Crain’s: Flippers Undercutting The Donald on Pricing in Trump Tower
Trump Tower Chicago flippers are apparently undercutting Donald Trump’s pricing on unsold units in Trump Tower, according to Crain’s.
The article addresses the condo/hotel units, which we’ve chattered about before.
Trump Tower remains only about 70% sold and has been at that sales level for at least a year.
From Crain’s:
At least 34 hotel suites sold by the developer in the past six months are back on the market, some priced at a steep discount to comparable unsold hotel units in the yet-to-be-completed project. They are owned by investors who signed purchase contracts before construction began on the 92-story skyscraper, aiming to flip the units for a profit after closing.
“My clients want to get out, and the only way they can get out is by undercutting the developer,” says broker Andrew Glatz, who has listings for 18 hotel units in the building at 401 N. Wabash Ave.
Mr. Glatz has listed a one-bedroom hotel suite on the 25th floor for $1 million, well below the $1.5 million a buyer would pay Trump for a comparable unit.
He’s also trying to sell a two-bedroom suite on the 23rd floor for $2.6 million, vs. $3.2 million for a Trump unit.
Remember, it’s not like the flippers have been very successful in the building as very few have successfully flipped. We chattered about at least one flip in the building that sold last February after the Trump Tower’s sales office touted it in the news media.
According to Crain’s there have been a total of 2 units that have flipped in the 7 months the building has been closing on units.
Mr. Trump offered deals to pre-construction investors, but since then he’s hiked prices — so much, some observers are convinced, that he’ll have to drop them to get sales moving again.
Buyers who walk into the Trump sales office today can pay $1.3 million to $1.6 million for a one-bedroom hotel suite. Or they can buy one of eight resale units on the Multiple Listing Service ranging from $879,000 to $1.7 million. The average asking price: $1.2 million.
Ms. [Ivanka] Trump says she’s not concerned about the resale market, saying there will always be investors who have “fallen on hard times” and will discount units to sell them quickly.
The investment has worked out well for at least two buyers. One closed on a two-bedroom unit for $1.4 million on Feb. 7 and sold it on March 27 for $1.8 million, according to documents filed with the Cook County Recorder.
The other paid $438,000 for a studio on Feb. 15 and sold it for $890,000 four days later. The original purchase prices did not include the cost of fixtures and furniture, estimated at $135,000 for a two-bedroom and $45,000 for a studio.
If the first two flips are any indication, other investors will make out well too, even if they have to undercut Mr. Trump to attract buyers.
“It’s the only way we’re going to get them sold,” says Randy McGhee, a broker who is trying to sell a one-bedroom resale suite for $879,500, vs. $1.3 million for a new unit. “We’ve got a sluggish market to begin with.”
The condo buyers are slated to close shortly. What will be the fate of those flippers? We’ve already chattered about several of those flips which have appeared on the market before the closing.
Stay tuned.
Condo buyers flip off Trump [Crain’s Chicago Business July 28, 2008]
Sabrina:
I’m sure that the Crain’s biz of life real estate stories are a coming post but this jumped out at me and I had to post it:
“Some of these troubled properties are landmark buildings in need of expensive tuckpointing, a fault not discovered until after units were sold. One such building is at 2000 S. Michigan Ave., where condos have been carved out of a 100-year-old former automobile showroom on historic Motor Row. Ms. Feldstein says one resident’s share of the special assessment is $40,000.”
Really? Tuckpointing on a building that’s 75 years old and hasn’t been well maintained for a couple decades? That was a surprise? If the association isn’t suing the developer, I’d be shocked.
When will people learn? Nobody makes money doing business with Trump except Trump.
Pete, and it is something he has instilled in his brood:
“Ms. [Ivanka] Trump says she’s not concerned about the resale market, saying there will always be investors who have “fallen on hard times” and will discount units to sell them quickly.”
Pete,
Given the Trumps bankruptcy several years ago sometimes even the Trumpster falls on hard times. He is more celebrity persona than successful businessman. A lot of people can make and lose a lot of money given ridiculous leverage. He has done both over the years.
I guess it helped that his father ran a real estate business to teach him the ropes. Real estate remains the one area where you can still leverage yourself beyond belief.
Bob,
Trump has never filed for (personal) bankruptcy. You better watch what you say, he goes after people for saying so.
– Hey, is that a threat?
“I guess it helped that his father ran a real estate business to teach him the ropes.”
The lead Trump compnay is still the company that Donald’s father founded. Yes, Donald took it to new heights, but it’s not “his” original company.
It would not really be a lie to say that Trump has been bankrupt. Although he narrowly avoided personal bankruptcy, several Trump-run companies have filed before. And I have a feeling some of them will be filing soon as the real estate market continues to unwind globally.
“is that a threat?”
Could be–esp. if you pointed out that you are a lawyer or work with or for Trump. Context is everything.
The Trump is a public figure due to his celebrity status so he would not be afforded the same protections under the law that a private citizen would under slander and libel statues.
The Trump has filed for personal bankruptcy protection. Whether true or not I’m not afraid to say it. 🙂
According to various sources, Trump’s companies have filed for ban7gykruptcy numerous times, and after they re-organize under Chapter 11 protection, the Trumpster always comes out smelling like a rose.
He has never filed personal bankruptcy, though. He’s never not had a great deal of personal wealth.
He’s a great illustration of the old adage: If you owe your bank $100 dollars, you have a problem. But if you owe your bank $100 MILLION dollars, the BANK has a problem.
He and other chiefs of companies with financial problems also show why incorporation is such a wonderful thing. The whole idea of a corporation is to shield its owners from the financial risk involved in business ventures. You may lose what you invest, or what you get other people to invest, without putting your personal assets at risk.
I’m sure the Donald never, ever puts his personal fortune on the line. He and most other smart hustlers are very sure to set things up so that other people will take the hits for their business mistakes, not them, while they are positioned to win very big off each transaction.
Sorry for the mispelling up there, in the first sentanced. How I inserted that number, I don’t know.
For a great many of “Trump’s” recent developments, he has no financial stake in the success. He just sells his name rights to other developers and sometimes manages the buildings after completion. I’m not sure if this is the case with Trump Chicago, although I faintly remember hearing he does have a big stake in this project.
Looks like he learned a little this time. I know of some projects in Florida and out East where he literally just sold his name to a development for tens of millions of dollars, and that was it.
Who says he isn’t a shrewd businessman? I’m sure he saw this bubble burst coming a long, long time ago.
This does not bode well for the Spire. If the only way people can resell their units at Trump is to undercut the developer, how many buyers will pay even higher prices at the Spire, which has 1200 units compared to Trump’s 700?
Its already happened to Waterview Tower which had substantially more progress than the Spire and the developer ran out of money. Now we’re left with an ugly concrete sarcophagus similar to the giant incomplete Pyongyang, NK hotel right on the Chicago river.
I hope the Spire gets built to spec too but if it isn’t I’d rather it didn’t rise above ground. We don’t need any more half-completed buildings marring the skyline.
Oh Laura – welcome to capitalism!
“For a great many of “Trump’s” recent developments, he has no financial stake in the success. He just sells his name rights to other developers and sometimes manages the buildings after completion. I’m not sure if this is the case with Trump Chicago, although I faintly remember hearing he does have a big stake in this project.”
He didn’t license his name for Trump Tower Chicago. The building is actually being built by Trump International. But you are correct- that on some other developments, it was simply his name attached to the project (such as Trump Tower Tampa.)
Also- Donald has been honest about the state of the Chicago housing market in the past. Six months ago he called it “dead” – which is about right.
Oh Sabrina – Are you a renter as well? The market is slow but certainly not anywhere near what other parts of the country are dealing with. It is about over, and the end result is really not that bad!
“Ms. [Ivanka] Trump says she’s not concerned about the resale market, saying there will always be investors who have “fallen on hard times” and will discount units to sell them quickly.”
There is quite a difference between falling on hard times and a total lack of a market for units at developer prices. As a poster in the original trump flipper thread noted, this is not london, ny or dubai and an attempt to charge 1,000/sq ft for something in river north is ridiculous.
It’s definitely pragmatic of them to keep the units overpriced with no real chance of them selling in this market (or possibly any). It’s no wonder why this clown is leveraged to the moon and has shell companies filing chapter 11’s 3 times a year. The way trump makes his money is much the same as a blind man shooting a gun at a target, keep shooting you’ll eventually hit what you are looking for.
He’s no genius; his pricing and market “acumen” clearly show us all that.
Steve:
Tell the sellers who have been trying to sell for a year, two years, three years (all in the Chicago area) that the market isn’t really that bad.
It’s not as bad as Miami or Las Vegas- that’s for sure. But sales are down sharply from the last few years and inventory continues to grow.
You can’t have a “bottom” as inventory continues to grow.
Tell the sellers who have been trying to sell for a year, two years, three years (all in chicago) that you should not buy top $$ new contruction and you should not buy far above the medium in any neighborhood.
Inventories in Chicago are down from last year Sabrina. Check CAR’s listed properties and you will see…
Steve Heitzman, was I here being critical of capitalism?
If the Donald can get other chumps to assume his risks while he makes the money, that’s great for him. As another poster remarked, people know that they are not going to get a fair shake dealing with him, so why do they continue to do so?
So far, I have not heard of Trump’s misadventures being billed to the taxpayer, quite unlike the rest of the housing market, which you and I are now going to pay to rescue.
Just one little thing…. there should be no double standard. If a group of people can shelter themselves from liability for their obligations by incorporating, then the rest of us should be able to run the businesses that are our lives like any other business, with the same cold-blooded ruthlessness and lack of consideration for the commonweal,and the same freedom from personal liability for our actions.
That means if the principals of a corporation can escape the blowback from a corporate bankruptcy, and walk away with their assets and credit ratings intact, then I should be able to do the same.
This is perhaps why we have such a wave of defaults and why so many people borrowed way beyond their means, often with no intention of repaying. Why should they NOT use other people’s money at as little cost and risk as they get by with and just “write it off” as just another business risk gone bad when they have to send in the keys?
.
Don’t blame the people. What is offered is often taken. Blame the banks who offered the credit in the first place. They did so for the greed of making money and for no other reason. Their irresponsibilty caused this mess and no one else. If I could today pull out 110% of the equity from my property I would do so in a heart beat. If prices dropped, I would hand the keys back to the bank as so many others have in the past couple of years. The banks are not lending you money to be nice. They are in it for a profit and their lack of responsibilty will be exposed by someone. Might as well be you. Capitalism at its best. One man’s loss is another gain…
While I agree with the mindset of managing one’s personal affairs and finances like a business, do keep in mind that if one does something egregiously illegal not only can the individual be charged but sometimes even the corporate veil can be pierced to hold the equity holders personally liable. Its a pretty rare exemption, but it has happened in the past.
Also most businesses are not incorporated. Most businesses are either sole proprietorships or partnerships. There is significant overhead associated with incorporating so only if the liability protection outweighs this overhead would it make sense.
At the end of the day can we really blame homeowners who walk away from their mortgage? I think the stigma of defaulting on your debts is more ingrained in older generations. Especially given that the bank probably didn’t even hold on to your mortgage but repackaged and resold it without your permission. If a bank was dumb enough to generate high LTV loans to small corporations with little recourse then the egg is on their face. I doubt most flippers were incorporated though.
“Capitalism at its best. One man’s loss is another gain…” If that’s your idea of capitalism you’re nothing more than a scammer.
“Inventories in Chicago are down from last year Sabrina. Check CAR’s listed properties and you will see..”
CAR’s? California Assoc. of Realtors? Why do we care about Cali?
Check Zip’s Chicago Metro and it’s at 110,000+ units. At this time last year it was at 105,000.
Homedelete – If you can transfer all of the risk in holding an asset to someone else, why wouldn’t you? Just curious…
“If the Donald can get other chumps to assume his risks while he makes the money, that’s great for him. As another poster remarked, people know that they are not going to get a fair shake dealing with him, so why do they continue to do so?”
As one of the “chumps” who has assumed risk by investing in a Trump development (not as a flipper incidentally), I got a return of 100% in 3 years holding time.
I would recommend in the future that before you throw around reckless comment you educate yourself..
This data is from housingtracker.net. They track asking prices and inventory from the MLS. This inventory is for SFRs and Condos only. Inventory is down but, well above 2006.
Trend 07/28/2008 1 month 3 month 6 month 12 month
Median Price $275,000 -1.8% -4.8% -3.5% -8.3%
Inventory 67,814 -1.6% +0.5% +18.2% -4.8%
Closings have declined much more sharply than active listings. There are obviously many sellers who have attempted to sell but couldn’t, so they have taken their places off the market. For now.
The decline in closings means seller capitulation is inevitable.
G,
This is true, I am one of them and know others that couldn’t sell and pulled the listing for the time being.
the reason Trump continues to sell ‘Big deals” to people is becasue it is rarley really trump. He is a giant marketing machine nothing more, in fact he isn’t even a billionaire, never was. Most of the “Trump Properties” you read about he only has a maybe 10% stake in. This is pretty common knowledge in the business world, it allows for a premium on units from the suckers
I also know a lot of buyers who were going to buy but are now waiting. Maybe we can get your fence sitting sellers with my fence sitting buyers and all will be well.
Steve,
When fence-sitting sellers and fence-sitting buyers are in a stand-off over price, who eventually wins?
The buyer always wins. It’s the buyers God given right to realize 8-10% appreciation per year on a investment, er, I mean home.
not the realtor thats for sure
Kenworthey – The buyers are fence sitters because of the news not because they can’t afford the home. There is a difference.
They are fence sitters because they can read the wrting on the wall and know homes are over valued. Stop blaming the media Steve. Things began to turn before the MSM even took notice.
Steve, I don’t get your point. I am such a fence-sitter as you describe. You could say I’m sitting because of the “news,” but that misses a step: the “news” is how I have learned about the credit crunch, and the historically aberrational prices. I am never going to meet a seller “half-way” by buying a(nother) very expensive object (a home) while the “news” convinces me that there is a high likelihood that that object will continue to depreciate. What am I not understanding?
Steve’s argument appears to be that because you can afford a depreciating asset, you should buy it, for failure to do so places you at fault for the turmoil in the market. Only YOU can restore the natural order, i.e., 10% annual appreciation.
Just like those jerks who refused to buy stock in Fannie Mae at last month’s prices. Way to ruin the economy guys.
“The Trump has filed for personal bankruptcy protection. Whether true or not I’m not afraid to say it.”
You’re a very brave man Bob, especially behind your cloak of anonymity.
Housing did not ruin the economy Dave. Easy credit tied to housing allowed consumers to spend spend spend when none of us really had any money to spend. We all maxed out our credit cards (housing credit cards) over the past 5 years and what was preceived as a growing economy, was actually just borrowed spending.
Hence the sarcasm. If you agree, why do you insist on propping up the market on these threads?
I am not a economic analyst. My job is to help my clients buy and sell their properties. I give them current conditions of supply and demand and tell them if a property is currently priced correctly. I would be guessing if I tried to predict where the market will be in 5 – 7 years. I did keep all of my clients away from new construction and the new conversion buildings. I don’t know any of them who could not sell their units for the same price they purchased. 5% either way but nothing more than that…
Steve: for us novices using this website to learn, please explain your rationale about avoidance of new construction and new concersions. Is it for tax reasons or quality of workmanship?
…yet.
“I don’t know any of them who could not sell their units for the same price they purchased. 5% either way but nothing more than that…”
Contradicting yourself in consecutive sentences. Wow. So, say I bought for $750k, I sell for “only” 5% less and pay realtor commissions and closing costs of 6% (because I negotiated well with Stevo)–where do I stand? Down $82500. That’s not small potatoes.
Anon – I don’t know anyone that thinks they can purchase and sell in a 1 year period. Before you buy a place please ensure you will be there for at least 3 years.
“I don’t know anyone that thinks they can purchase and sell in a 1 year period.”
Not anymore. But there were plenty that did as little as two years ago. A belief that was perpetuated by people in your profession among others.
“Before you buy a place please ensure you will be there for at least 3 years.”
Try 5 years at a minimum, Steve. You’re still living in a bubble.
Thanks Ken! I will update my talking points.
Stevo–
I’ve been in my place for 7+ years now–planned ahead when buying, with the expectation of a minimum of 15 years occupancy. I get it.
However, you said your clients (1) could sell their units for the same price they purchased, but (2) 5% either way, which implies some are selling for 5% below purcahse price, and (3) implied that minus 5% isn’t a big deal. I was just pointing out that -5% is actually a big deal for most people with applied to recent house prices and including transaction costs.
At least you admit you’re reading from a sheet. Baby steps!
You guys are really nitpicking. It was clear from what Steve said that he was just trying to say he did his clients a good service, and that the worst case scenario is that their home depreciated 5%. Given this market, and if he’s being honest, that’s a decent record.
At some point you guys seem to have switched places with Steve. Now he comes off as the reasonable one, and you guys look, for lack of a better word, *desperate* to make him look bad.
And for what it’s worth, I’m on your side in terms of where I see the market headed. Especially this winter.
Investor:
You’re right that (if true) it’s eveidence of a pretty good track record. That said, down 5% isn’t the same as “selling for the same price as purchase”, especially with the transaction costs involved. Yeah, 5% isn’t a big percentage loss, but my point was that even fairly small % losses are real money in personal real estate.
And that the poster is someone who has insisted that prices are still moving up (at least for the properties his clients buy) was what made it noteworthy to me.