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Going, going, not gone! More developers are resorting to auctions as the Chicagoland housing market slows down, according to Rick Levin of Rick Levin & Associates. Levin has 88 auctions of new-construction properties with one or more units scheduled for February, up from a mere 15 in February 2006.
“I am getting triple the amount of calls and they’re coming from all over – all kinds of price points and all geographic areas of Chicagoland,” Levin told Yo. “It’s homes, townhomes, condos and especially vacant land.”
Levin says developers are loathe to stump up for the carrying costs of a development that has a few remaining units and are eager to cash out so they can finance their next project.
“As a developer, if you own $10 million in real estate and it’s vacant for a year that costs you $1 million in mortgages, taxes and assessments,” he says. “If the market goes down 5 to 10 percent, you might not only pay $1 million to carry the project – the product might be worth $1 million less, so you lose $2 million.” We’ll bring you more news on the auction market in coming posts.
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{ 5 comments }
A few years ago, a friend told me of a developer who donated one of his unsold condos to a non-profit organization. The organization in turn raffled it off for a fundraiser.
So, the developer got to write the unit off and the non-profit got a helluva raffle prize.
Perhaps the benefits to developers are not as I understand them, but I’ve always been surprised that I don’t hear of this more often. It seems like it could be a win-win when there is excess inventory on hand.
TPWWL,
Not sure what you understand the tax benefits to be. Many people have the notion that a write-off is worth more than it in fact is.
For a developer, this is likely to be a gift of “inventory,” which means that the amount of the deduction is limited to the developer’s cost basis in the property. The value of the write-off to a business is likely to max out at 46% in Illinois, and to be less to an individual. There’s also an overall deduction limit based on adjusted gross income.
If the property is in a partnership or an LLC, it’s unlikely that the partners would agree to a gift – different tax pictures, different charitable objectives, etc.
Unless someone is manipulating the tax laws I can think of very few scenarios in which the donation makes sense from a purely financial standpoint.
The case would be different for non-inventory property that has appreciated greatly.
seems to me the benefit is not the tax write off but the fact that you dont have the ongoing expensne of maintianing the property.
if you have one condo left in a 100 unit development, the profit has been made so it could just be a “lets get this project done with and move on” gift to charity.
I’m sure the write off would not necessarily be “profitable,” but as Brad points out, it might be a quick resolution for a lingering unit.
Some great p.r. and serving the non-profits of the communities where they build would be two more potential benefits.
Drop the price to the right level and units don’t linger unless there’s something fatally wrong with them.
Sell it and donate the cash to the non-profit is almost always a better solution if you’re of a charitable bent.
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