatever it can to pay the debt off or lose the remaining units to foreclosure.
Prudential Fox & Roach broker Joanne Davidow, who sells high-end condos in the Rittenhouse Square area south of the Murano, said the sale of these units at "bargain-basement prices is probably a very sad decision of last resort for the developers and banks, who put so much into their project."
It reflects a prolonged recession hurting consumer confidence, "which is the key to a strong or weak home-sales market," she said.
Some Center City condo buildings have been hit quite hard, such as the Aria at 1419 Locust St. In January, a bankruptcy judge appointed U.S. Equities, a Chicago developer, receiver of 55 of the 62 unsold residential units there after the developer, Universal Residential, stopped paying its lender, iStar.
Those unsold units have not yet gone back on the market. In all, 114 residential units and three commercial units sold in the renovated building.
Prudential Fox & Roach agent Mark Wade, who focuses on condos throughout Center City, said a quick corrective proposal such as the one being tried at Murano could be an "easy and effective resolution to what otherwise would be a long-term, lingering problem."
"What is interesting . . . is the fact that many of the largest, most expensive units in many Center City buildings remain unsold," Wade said. "There is a common thread among the unsold units in newer buildings: The one-bedrooms almost all sold, and sold well, while disproportionately, the larger, more expensive units have sat on the market."
As with Aria, whose condos many real estate agents considered overpriced at $333,000 to $3 million, "the sooner the Murano units get on the market and become owner-occupied, the better the result will be for the condo association," Wade said.
With first-quarter sales just one-third that of the same period in 2008 for new condos, according to Delta Associates, which tracks the market segment, it's possible that Murano's gamble - if it succeeds - may have a limited effect on other projects.
"The market dictates prices, and I don't see these being gobbled up like they think it will," said Center City mortgage and real estate broker Fred Glick. "No matter the price, financing is extremely difficult for a building that is not 50 percent presold, so . . . investors with cash will be the only ones that will probably buy these."
Glick said that Murano's distance from Rittenhouse Square has been a stumbling block to sales, and that the retail offerings that surround it, including adult theaters and vacant buildings such as the former Keystone AAA headquarters at 20th and Market, have not helped either.
Condo developer/broker Allan Domb said a onetime bulk sale at the Murano actually will be less painful than trying to sell 40 units over three years at lower prices.
"Maybe," Domb speculated, "the developer is looking at this as a method to stay alive for two years and revisit, hoping that there is a market then at 21st and Market Streets."
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