Murano auction fails to spark condo market

1706 Rittenhouse Street condos under construction . Developer Tom Scannapieco said, "In a hot real estate market, people are willing to give up-and-coming neighborhoods a chance. In this market, well, buyers are much less willing."
1706 Rittenhouse Street condos under construction . Developer Tom Scannapieco said, "In a hot real estate market, people are willing to give up-and-coming neighborhoods a chance. In this market, well, buyers are much less willing."

It helped generate hype, but sluggish Center City sales persist, brokers say.

Posted: July 12, 2009

Murano's recent auction was billed by some as a fire sale: new luxury condos with minimum asking bids half their original list price.

Three weeks of hype for the June 27 sale seemed necessary given a second quarter in which more sales contracts for new condos were canceled in the Philadelphia region than consummated, according to Delta Associates of Alexandria, Va.

In 105 minutes, there were agreements for 42 of the 178 units at 21st and Market Streets that had been languishing for more than a year. Total value: $21 million. Not a single condo sold for the minimum in any price category. And every unit went for a lot more than the price local observers maintained was the average for that part of Center City - $300 a square foot.

"It was more than $450 a square foot," said Jon Gollinger, president of Boston-based Accelerated Marketing Partners, which conducted the auction. "The owner [Thomas Properties] allowed the market to set the price, and that's what the market chose."

The hype helped draw 175 eager bidders. The sales seem solid, with just three cancellations, he said, and unsuccessful bidders potentially waiting to step in.

What the hype failed to do was infect others with the same enthusiasm. The number of unsold condos in Center City remains high, and buyers are few.

"I'm somewhat relieved that the auction is over, since it was a major distraction to many of my prospective purchasers," said George Cahill, a broker with Coldwell Banker Realty.

"Admittedly, however, it created a tremendous buzz in the Center City market," Cahill said.

For many, the Murano sale meant a reality check.

"There will need to be some kind of adjustment to the Center City condo market as a whole," said Mark Wade of Prudential Fox & Roach. The biggest effect will be seen at the Murano itself, "with a smaller ripple effect throughout other high-rise condos in town."

Based on what buyers were willing to go for at the auction, Thomas Properties is adjusting prices accordingly on the remaining 136 units at the Murano.

"The reality is that most of the consumer and brokerage community felt that the Murano was overpriced," said David Krieger, general sales manager at Coldwell Banker Preferred. "To the owners and developers that have tried to artificially create pricing points, it should be a wake-up call that the seller does not define the price. The market does."

With so much currently available on the market, and new condos with tax abatements competing against condos without them, prices are softening, said Prudential Fox & Roach broker Joanne Davidow.

The mid-year report by Delta Associates, which tracks sales nationwide, put Center City's current average price for new condos at $525 a square foot, down 7.3 percent from a year ago.

Parc Rittenhouse on Rittenhouse Square, developed by Allan Domb, was one of Delta's "star performers" in June, with a monthly sales pace of 5.4 units at $825 a square foot.

Depending on location in the city, Domb said, the range is $300 to $900 a square foot, with Rittenhouse Square $500 to $900, and "everywhere else $300 to $700."

"The hype of the auction drove prices up," he said.

"Mentally, the auction might signify we are at bottom or close, but as far as values are concerned, the deeper issue is location of the subject property," Domb said. "Everyone says the same thing: 'Well, the location of the Murano has just not developed yet. Great-looking building in a questionable location for luxury residential living.'"

But consider, Domb said, Orens Bros.' 169-unit lofts at 2200 Arch Street two blocks west, which sold out in October 2008. That proved the "$200,000-to-

$350,000 buyer will accept this location."

Real estate agent and mortgage broker Fred Glick said he sold two previously owned units at 2200 Arch in the last month or so in the mid-to-high $300,000s for a one-bedroom with parking.

"The one-bedroom at the Murano went in the mid-to-high 300,000s without parking," Glick said. "What a surprise! It went for the market value, not the previously overpriced dollar amount."

When times are good, people are willing to be a bit more pioneering, said Tom Scannapieco, developer of the 31-story 1706 Rittenhouse Street now under construction.

"In a hot real estate market, people are willing to give up-and-coming neighborhoods a chance," he said. "In this market, well, buyers are much less willing.

"Look, this isn't my market, or 10 Rittenhouse's, or Two Liberty's," Scannapieco said. "We are looking for an entirely different buyer. Yet we are all better off with a market that isn't filled with unsold inventory. A lot of people at that auction got a good deal."

At The Residences at the Ritz-Carlton near City Hall, developer Craig Spencer uses a different strategy to lure buyers.

"We are attracting a different customer, a different demographic," Spencer said. "With our customer base, we have found that a better strategy is to work with each individual buyer."

At the current sales pace, it will take 5.6 years to move all the new condos off the market, the Delta Associates' report said.

And it seems clear that the existence of so many unsold condominiums is affecting the rental market, as well.

In a separate mid-year report on apartments, Delta Associates said the vacancy rate in Center City is up to 7.6 percent, from 5.4 percent last year, with average effective rents at $1,787, or $1.76 per square foot.

"Renters are being offered new condos at [rates] lower than the actual carrying charges, just to get some cash flow to the developers," said real estate agent Mel Heifetz, who specializes in apartment and townhouse rentals in the city. "The choices for the renters is a brand-new, unlived-in unit for the same price as an older unit in an unimproved brownstone.

"As a result, and for the first time in many years, apartments are now beginning to sit vacant for weeks awaiting a new occupant," he said.

It is probably safe to say that few expected the Murano auction and attendant hype to be a quick-fix for the sluggish Center City condo market.

"I believe the auction functioned as intended," said Jeff Block, a Prudential Fox & Roach agent. "It moved some units in a building with quite a few to move, and it moved them at more realistic prices than the previous asking, but not at the rock-bottom prices that the naysayers or bargain-hunters predicted.

"I think this particular auction will prove to be good for the Murano and the Center City condo market," Block said. "But I don't think the effect will be immediate or dramatic."


Contact real estate writer Alan J. Heavens at 215-854-2472 or aheavens@phillynews.com.

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