The crisp, clear autumn air recently felt in Boston appropriately echoes the crisp, clear sound of the auctioneer’s gavel – perhaps too much so for one struggling city condominium development.
Two of the city’s luxury condo developments either recently or soon will face the hammer – Fenway’s Audubon Park development held an auction this month, and the Bryant Back Bay is scheduled for an early November date with the auctioneer.
And brokers are increasingly worried that the W Boston Hotel & Residences in the Theater District may be next.
"I think it’s just a matter of time [before the W holds an auction]," John Ford, broker/owner of Ford Realty in Boston, told Banker & Tradesman. "I don’t know how sustainable that [project] is without some type of auction format."
Since opening late last year, only 18 of the building’s 122 condo units had sold through September, according to data obtained from The Warren Group, publisher of Banker & Tradesman. The last recorded sale closed more than two months ago, and no sales were recorded in September.
Buyers Balk At Bankruptcy
Though sales have been slow since the beginning, the fact that the W’s developers, SW Boston Ventures, declared Chapter 11 Bankruptcy in April isn’t helping matters. In early May, bankruptcy court filings by the developer listed 12 units as having signed purchase and sale agreements and awaiting closing. Only four of the units named have closed since then – though one buyer did back out of their original agreement in order to purchase a larger unit within the building.
While it’s normally difficult to extricate oneself from a purchase and sale agreement, the uncertainties created by the developer’s bankruptcy may provide an avenue for buyers to get out of their contracts, observers said. Additionally, lenders are scrutinizing the overall fiscal condition of condo buildings much more closely than in the past, according to Richard Vetstein, a real estate lawyer and founder of the Vetstein Law Group in Framingham.
"Anytime there’s financial distress and chaos, it might be time to renegotiate the deal," Vetstein said.
Post-bankruptcy, two large units – one on the 27th floor and one in the penthouse – have sold for $2.2 million and $4.1 million, respectively. But in the sub-million-dollar price range, post-bankruptcy prices for the sales that have occurred have been considerably less than pre-bankruptcy prices.
Three units sold in December of last year – pre-bankruptcy – for $710,000, $750,000 and $850,000. Similarly-sized units sold in May – post-bankruptcy – went for $600,000, $635,000, and $655,000. It is not clear based on available data whether and how interior fixtures may differ among the units. All units examined were on comparable floors.
If it was left to the lender’s hands, the properties might already be on the block. Prudential Insurance Co. of America, which owns the senior debt on the property, has already filed a motion in court seeking the right to foreclose, arguing the developer’s lack of sales means a timely exit from bankruptcy is unlikely.
The property’s fate may be decided as early as next month, when the bankruptcy court is scheduled to hold hearings on Prudential’s petition to foreclose. Prudential did not return calls seeking comment.
Court filings reveal that the original loan agreement between SW Boston Ventures and Prudential required units be sold for certain minimum sales prices. While in bankruptcy, developers must seek Prudential’s permission to discount the units, which the insurance giant has granted to allow some of the post-Chapter 11 sales to go through.
A Little Leery
But it’s not clear whether the already steep cuts are deep enough, given the current environment. Recent luxury auctions have seen units go for an average of 70 percent below the original asking price.
At this month’s Audubon Park auction, units sold for an average 72 percent of the asking price, or a median price of $479 per square foot, a far cry from the $712 median price per square foot the W units have garnered post-bankruptcy.
Kevin Ahearn, president of Otis & Ahearn, the Boston brokerage in charge of marketing the W, said he disagrees with suggestions that an auction may be in the building’s future.
"When you look at all the other buildings, all those buildings are yielding good activity and good prices," with the exception of the Bryant Back Bay, Ahearn said. "If the market wasn’t responding positively, we’d feel differently. But we’re seeing very strong activity at the high end of the market."
Though some units listed under agreement at the time of bankruptcy have not closed, Ahearn said some of those buyers are looking to switch to larger units. Between now and the end of the year, counting closings that have already occurred and units currently in various contract stages, Ahearn said, "we’ll be well over 30 [units sold]."
Meanwhile, buyer’s brokers are more than a little leery of steering clients to a property that may soon head to auction.
"I’ve had buyers, and I’ve actually told them to hold off on the W," because he feels the likelihood of an auction to come is so strong, said Ford.
Ford argued that anything less than honesty is bad business.
"Look at the people who bought at the Bryant for full price in the third quarter this year, and now it’s going to auction. How do you think they feel about their brokers?" he asked. "As a buyer’s broker I couldn’t in good conscience tell them to buy over there."
Still, brokers are still seeing at least some interest in the property.
"We’re still taking clients to the W," said Jessica Quirk, Boston-based vice president of CondoDomain.com, a web-based luxury condo agency. But she said she leaves the decision up to them. "We do have clients that love the W, and we certainly hope that it’s successful."
