First Hill Newbie to Go Short

Posted by Dave Fratello on Thursday, February 12th, 2009 at 2:29am.

It seems like a price cut of $1m or so is no longer big news, particularly in the Hill Section, where now 7 separate active listings have chopped that much.

What is new about 815 2nd is that it's new construction that is now officially a short sale – a first for new construction in the Hills in recent years.

So pay a little attention to this week's price cut ($3.875m to $3.799m), which brings it down $996k (-21%) from the start at $4.795m.

Pay more attention this: The main loan (1st TD) is $2.9m. The second loan, at about $1.2m, is what is going to go short to make a deal to come together.

In this case, the note holder on the 2nd is savvy to what's going on these days and knows it's time to take whatever they can get. They've approved cutting into bone to make a deal. The new price must be viewed as just a starting point.

Of course, the first short newbie in the Hills is a sign of the times. Some other new construction in town facing some form of distress (click any address for more pics & details via Redfin):
  • 560 36th, a large (4br/4ba, 3800 sq. ft.), sharply modern home, has had a default notice filed against it. This one began at $2.999m last March and had cut to $2.199m by last August, quick movement MBC noted in "Not Holding Out." One buyer moved in, but the escrow failed, and the listing is still lingering. The agent declined to discuss the NOD with MBC, but did say that the sellers will look at all "reasonable" offers.
  • The failed auction home at 2509 Palm, taken by the bank at the dawn of 2009 for $1.5m (against $1.8m owed), was promptly returned to market at $1.799m. We're now getting information that a buyer did grab it from the bank in late January, evidently to flip. Sorry, but we can't explain why the current price is $300k above the auction start price and $100k more than the last list price before the bank took title.
  • 617 6th (5br/5ba, 5725 sq. ft.) back in the Hills, has more than a "distressed beam ceiling" going on – a default notice was filed on $3m+ worth of loans last September. Here, the lot was acquired for $2.250m in Feb. 2006, the listing began at $5.950m last March, and it's now at $4.995m.
Back to 815 2nd for a moment. We'll dial back to our pricing poll on this property from April 2008.

MBC readers considered the price at the time, $4.495m, to be very optimistic.

As our graph shows (click to enlarge), a plurality (37%) settled on $3.75m-$4m. But that's not going to happen now, either.

The most bearish opinions last Spring belonged to the 29% who said the sale price would be below $3.75m. Quite a few said it'd be below $3.5m. (See our poll results story for more.)

Reality has been harsher over these many months than a lot of people could imagine. And here we go with 815 2nd poised to make the bears look very right on this one.

Let's wrap up here with an intriguing takeaway.

They're not building new houses anymore. Builders aren't buying lots, banks aren't playing and the new construction you see now is increasingly late-stage speckies or owner-initiated personal projects.

It's the end of an era, or, more properly, a cycle.

New spec homes, while many are certainly lingering, are also becoming scarce. If you want new, your options are actually going to contract in 2009-2010. That's something to watch over the next 2-5 years in MB.
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