A little more on the death of this great project and its possible implcations on the overall market
Condo tower's demise rattles market
Experts divided on what it means for luxury sales
By John Rebchook, Rocky Mountain News
Monday, June 2, 2008
Experts in the real estate community are divided over whether a Canadian developer's decision to pull the plug on its $165 million, 51-story luxury condominium project at 1401 Lawrence is a harbinger of things to come or an isolated incident.
When the project was announced in January 2006, it was heralded as the tallest residential development in Denver's history. It promised to change Denver's skyline.
But that all came to a halt on Friday, when Great Gulf closed its $1.5 million sales center and released this statement: "As you are aware, the downturn in the U.S. real estate market continues, and unfortunately Denver is no exception. Due to these conditions, Great Gulf Colorado, LLC has not achieved the requisite pre-sales to go forward with the 1401 Lawrence project and, regrettably, is canceling the project."
Tracy Aiello, Denver spokeswoman for the project, said Gulf will not comment beyond their press release.
The company paid $500 per square foot, or $12.5 million, for the land at 14th and Lawrence streets, records indicate.
"There aren't any future plans to sell it or not to sell it," Aiello said. "They have not announced any future plans at all. They're really watching the market."
'An isolated issue'
She said the 145 suites in the tower were being sold from $650 to $700 per square foot. The company needed to presell 30 percent to 40 percent of the units before it began construction. Aiello didn't know how many pre-sales there were.
There are currently 1,787 condos and 1,339 rental units under construction in the Denver area, so the loss of 1401 Lawrence accounts for less than 5 percent of the 3,126 total units going forward, said John Desmond, of the Downtown Denver Partnerhip.
"I think this was an isolated issue," said Desmond, who heads urban planning for the partnership. "Downtown is extremely attractive for people, especially with rising gas prices, so I do not think we are in danger of overbuilding."
Rick Pederson, president of Foundation Properties, wondered why Gulf backed away from the project.
"Was it a macro issue? A problem specific to Denver? A problem with financing? I think people were a little surprised, because there was a presumption that Gulf was a very strong Toronto-based company," Pederson said. "But I don't think anyone was stunned. There are so many reasons for real estate not to work today, we just have to presume it was one of them."
Pederson does not think this will be a return to the 1980s, when many developers - a number of them Canadian - cancelled their Denver projects as the energy boom crashed.
"But certainly, we will have some more pullbacks this year," Pederson said. "I think we're only about halfway through the downturn in the housing market, nationally."
Lydia Lin, principal of One Realty, said a "perfect storm" of factors likely led to the demise of 1401 Lawrence.
Subprime crisis
"There was a negative perception about the state of the economy, especially the real estate market, and the psychology of it is was probably more damaging than the actual state of the market," Lin said. "Moreover, the subprime crisis caused credit issues. Also, in a market that was flat or falling, the developer went against the tide and started with an aggressive price point and even raised it."
Gulf unsuccessfully tried to persuade people to buy now, before prices rose more, by raising the asking prices by 5 percent.
Jeff Selby, co-developer of the Four Seasons under construction across from 1401, said he is not surprised the tower isn't going forward, because Gulf had not yet lined up its financing, which is extremely difficult since the subprime collapse last August. For example, developer Randy Nichols lost his initial financing for the Spire condo project, a couple of blocks from 1401 Lawrence, before he found a new lender.
"I do not think this is a sign of things to come, but a sign of things that already have happened" in the financial markets, Selby said.
Despite what some people think, 1401 Lawrence would not block views at the Four Seasons, he said.
And a number of people who planned to buy at 1401 already have contacted Four Seasons, he said, where about 50 percent of the units have been pre-sold.
Disappointed
"Obviously, I am disappointed," Selby said.
"The more high-quality projects we have downtown, the better it is."
Charlie Woolley, principal of the St. Charles Town Co., learned about Gulf pulling the plug on Monday and was shocked.
"My perception, in times like this, when there is paralysis in the market, most developers who have been through this before, if they think their vision is really strong, press on regardless," Woolley said.
Woolley said smaller projects that are easier to finance may be better than mega-towers.
"For future projects coming out of the ground, I think this is an opportunity for real estate developers to look at the little infill deals that can be financed locally," Woolley said.
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