Monday, January 16, 2012

The Peloton a Value Investment? [Notable Sale]

by Osman Parvez

Right now, I'm reviewing sales from last month for my upcoming research report.   We usually put a handful of notable sales in our research report on Boulder real estate, but there were too many in December, so I've decided to publish a few on this blog.

Why Notable
The intention behind House Einstein's notable sales is to help you understand market conditions.  Whether you're buying or selling, we believe knowledge of the market will help you make a smarter decision.   As a seller, perhaps it will give you a reason to negotiate with that lowball offer instead of not responding.  It could work the other way too, perhaps you'll feel confident declining the offer because you know that a better one will likely come along.   As for buyers, many are swayed by emotions.   Wouldn't you feel better knowing that you're not overpaying for your dream house, that your offer is in-line with the market?

Sold properties may be "notable" for a variety of reasons;  perhaps they're historic, or they've been on the market a long time, or maybe they were underpriced which incited a bidding war.   Perhaps we just like the location, or believe future development will enhance the property's long-term value.

Notable Sale -- Unit C318 at The Peloton
This sale is notable because it's one of the last ones handled by the developer's sales office.   The developer is getting ready to complete the interior build-out of the remaining two buildings (~200 units).  They've announced they are considering turning them into rentals, a move with significant impacts to current and future owners.  They've also turned over the job of marketing the remaining for-sale units to a Realtor not affiliated with the developer (a wise move, in my opinion).

Unit C318 sold last month (December) for $389,900.   It's a 1,200+ SQFT unit with 2 bedrooms, 2 bathrooms, and 2 underground parking spaces.    The now closed listing office put it on the MLS as a new listing (#627647), with an asking price of $389,900.   No coincidence, the asking price on the MLS was precisely the selling price, which might give you the impression that the unit received a full price offer.

Wrong.

The original list price was not $389,900, it was $659,900.   I know because I've been tracking the Peloton since pre-construction in 2007.   I've also advised a number of buyers considering the Peloton on the alternatives available.  When they've concluded the Peloton is what they've wanted, I've negotiated on their behalf, getting them some of the best pricing offered at the time.

After five years on market, the sale price of unit C318 represents a 41% discount from the original asking price.     Yes, it paid to wait.  Here's the chart showing the price history:


Does this represent the bottom  at the Peloton?  
There are currently 12 units being marketed at the Peloton for sale.   Click HERE for details.

The lowest priced unit is a 1 bedroom condo, currently under contract (asking $275,000).   Most of the remaining inventory consists of 2 bedroom, 2 bath units with prices that start $390,000 (1300+ SQFT).     The most expensive 2 bedroom, 2 bath is priced at $545,000 (1600+ SQFT).

First, the risk regarding how the rental scenario might play out should be carefully considered by potential buyers.    With that said, value investors should note the chart above and ask themselves how much further down might it go.  With an indefinite holding period, are you now buying at a price below intrinsic value?  

If you can get comfortable with the risks (rental scenario, location, rising HOA costs), perhaps you're looking at a value play.    Do your due diligence and before you pull the trigger, see the alternatives.    As I've told my other clients interested in the Peloton, the only way to feel confident is when you see what else your money might buy.   A good buyer's agent can help you with that (here's one!).  They're not wedded to Peloton and can offer you straight talk on the pros/cons of your alternatives, helping you make a smarter decision.
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