Anyone been watching the Towering Inferno at Marquee Place?

I thought you all would be interested to hear - Lennar and Intergulf are now officially shopping the Astoria building for sale. They are looking for an apartment investor to take it off their hands for $800K per unit (which is about their cost). Problem is that it is worth way less than that as an apartment buildings - rents can't get near high enough to support that valuation.



At least this is a better attempt to get out than the one KB took by burning down their Warner Center development this morning.
 
<p>Joe33, wow - I am interested to hear that. Do you have a link for this info? Or is this inside info?</p>

<p>Re: KB and the fire, see <a href="http://la.curbed.com/archives/2008/03/update_kb_homes.php?o=3">http://la.curbed.com/archives/2008/03/update_kb_homes.php?o=3</a></p>

<p> </p>
 
Joe, are you a broker? Who is the listing agent/firm? Thanks for this update. Any news on A-Town?



That KB project was going down in flames anyways.
 
<p>So jcaraway. </p>

<p>Like I said way back in this thread. Lennar is bailing out while the company is still in business. Lets see who buys it ? Nobody in the right mind would fund a purchase like that. The business plan that built these High Rises is in a shredder now. What about the rest of the CPW development ? Looks like its just going to sit for a few years empty ? </p>
 
<p>I am not a broker. I am an investor. I don't think Astoria is formally listed yet so I probably shouldn't say who is shopping it around.</p>

<p>A Town is on hold and I would be shocked to really ever see it done in it's current form. That will have to wait until the next cycle. And even then I imagine they will have to amend it to be 4 story over garage parking as opposed to high rise. I don't know how high rise can pencil again in Orange County for a long time.</p>

<p>KB does formally have their Warner Center (the one that burned today) and Platinum Triangle properties listed for sale with Moran & Co. I am not sure why they appear to be holding off on their Irvine project.</p>
 
KB thinks they have a purchaser lined up for that one.



Just nod your head if O/A is listing.



So bltserv.



We keeping score? Your claim was that this was a blight and you were afraid lennar would walk away leaving half completed buildings that would crumble to the ground (you were also afraid of holes). First of all, this is just the high rise building, not the entire community. I still stand by my claim that this was an ignorant remark as someone, whether it be lennar or an apartment builder or the bank, will come in and complete construction. I've been by the site and it's obvious that they are still proceeding the completion of the existing buildings.



IMHO, here's lennar's plan, they are going to complete construction on all projects in progress at CPW and sell the completed buildings to an EQR or some other institutional investor. They can't sell as-is to another builder to complete construction as the liability to assume construction mid-way will reduce the value of the project below the cost of the land, not to mention the amount spent on improvements. They won't start construction on the parcels that are undeveloped, the land is more valuable that way and they take less of a loss.



$800K per unit for the high rise may sound high, but that's the about par for so cal hi rise apts, which is what i'm sure lennar's comps are erroneously based off of. I think it's very likely that a high end apartment REIT is going to come to town and take a gamble on the project. I'm not saying that they will be successful, i'm just prediciting that this is whats going to happen.



Also, I heard one of the tower's at The Plaza is going apt as well. Wonder what will happen to skyline in santa ana. That project has got to be a complete disaster.
 
O / A does not ring a bell.



As for EQR or any other reit buying, I doubt it. Right now the reit's are primarily on the sidelines do to the decline in their stock. A couple of them are shopping around (udr and aimco) but that is only because they have exchange dollars from exiting some other slow growth markets.



At $800K per unit astoria is about a 3% cap. If you have to buy it empty, lease it up, deal with the empty and half built CPW as the front door to your property for years, you better be getting more like a 6% cap. Somebody might pay a 5%. And you have to factor in all of the lease up cost, negative cash flow, etc.



Plus for 240 units at $800K per, that is almost a $200 million deal. There just aren't any buyers looking to deals that size right now....too much risk. Maybe $500K per unit.



High rise construction doesn't pencil in OC for apartments because the rents just aren't there to support it.
 
Well, I don't understand how one can come up with your cap rates that one could have any confidence in seeing as there is no comparable product in OC. I'm not saying that $800K is the number, but I think it could be somewhere in that area. Here's why, this high rise could be seen as a niche market or a monopoly on the for rent high rise market in OC. Obviously, no body is going to build any more of these high rises and the four that have been built were sold as condos. We've got Astoria, 3000 The Plaza, and Skyline as the remaining tower product in oc, that's about 700 units that could possibly go for rent?



Again, i'm not saying this is what i believe, this is what I think a market report is going to tell you that 1) there is no for rent hi rise in the OC 2) no for rent hi rise will be built for many years or ever in the OC 3) OC still is a wealthy market full of jobs



I agree, equity is tight, we all know it is, but this is a high profile project. There might be a sovereign fund out there willing to make a gamble worth 0.001% of their total equity. Might even be one down the street.



I'm suggesting that insitutional investors would purchase the 4 story product, sticking to their MO.
 
<p>Joe, </p>

<p> nice detail. I was kinda thinking that you'd have to be at a minimum of 5% cap rate to get it though the banks (BUT you'd have to streamline your staff and management for cost issues). Plus 200M is an awfully big risk in real estate right now and 240 units is just too small for such a big cost.. You'd need at least 30-50% more units to make that cost palatable to any sort of REIT (at least a liquid one and one in the market and one willing to take a risk AND....).</p>

<p>As it is you probably won't see a profit from this until 5-7 years and even then its going to be reaching for pennies to get it done.</p>

<p>Oh well, just a few of my old ideas.</p>

<p>-bix</p>
 
Caraway....OK, I will give you that a sovereign fund may come in and do something unusual. I guess I am commenting based on the traditional US based institutional investment world.....which have been the only buyers in the last several years. Certainly the world is changing.





I have not seen any sovereign funds come in to the local commercial RE market yet, but I wouldn't be shocked to see it happen.
 
But don't get me wrong, even I still think it's a long shot and that a responsible, educated rational investor shouldn't offer more than 500K a door.



Well, maybe not a true commercial RE market, but a soverign fund did purchase john laing homes.
 
Bix,



Financing an empty building would be extremely difficult. It would likely have to be sold to an institutional investor who was willing to just pay all cash. They could finance it after they completed the lease up.



They could try to get some type of interim bridge financing to cover the lease up, but the magnitude of negative cash flow and corresponding interest reserve would be so large that it would torpedo the economics of the deal.
 
After reading all the posts on this thread, I am astounded that these things got built at all. Had the bubble not burst, it still seems unlikely that these high rise projects would ever be a success in Irvine.
 
Nude,

At bubble inflated pricing they worked all day long.....Bosa made a bunch of money on their first 2 towers...i think Opus made a bunch of money on their first two Plaza towers.



The developers thought the bubble pricing was here to stay. It didn't help that Bosa let investors buy multiple units at Marquee. The activity at Marquee gave the rest of the developer market a sign that there was a big market for high rise in OC. It was obviously a false signal.
 
<p>Joe33</p>

<p>If Marquee was only successful because of investors buying multiple units, it stands to reason that those investors thought they would either be able to flip them for a profit or rent them for positive cash flow. But I have yet to see anything stating that during the bubble they were commanding rents high enough to cover carrying costs or that there were people lining up to buy them from investors or that there were individual buyers lining up to get them. Maybe I am missing something...</p>
 
nude, no high rise in so cal planned during the recent housing boom was planned as a for rent product. These hi-rises pro forma'd all day as for sale, but would never pencil as for rent. The Bosa buyers intended the quick flip as evidenced by the vacant towers and 40 listings after final occupancy, i don't think they were going to rent them out.
 
At the prices people paid and with the high HOA, I bet they negative cash flow $2000 to $3000 per month on a rental.
 
<p>In the last real estate cycle there was a luxury tower on Long Beach, on the water on Ocean that was owned by big Japanese outfit. When the market crashed they literally closed the building, refunded deposits and sat on an empty building till around 1997 when the market stabalized a bit. They then opend it for sale and sold out in a year or two. A soverign fund with a ton of liquidity and patience may be able to pull off something similar. Otherwise there is no real way out.</p>
 
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