Urban Phoenix mansions reborn at half price
Sunday, December 12, 2010
PHOENIX (AP) — Modeled on a turreted 1890s-era mansion, the sturdy, brick Chateaux on Central seems an unlikely symbol for the nation’s devastating housing collapse.
But the luxury 21-unit project just north of downtown Phoenix was halted in mid-development, chained and padlocked, marred by a suicide, its rear units partially without roofs and exposed to the elements. And so it sat, month after month, years passing, the only sign of life the occasional sweep of a police spotlight as officers checked for vagrants.
Now, more than five years after construction began, a new investor is putting the townhomes on the market for $1.4 million to $2.46 million — half the original price — and optimists hope it shows that big residential projects are poised to sell after being shuttered by failed lenders or plummeting prices.
The Chateaux was audacious from the outset. After all, the well-to-do could drive to nearby Scottsdale, plop down a few million and get a showcase mansion on the side of a mountain with city views from an infinity pool.
Chateaux on Central’s original developer envisioned urban mansions along a commercial street, the smallest a 5,200-square-footer priced at $2.8 million. The showcase 8,200-square-foot mansion would have an asking price nearly double that.
The project was conceived in high times. After construction began in early 2005, masons and other tradesmen toiled for nearly two years on the massive brick, steel and concrete structures. Each four-story unit with a basement would have multiple verandas, a top-notch security system, an oversized two-car garage and commercial-grade ThyssenKrupp elevators.
Then the housing and financial crisis hit with a vengeance. The first bank financing the property got into a dispute with developer Central PHX Partners in late 2007, and the developer sought bankruptcy protection.
A private lender, Phoenix-based Mortgages Ltd., refinanced the endeavor but then went belly up itself.
Owner Scott Coles, a fiancier well-known locally for his philanthropy and lavish parties, was found dead in his home on June 2, 2008. According to a police report obtained by The Arizona Republic, Coles, 48, dressed in a tuxedo, took an overdose of drugs and alcohol and lay down on his bed to die.
Beneath this pall, construction stopped and chain-link fences went up.
While Chateaux on Central was unusual in its architecture and its luxury, its failure became commonplace in foreclosure-wracked locales nationwide.
In Las Vegas, investor Carl Icahn paid $150 million early this year for the unfinished, $2 billion Fontainebleau Las Vegas hotel/condo resort and plans to wait for the economy improve before resuming construction.
In south Florida, one Miami Beach development, South of Fifth, echoes the Chateaux project in both scale, price and history, said Peter Zalewski, a partner in the Miami-area brokerage and consulting firm Condo Vultures LLC. The developer owed more than $75 million on the completed beachfront, 28-unit luxury project when it was taken back by its lender.
Zalewski said he recently brought an offer for the property at half its previous price, but it was rejected because the owner wanted slightly more.
Mortgages Ltd. was among the largest private commercial lenders in Arizona and had more than $900 million in loans outstanding when it failed, leaving a host of shattered projects across metropolitan Phoenix.
The company ran into trouble when the real estate market crashed, and the firm couldn’t raise new capital from investors and couldn’t meet some of its loan obligations.
Central PHX Partners lost its stake in Chateaux through bankruptcy, and the remains were put on the market for liquidation.
Eventually, MSI West Investments, a subsidiary of privately held La Crosse, Wis., food products company Main Street Ingredients, wrote a $7 million check in March to bring the property back to life. Years of grime were pressure-washed from the exterior and the driveway’s brick pavers were re-laid. Ironworkers finished welding the electronic entry gates and landscapers cleared away weeds and overgrown foliage.
Main Street CEO Dave Clark said he expected to spend about $7 million to $10 million to finish construction. Of four buildings, one is complete, one is nearly done and two others are still shells in need of interiors.
Other than its own plants, Clark said this was Main Street’s first foray into real estate development. He came to Phoenix last year looking for a retirement home, bought one in north Scottsdale and became intrigued at investment opportunities among failed projects in the area.
“I think it was a way to diversify for us,” he said of the decision to buy in.
Now renamed without the “x,” marketers celebrated Chateau on Central’s grand reopening Friday, with the units selling for less than the cost to build them.
Even so, Main Street got quite a deal. When Mortgages Ltd. failed, it owed more than $37 million on the property, and the original developer’s investment added millions to that. The project was originally envisioned to cost $60 million to $65 million.
Clark said the construction reminded him of his company’s headquarters in a renovated building in downtown La Crosse. The heavy brick exterior walls and pre-stressed concrete floors helped sell him on the project.
“That’s really some of the stuff that really kind of got us excited for it,” Clark said.
Even with the new pricing, challenges remain. The average resale townhome in the city goes for just $66,000, according to a report from Arizona State University’s W.P. Carey School of Business. That means the Chateau’s owners are targeting a very specific buyer.
Broker Joe Morales landed the assignment of marketing the site after MSI picked it up. A consummate optimist, he touted deluxe Viking appliances, basements that can be customized as wine cellars, fourth-floor patios roomy enough for a wave-jet pool, and zoning that allows buyers to use the ground floor and basement for a small business. He envisions selling to owners of boutique investment or law firms, executives or professional ball players.
“The unique niche that we fill is somebody looking for a luxury lifestyle, size, and a central corridor location with low maintenance,” Morales said after a recent tour of a completed unit. “There are people that want nothing to do with the Sonoran desert.”
But Carol Balboni of Russ Lyon Sotheby’s International says it’s hard to find people who want to live downtown and pay that kind of money. She has a four-bedroom, 4,800-square-foot Scottsdale home on 1.2 acres for $1.5 million among her listings.
“They go into (Phoenix) to the theater or they go to the ballpark and then they get in their car and get on the (Interstate) 10 and go back to the suburbs,” she said.
Central PHX Partners, the original developer, was led by longtime Phoenix broker Phil Anderson. His wife, Mollie, and a Scottsdale couple rounded out the ownership.
Anderson blames Mortgages Ltd.’s collapse for the project’s failure.
“At one time we had 13 sales in place,” Anderson said, of his belief that the project could have succeeded even at original prices. “I think the project will be a point of pride for the city of Phoenix.”
Others remain skeptical.
“Let’s just say that there’s a higher probability of selling them at $1.5 million than there was at $2.5 million, that’s for sure,” said Andrew Conlin, a professor of real estate practice at ASU’s Carey school. “But the proof is in the transaction, as to whether the units will close. That’s the true mark.”
Clark, the CEO and part-owner of Main Street Ingredients, was certain enough.
“If you want to live in the urban community you see the value real quick. That kind of gives me a fair amount of confidence, not overconfidence ... but at least a fair amount of confidence that we’ll find (buyers).”
Chateau on Central: http://chateauoncentral.com/