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Metropolitan Place Phase II Hits Foreclosure Filings

February 7, 2008

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Another victim of the real estate bubble?

Not enough people want to live in downtown Madison?

Development that was underfunded?

Misunderstanding between the developer and his bankers?

YOU DECIDE.

 Below are the local press articles regarding the recent foreclosure filings against the developer of Metropolitan Place Phase II and his lending/funding sources.  Since word of this hit the media yesterday there has been a lot of speculation as to the cause of this foreclosure action.  Time will tell what truly happened.

I do know a few things:

1)  Development of a large residential condo tower is definitely different than developing a group of 4-8 unit buildings on the fringes of a city.  What I mean by this is on the fringe developments, the developer typically pre-sells 50% of the building before the lender will allow construction to start.  This lessens the risk of the market corrections, interest rate jumps etc…  In Metropolitan Place Phase II’s case, they had to build all 164 units at the same time with the hope that market conditions didn’t affect them too much in order to keep the lender happy.

2.  The market did shift.  The number of units available downtown increased tremendously and unfortunately pricing couldn’t be adjusted to meet the change in demand.

3.  A project with the size and scope of Metropolitan Place is enormous.  When completed and occupied the number of dwelling units between Phase I and Phase II is at 338 households.  Think about this in terms of single family subdivisons in the ‘burbs.  That large a subdivision would typically take 5-10 years to build out and complete.   This has created a small village on 1/2 of a city block!

4.  Finally, there’s talk of the courts forcing the project into receivership with a court appointed entity taking control of the project and it’s sales.  What might happen in this case is that prices on the remaining units could drop substantially to get them sold and sold quickly.  For those unit owners who have already bought, this is bad news in the short term.  If they needed to sell during this time frame, they’ll more than likely see a loss as they’ll be competing directly with new lower priced units.  Long term, however, they should be OK as once the remaining units are sold the market can take back over and units should sell at fair market rates.

5.  I don’t think it’s time to panic!   In fact the faster the developer can resolve this issue with its lenders the better off everyone will be.  It’s hard to sell real estate under the stigma of foreclosure especially when it’s a condominium development.  That hurts everyone both current owners and potential buyers.  A fast resolution, whatever that outcome may be, it essentially best in the short and long term.

For more insights on this check out the following:

Wisconsin State Journal Cap Times

Channel 3000 Newscast

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