Over the last several years, all of the sales contracts in my projects included "anti-flipping" provisions. Usually something along the lines of the purchaser would be the owner-occupier for a period of a year (I can't recall anything longer.) At first, these provisions used pretty general language and were loosely enforced. But as more homeowners complained about renters occupying units, far more stringent language began appearing in contracts and CCRs and homeowners demanded a more vigorous enforcement. Most importantly, sales teams were informed that if they could not prove that they had carefully explained the anti-flipping provisions to purchasers and the penalties for violating, they would lose commission. This was usually accomplished with a separate disclosure signed by both agent and buyer. As mentioned in other posts, this is only an issue when prices are appreciating at record levels.
The most common type of "allowable" flipping had to do with model homes. Investors would purchase model homes at the beginning of a project and then lease them back to your homebuilding division. This got the homes off the books (reported as sales) and provided the investors a steady income stream, plus a spectacular profit two years later when they sold the homes. I was never too comfortable with this whole set up. Didn't seem quite right. I don't see much of this anymore. Not sure if it's strictly because of market conditions or Sarbanes-Oxley requirements. I know on my most recent projects where this was done (models purchased in 2005), investors took a bath as homes sales had slowed to a trickle.
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It doesn't matter that those places are single family homes and 301 is highrise condos. Supply and demand works the same for both. When there's too much of something the price goes down.
You don't have to be an opponent of Saca Towers to understand or accept this. I'm sure there are people who put down deposits at 301CM, who love the building, the location, the concept but still understand that with sales as they are (and no word on how many of those sales later cancelled) the value of their condo can only go down.
That scenario is playing out at highrise condos in cities across the U.S. now. Why would Sacramento be any different?
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Here's why - It's important to remember that Sacramento has a huge pent-up demand for urban and high-rise urban living. San Diego hit the market just right to address this demand. Sacramento was late. San Diego got 20k (maybe more, I don't have the figures at hand, but that's minimum) new urban units during this market cycle. Sacramento should still have enough qualified buyers for at least, say 5k. That is enough for both the Towers and Aura with plenty of room to spare. That's not to say it'll be easy, nor does it guarantee these project's construction. But the downtown market is different on a fundamental level than suburban Sacramento.
While it's true that high-rise condo prices in Miami, San Diego and elsewhere across the U.S. are stabilizing or dropping now, those cities have had thousands of such units built. The demand for urban and high-rise urban living has been satisfied. Not the case in Sacramento where fewer than 1k are completed or under-construction. ZERO high-rise units have been built. In the Sacramento market, it matters a great deal if you are offering a single-family in Folsom vs. a home 300 feet in the sky at the Towers or Aura. The supply of the Folsom-type product is in the tens of thousands. There are fewer than 400 high-rise units left for sale within 90 miles of Sacramento. And they're all on Capitol Mall.
In a metro area of what, well over a million, I have to think that there are 400 buyers who want this kind of lifestyle and are willing to pay for it. It's up to Saca, Nassi and Sacramento's leaders to convince the financial markets of it. If they can, we'll see these towers get built.
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