Wednesday, April 29, 2009

Tuscan Ridge - no bidders....

...Except the bank. Apparently there were less than 20 people present and most were the usual suspects of the Canaan real estate community. The developers of Aspen Village on the Timberline access road were present, as were a few smaller developers who have completed or managed projects in the area. I suspect many were there mostly to get a reading on how their existing projects would be affected by the fall of this giant. The bids apparently were to start at 1.35M. With no bids forthcoming, the bank took the property. Concensus is that this was a bit of a surprise, and that most had believed there was enough developer interest that one of them would pick it up. Some comments were forthcoming from the bank's distressed asset manager that this is a valuable asset and they would explore how to achieve the best results with it. My guess is that the bank is talking smack and would really like to get rid of the property pronto. Banks HATE things like wetlands protections causing sewage treatment problems and potential lawsuits relating to the Endangered Species Act. Tuscan Ridge is a project with some well-executed master planning, all predicated on the coup of annexing the Town of Davis in order to get the sewage treatment needed for suburban density levels. They didn't expect to find wetlands next to the Davis Town sewage treatment pond. They didn't expect to hear about flying squirrels. And they didn't expect the market for second home vacant lots to fall off a cliff. When you consider these three surprises confronting a project that used trick financing, investment synicates comprised of amateurs located in other areas of the country, and pricing at nearly double the comps found at the PEAK of the market....well the crashdown was pretty hard. I'll call Tuscan Ridge the "Phoenix AZ of Canaan." Up 50%. Down 50%. For this phoenix to rise from it's flames, it must overcome the above trifecta of obstacles.

The reality is that most banks don't do a whole lot with these assets other than sell them. There is some thought that the selling price would be greater than 1.35M because of the now greater costs to the bank in holding and marketing the property. I doubt it. My guess is that the property will sell for less than $2M, and no time real soon.

If you consider that this auction package includes a $1.5-2M lodge, millions in road/sewer/electric infrastructure, extensive master planning and design, and 400+ acres of land....the gross value is probably close to $3M in today's distressed times. Subtract from that theoretical value the discount for sorting out various risks -- resolution of the sewage treatment questions for out-phases, resolution of potential endangered species issues (eg flying squirrel. That might net out to a value of $1-2M. Now that you've got the property and have beat down those risks, prepare to spend $2M more to finish re-planning the property and infrastructuring it. For the return on this project, consider that the number of lots will likely be reduced dramatically for reasons found in the twin risks of sewage treatment and engangered species. Now cap off this scenario with the big unknown of how much demand there might (not) be for an inventory of a few hundred lots.

All this said, I think that the early-phase lots that have full infrastructure, and that the Town can confirm are ready to build, are good deals in the $20-30K area. Much above that and you are paying 2012 prices today. Once the Tuscan out-phase questions are resolved and the project is selling, sure, the value of each early phase lot will approach $50-70K, but I would guess that happens as we approach the 2012 timeframe.

No comments: