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Thursday, August 5, 2010

Jaw-dropping is right

foreclosure signThis is where The River project has to go before prices become sane for Salem

Salem is going to start experiencing a lot of buyer's remorse here now that voters narrowly rejected Chuck Bennett's bid for mayor, selecting Janet Taylor's handpicked successor instead . . . only to discover, now that it's too late, that Taylor's idea of a sound investment is waiving lending standards to give $500k to a development firm that has proven so inept at judging the Salem market for condos that it has built a condo tower on the river that is wildly mismatched to the Salem market and, surprise!, managed not to sell a single one.

That alone should disqualify the developer from any city lending under even the most casual scrutiny. Bottom line is that the developer firm is demonstrably incompetent; they conceived of and built a project that reflects nothing but real-estate-bubble thinking and a total ignorance of what the Salem market needs and wants. Ergo, the city money would be at serious risk of not being paid back, regardless of how the ethics questions against one of the developers are worked out.

Besides, from the city's point of view, the faster those guys lose the project and the lenders take it over, the better, because that's when the prices will come down and the units will be finished and filled. The units will never sell at the prices conceived of by the original developers; before buying LOVESalem HQ, we got the brochure and price list for The Rivers and The Meridian projects and I just about did a spit-take when I saw what delusions these builders had about the Salem market. Those projects simply will never pencil out at what Salem buyers are willing and able to pay, given the incomes here in this town. Hence, the only way for those projects to proceed is for the developers to take a bath and for the projects to fall into the hands of the lenders, who can and will be motivated to bring the prices down to earth. Pumping city money into them only means helping incompetent developers prolong the agony longer, while keeping the projects empty.

The real jaw-dropping aspect is that only two council members had the sense to oppose the sweetheart loan package.

Do the Mayor and the four who supported waiving the usual lending standards not recall that the entire country is flat on its back because of foolish real-estate lending? Does anyone think that Salem incomes are suddenly going to jump up enough to support $250-$300 per sq-ft condos, allowing the developer to repay loans? Jaw-dropping indeed.

If there was any merit to the developer's idea for how to proceed, there would be a line of banks and credit unions lining up to lend the $500k. But there's not. Hmmmmm, what does that tell you?
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