Condo pre-sales -- from chaotic to business-casual
Keith Battaglia just paid a kid 100 bucks to sit in a lawn chair and eat pizza -- and he probably never made a better investment.
Battaglia, the 35-year-old sales director for a local conference center, bought a human bookmark to hold the eighth place in line overnight June 25 before reservations opened for The Carlyle, the new 39-story Downtown condo tower to be built at South 1st Street & 3rd Avenue South.
As Downtown's tallest condo tower, just a half-block from the river, The Carlyle generated a frenzy when units became available at 9 a.m. on June 26. Nearly 900 people were waiting behind Battaglia, seeking the best view-to-price ratio among the 255 available units.
Adding to the reality-show tension, those at the front of the line helped set the prices for everyone else. As The Carlyle's customer handout noted, in boldface, "Please be aware that prices are subject to change without notice and are likely to do so quickly at any time during this pre-grand-opening event."
The Carlyle computers crunched prices based on real-time purchases, and could spike prices by tens of thousands of dollars as horrorstruck buyers watched the computer screen.
The normally bubbly Battaglia paced anxiously during the 20-minute wait to get into one of the Carlyle's four sales rooms in the doublewide mobile home that will surely be the lowest-rent housing on the site for years to come. When his number was called, he shot into the room like a cat after mouse.
Emerging several minutes later, Battaglia sported a near-beatific grin. "I got two!" he said; he turned out to be one of the last people allowed to buy two Carlyle units before project developers decided demand was too great for anyone to buy more than one.
As an investment, Battaglia scored a prime unit on The Carlyle's fifth floor, one of the few units with a walkout patio and private hot tub. He also bought a 19th-floor, river-view unit that he planned to live in.
He described a roller-coaster-like purchase process. He went in with his eye on a 10th-floor unit, only to watch the price rise from $400,000 to $420,000 to $440,000 -- presumably because buyers in the other sales rooms were making a similar choice. "I think each place in line was worth $10,000, based on how I saw prices go up," Battaglia said.
Considering what he'd spent to nab the eighth spot, he didn't get a bad return on his 100 bucks.
Yet, not all popular condo projects require camping with your competitors to stake a claim. Reservation agreements are "loose," legally nonbinding and fully refundable -- so they aren't as closely regulated as more binding purchase agreements.
As a result, presales vary as widely as developers' sales strategies. However, amid a condo boom that shows little signs of flagging, the get-in-early psychology has never seemed more powerful.
What you know
Getting to the front of the line is not as much of a who-you-know game as you might think. At two summertime grand openings -- the Carlyle's and one at The Groveland, a planned 135-unit condo complex at 317 Groveland Avenue in Loring Park -- the good units weren't off the board for favored clients, judging by the "sold" dots on each project's floor plan.
"We really try to keep it as pure as we can," said Bob Lux, a principal with APEX Asset Management Corp., which is developing The Carlyle with OPUS Northwest LLC.
The idea is if more people feel they have a fair shot, more people will show up at the reservation event, boosting demand and in this case, price.
If it really is first-come, first-served, the trick is knowing when developers start serving. Both developers -- APEX/OPUS and The Groveland's Steven Scott Co. -- required clients to sign up in advance to be at the opening of the reservation period.
Lux said APEX and OPUS sent a heads-up to past clients, but newcomers could get on the "VIP" list simply by calling or signing up on the project's Web site -- if they knew that's what they had to do.
For most buyers at the event, their regular real estate agent clued them in. Still others were investors who buy into many projects and are savvy in the ways of early reservations.
Both projects advertised their events in local papers, but a bit obliquely. The Carlyle advertised a noon grand opening -- but if you got there then, you were looking at the thousandth place in line. (The 9 a.m. event was actually labeled a "pre-grand opening" for those who had previously expressed an interest.) The Groveland's ad simply listed a reservation opening date, a Web site and a phone number -- but no start time. However, the lack of detail made it likely that a buyer would contact the marketer for more details, where they would then find out about the first-day festivities.
Despite the gamesmanship, not every reservation opening is a madhouse. Compared to The Carlyle, The Groveland's opening moments were sedate. There was no line at the single-wide trailer on the former Red Cross site just north of I-94, and the handful of early tire-kickers included a young couple who had happened to bike by.
Unlike The Carlyle, the seven-story-high Groveland had set prices -- from a 712-square-foot ground-floor unit for $164,900 to a $549,900 top-floor unit with 1,809 square feet. Here, the first-mover advantages were location and availability, not price.
Diane Popowich Walczak, a Downtown resident and The Groveland's marketing manager, said in her experience, smaller units that are the best value go first.
Reservations and speculations
One powerful contributor to reservation mania is how low-risk it is...in the beginning.
Although Battaglia put himself on the hook for over half a million bucks worth of real estate at the June 26 Carlyle event, all he had to do that day was write a $2,500 check for each unit -- which is fully refundable by state law.
(Both developers performed a quick on-site credit review, so not anyone could plunk down a check.)
Between 10 days and a few weeks later, the financial hook begins to set. For example, The Carlyle required those making reservations to sign a purchase agreement 18 days later, but Battaglia says that because contracts took a little longer to get mailed, he got nearly a month. As part of the purchase agreement, he was required to put down 5 percent for the first unit and 10 percent for the second -- money that is nonrefundable. (Developers also often make buyers put down a share of any upgraded features they've selected for their units.)
In a hot market like this one, more than a few purchasers make their down payment with speculation on their mind: expecting the market to lift the value of their prime unit, which they can sell for a profit without ever moving in.
Battaglia, for example, was motivated by what he heard about Grant Park -- another APEX/Opus tower at 500 E. Grant St. in Elliot Park -- where condos had allegedly appreciated by $100,000 between reservation and closing.
Of course, what goes up can go down. And the wrinkles of condo marketing mean you can't collect on even the smart bets as easily as you might think.
For one thing, even though you've put down that $50,000 nonrefundable deposit, you don't actually "own" your unit until it's built and receives a certificate of occupancy from the city. Banks won't give you a mortgage on something that doesn't exist (there's no asset to back the loan until the project is finished). The means several months -- often more than a year -- before you can close your purchase agreement, find another buyer and realize your winnings (or losses).
Although rumors abound that high-profile projects are filled with speculation, developers such talk is overblown. "Ultimately, a lot [of investors] end up moving in," Lux said.
Some projects, such as The Groveland, have a specific limit on nonoccupant buyers, who are expected to declare their intent when they sign their purchase agreement. (Lenders and other buyers prefer owners in a project over renters).
Still, real estate agents note such limits aren't always the easiest to police, in part because you don't know who moves in until moving day.
In any event, the current demand still represents a developer's dream. At The Carlyle -- where list prices ranged from $254,900 for a one-bedroom unit to more than $880,000 for a three-bedroom space. As of July 27, the project was 25 percent sold.
At The Groveland, about half of the 135 units have been reserved, with purchase agreements about to be readied, Popowich Walczak said.