Monarch condos: A reader raises issues

Monarch condo sales -- and sign -- have been whiplashed.

A Plainfield Today story from last week (see here) generated a sidebar discussion on the Monarch condo situation that is worth bringing to the fore.

One commenter's suggestion that new South Avenue development reflected a 'build it please-we-hope and they will come' mindset, it provoked a comment in defense of the Monarch project.

My suggestion that owning rather than renting was a better way to go prompted this long and thoughtful comment (perhaps from a real estate insider) which I am reprinting in full --

Dan, this is a response to your comments on the rental approach: I agree with you that when someone purchases a property he or she is making a direct investment. I would also agree that the direct investment is most likely a superior investment than a person investing indirectly through rental.

You are correct in stating the agreement was for a condo development. I think we need to consider the Monarch’s best use of the property based on the current economic reality.

Due to the size of the property (60+ units) it will be very difficult for the owners of the property to dispose of units as condos even with FHA financing because of FHA’s presale requirements which have been reduced to 51% from about 70%. As such before anyone can take possession of a unit in the property, the property owner must have contracts for 51% of the units. That can be extremely difficult in this market.

I still contend that quality rentals can be good for a community because there is a strong likelihood that the renter in a true market rate rental will ultimately become a property owner in the city eventually. Plainfield’s problems with rental properties are not necessarily due to the properties being rentals, instead the issues with rental properties in Plainfield are due to a failure of this administration and past administration to seriously enforce the code by addressing overcrowding which leads to potentially higher risks of injuries for firemen and of course a higher probability of deaths due to fires plus other increases in crime due to higher incidents of domestic violence , rapes and incest.

A true capitalist will seek the option that leads to the highest profitability at the lowest possible risk.

We need a solution to the Monarch’s issues and the party that is most likely to lose if we do not arrive at one soon is the Plainfield tax payer. The Monarch’s owners have already made a significant profit on this transaction through general contractors’ profitability, lower interest rates for construction financing through HMFA’s insurance, a non-recourse loan and of course a developer fee on each unit in the building that was probably worth about 20K per unit.

Let's take a closer look --

WHAT'S THE STATUS OF SALES?

The Tax Assessor's office tells me there are just THREE sales recorded with the County, hence subject to tax assessment. The highest sales figure is in the upper $240s. Each unit is assessed separately, based on its sales price, size and amenities; the assessment including the unit's share of the condominium's common spaces.

This is not terribly encouraging, considering the units have been offered to the public for over a year now. Whether that is just because of the weak market, because of the location on the fringes of downtown, or because there are many condo options in the same price range in other communities may never be known.

A driveby on Wednesday evening found two cars in the parking lot and lights on in two third-floor units, one facing Bank of America and the other facing the rooftop 'garden'.

Though the units are being marketed by two of Plainfield powerhouse real estate firms (ERA Reed and Sleepy Hollow Realtors), the softness of sales and time-on-market still indicates the units are overpriced for current market conditions.

But does that mean there's trouble afoot?

RENT VS. BUY: WHAT'S AT STAKE?

The reader holds that renting the remaining units is a viable option for several reasons, including difficulties in buyers obtaining loans, and the assertion that 'the renter in a true market rate rental will ultimately become a property owner in the city eventually'.

Buyers getting loan approvals has become a problem throughout the real estate market -- and not just in Plainfield. We are returning to an old-fashioned, reality-based lending market: you must have a real job with a verifiable income, a real down payment, and qualify for the loan on old-fashioned income ratios. Making the adjustment from NINJA (no income, no job or asset verification) loans to this more traditional reality will take time, but we will get there.

I do not know of any studies that show these 'quality' renters will be likely to buy in the community, or that even if they do it will be the unit which they have rented.

In fact, the experience with the Meadowbrook Village condos further down East Front Street argues against it. In that situation, the developer went belly up with only about 25% of the units sold (in the late 1980s). Subsequently, the balance became mostly rentals. The value of the owner-occupied units plunged, only recently returning to near the dollar values of the original sales (but of course those were in 1988 dollars, and these are 2010 dollars -- hardly worth the same).

Besides that, I learned from the Tax Assessor's office that many units in Meadowbrook Village have been bought by NONPROFITS and are used to house various clienteles. You know what that means -- those units have been removed from the tax rolls. Not exactly a prospect one wants to see replicated at the Monarch.

As for the reader's assertion that the problems with Plainfield rentals have to do with failing to address overcrowding (but leading to incest? Really??!!), there is some truth to that -- a topic on which I have harped from time to time.

That being said, however, there is no guarantee that allowing The Monarch to become rentals would not mean its becoming subject to the same overcrowding pressures (which are, after all, just an expression of the drive to maximize profit).

The point of The Monarch's being developed as MARKET-RATE, OWNER-OCCUPIED CONDOS was to prove that Plainfield was capable of standing on its own two feet in the condo market, competing with other communities for these attractive buyers and using this project as a wedge to leverage transit-oriented, mixed-use development that would enliven its downtown scene.

Succumbing to becoming a rental means the failure of that attempt. Another loss for Plainfield.

RENT VS. BUY: WHOSE DECISION IS IT?

In some ways, the conversation about whether The Monarch units should be rentals is beside the point, because the ultimate deciders in that regard seem to be the Union County Improvement Authority (UCIA) and the developer (Dornoch/P&F/Fishman).

That is a decision about which we can confidently expect NOT to be consulted.

WILL PLAINFIELD TAXPAYERS LOSE?

Will Plainfield taxpayers lose if the situation is not remedied quickly?

Yes and no, it seems.

The Senior Center appears to be the City's regardless of what happens to the developer. That could be considered a plus.

Will the tax rolls see the full benefit of the condo units coming online? Not for a while, unless a) the market improves, or b) the prices are reduced.

If it were to become a rental property -- that is with the DEVELOPER owning and renting it -- the taxpayers would have the benefit of a substantial ratable coming onstream, but there would be the conterbalancing negative that increasing tax assessments on the condos, presumed usually to increase as they turn over again and again, would be denied in favor of a one-time, lump-sum assessment.

The reader is right, though, that the developer has already made a tidy bundle off the deal -- even if it goes belly up and the lender seizes the asset (it's only recourse under a non-recourse loan).

The one point the reader fails to mention where the developer has benefited is the outright gift of the property by Mayor Robinson-Briggs to the UCIA and thence to the developer for the majestic sum of ... $1.

Maybe the taxpayers have been the losers from the beginning?

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• Plainfield Today: "New South Avenue businesses focus of lively meeting"
  

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