Sunday, March 16, 2008

Sonata Condominiums: Equity Disappears

While looking at the condo ads in the Wapo real estate section Saturday, I noticed that the Sonata (located at 301 Mass Ave NW, "The View is Priceless") is advertising price reductions of up to $75,000. To recap:

The Sonata is a 12-story, 75-unit condo - the first to go up in rapidly gentrifying Mt. Vernon Triangle, near the entrance to I-395. Developed by Wilkes / Quadrangle (now doing Madrigal Lofts and the Concerto). With a small footprint, the Sonata has only a few condos per floor, with 10' exposed concrete ceilings for an attempted loft effect. The project sold out in mid 2005 after only 2 months on the market at the height of the condo frenzy, building was completed in December 2006, settlements to begin January 2007. Built by Glen Co.

Moreover, the ad touted that only four units are left! And then only listed prices for three. But didn't account for the other 8 that haven't sold per the District. Confused? According to the District, 75 units were built and 63 have sold, leaving 12 that are still available. But only four are left!

Leaving confusing mathematics aside, it's interesting to see how much equity is being destroyed for those who already own units in the Sonata.

Unit #207

Model: Beethoven

Old price: $451,900

New Price: $386,900

Reduction: $65,000

Unit #303

Model: Haydn

Old price: $640,900

New Price: $599,900

Reduction: $41,000
Unit #1103

Model: Corelli

Old price: $825,000

New Price: $750,000


If I owned a unit at the Sonata, I think I'd be a tad unhappy that the developer is lowering prices 6.4 - 14.4%, less than a year after I closed on my unit.


Anonymous said...

I wouldn't be mad at the developer. I would be mad at myself.

Obviously the prices needs to come down. This developer is doing what is necessary. The alternative, as I have heard from marketers at other properties, is that the developers won't lower the prices because they want to protect the equity of the early buyer. This is hogwash since not lowering the price, doesn't make people pay more for a unit in a building. If they want to help, they should offer refunds instead.

Keith said...

While I understand your point that the developer needs to close out of the building at any price, there's no reason the buyer should be mad at themselves.

They made a huge purchase, paid top dollar at the top of the market, and now they're losing equity as the air leaks out of the bubble. Dealing with the market is tough enough, but few would have expected the building's developer to help kick their condo's value down the stairs.

FourthandEye said...

FWIW - I've visited unit 207 that had the sizeable price reduction. It has a terrible view and enormous condos fees ($650/mo). The eye level view is of some exhaust vents and the ramp to the garage. In this market it wasn't going to sell for high 400s. I could be naive but I don't think selling one 2BR Beethoven unit that has an undesirable location in the building is going to have a big effect on the equity of every other 2BR unit.

Keith said...

Comps are based on $ / square foot. I know real estate agents will tell you that all this unit might not affect comps because of the things you've seen ["this unit has a prettier view"], but the objective data everyone will see are the $ / square foot that unit garnered, which will drive all other units lower.

FourthandEye said...

I think the better approach would have been to offer two years condo fees free and 3% towards closing costs and maybe dropped the price from $451K to $425K rather than all the way down to $386K. But something drastic had to be done. This unit simply cannot command the $/square foot that other Beethoven units can. If you don't shut your blinds there is a mushroom shaped exhaust vent staring straight at you.

Keith said...

The developer knew [or should have known] the unit was a turkey when it was built, but didn't price it accordingly until the market forced him/her to do so, at the expense of the current owners.

FourthandEye said...

What happens when the same builder erects another residential condo across the street to complete the "Massachusetts Ave Gateway" of their Mount Vernon Place masterplan? Are they obligated, in your mind, to price all those units at or above Sonata $/sqft to protect Sonata owners equity? I'm just not clear where this line of thinking begins and ends.

I respect what your trying to do here. I actually was frustrated when I moved my condo search from Arlington to DC and saw that DC had seemingly a much longer lag with regards how long it takes sales data to be published on the govt website. But I believe context does matter.

Keith said...

Obviously, you price to what the market will bear.

I'm not saying any developer is obligated to enter bankruptcy or financial distress simply to protect the equity of his/her customers. None do. However, the developer's actions do not occur in a vacuum and they can negatively impact customers.

I'm simply saying that, had I purchased one of those condos at the Sonata, I'd be mighty upset to find that the developer, after happily charging me top dollar for my unit "with a fabulous view," discounted the remaining units at a price point low enough to unload them, a point that left me underwater re: my equity position.

Tails they win, heads I lose.

Anonymous said...

"They made a huge purchase, paid top dollar at the top of the market, and now they're losing equity as the air leaks out of the bubble. Dealing with the market is tough enough, but few would have expected the building's developer to help kick their condo's value down the stairs."

Keith, you are usually spot on, but you are a bit confused here. While I sympathize with those who have suffered from the housing bubble's deflation, the developers don't set the market price...the market does.

If developers sold a unit for $10 that was worth $500,000, someone would make that money in a minute by buying the unit. Likewise, not dropping prices does not preserve value, as so many developers seem to believe. The market determines the price. Set the price right and the product will clear the market at a reasonable rate.

Connor Murphy said...

I'd agree with fourthaneyes first comment. I saw unit 207 today and it is very poor. Its really a 1BR Den. The 2nd 'bedroom' is very small and poorly located. The first thing you see when you open the door is the steps up to the 2nd bedroom.

It really is the runt of the litter. I expect the price could drop even further. But I would still be dubious of its value due to the $650 condo fee.

I think the nearby Madrigal is a much better option if you are interested in this area. Unit 619 is selling for $444,900 and has a brighter southern exposure. The condo fee is $443 and it is 936 SQ Ft with parking. I still do not like the lofted second bedroom layout but it will be easier to rent.

Anonymous said...

$650 condo fee? They are truly trying to sucker people. A crying shame.

Anonymous said...

That area is scary at night. Oh my god . why not purchase in georgetown?

Karen Schmitt said...

I read this blog with interest. Now, almost one year since the dialogue began, I am wondering if the situation re: the Sonata still remains true. Especially, the neighborhood. Is it still "scary at night?" As the economy continues to spiral, will "scary" degrade to "downright terrifying?" Karen

Anonymous said...

It's a million times better--I live at the Sonata and I've seen the transformation myself!