How is Novare still in business? (Atlanta, Nashville: sales, real estate, apartments)

[ATLTJL]

I'm just curious.

I mean, they may have had some early success with Metropolis and Spire....

But let's be real. They also had both Twelve disasters. The Atlantic. Realm. Viewpoint.

Did someone bail them out? It doesn't seem like they still be in business after so many failures. How are they still around?

[J2rescue]

I'm not sure what your definition of disaster is but the only Novare project that went back to the lender was the Atlantic. They are far from being my favorite developer but their projects sell (or rent). The price point of most their projects is the most active in the city and their buildings have been among the fastest selling. Of course sales were at a much slower pace following the real estate collapse, as they were for everyone, but their projects have sold none the less. Also they've built and sold out projects in Tampa, Charlotte, Austin and Nashville.

[Mishap]

Not sure how Viewpoint is a disaster given it sold out (end of '11) despite opening in '08, long after the credit markets had frozen. Whoever built Sovereign, Mansion et al probably suffered far worse given their 7 figure price points for many units. Discounting a single $9M unit to $4M, hurts as much as taking 50k off 100 $200-300k units.

Twelve suffered from when it appeared in the cycle and the level of hype around AS and since the building sold out it wasn't exactly Novare's fault the prices were unsustainable. Of course if your building is bid up, as a builder (and a business), your job is to get top dollar for your product. If you have people piling in to buy every unit you can build, you keep building. Hence Twelve Centennial and the Atlantic. Spire has survived a bit better although it was built around the same time and when I made offers in that building there were still some people clinging to unrealistic prices. Realm I haven't heard as much about but I'm sure it's the same story as all other buildings. People bid up units during the boom and regretting it, they've dumped some back on the banks. Given the sheer # of units and the more entry level price points, it's going to happen a lot w/ Novare buildings since they targeted first time homebuyers which tended to have less equity and generally less stability.

As for how they survived, Novare also owns a fair number of rent producing commercial properties and was smart enough to have non-recourse construction loans as well as partners to share the hurt. As long as they completed the buildings according to the contract, they had the right to hand the keys over to the lender which they did on the Atlantic once it became clear they weren't getting $380/sf. Not saying they're the brightest developers out there but cookie cutter starter units fits the Atlanta market far better than wholly customized 7 figure units given our fairly modest median income and the fact that we have hundreds of sq miles of suburbs to build monster homes.

[pignchick]

Originally Posted by Mishap

Not sure how Viewpoint is a disaster given it sold out (end of '11) despite opening in '08, long after the credit markets had frozen. Whoever built Sovereign, Mansion et al probably suffered far worse given their 7 figure price points for many units. Discounting a single $9M unit to $4M, hurts as much as taking 50k off 100 $200-300k units.

Twelve suffered from when it appeared in the cycle and the level of hype around AS and since the building sold out it wasn't exactly Novare's fault the prices were unsustainable. Of course if your building is bid up, as a builder (and a business), your job is to get top dollar for your product. If you have people piling in to buy every unit you can build, you keep building. Hence Twelve Centennial and the Atlantic. Spire has survived a bit better although it was built around the same time and when I made offers in that building there were still some people clinging to unrealistic prices. Realm I haven't heard as much about but I'm sure it's the same story as all other buildings. People bid up units during the boom and regretting it, they've dumped some back on the banks. Given the sheer # of units and the more entry level price points, it's going to happen a lot w/ Novare buildings since they targeted first time homebuyers which tended to have less equity and generally less stability.

As for how they survived, Novare also owns a fair number of rent producing commercial properties and was smart enough to have non-recourse construction loans as well as partners to share the hurt. As long as they completed the buildings according to the contract, they had the right to hand the keys over to the lender which they did on the Atlantic once it became clear they weren't getting $380/sf. Not saying they're the brightest developers out there but cookie cutter starter units fits the Atlanta market far better than wholly customized 7 figure units given our fairly modest median income and the fact that we have hundreds of sq miles of suburbs to build monster homes.

great answer. In summary they are providing a product that the market wants and they scale it by building the same building in multiple cities. Then, they make sure that to put the risk on other instead of themselves to limit downside risk.

[arjay57]

Originally Posted by Mishap

Not sure how Viewpoint is a disaster given it sold out (end of '11) despite opening in '08, long after the credit markets had frozen. Whoever built Sovereign, Mansion et al probably suffered far worse given their 7 figure price points for many units.

I doubt that any of these developers suffered anything at all, unless we count not making quite as many millions as you'd hoped to make "suffering." Nearly everything is developed with OPM.

[Sprial]

There is a litte truth in all of these replies. Essentially, following the success Novare had in the condo world pre-2007 caused them to ramp up construction and deliver in a bad CONDO environment. Twelve was a huge success and sold out quickly repaying the lenders; however, the wheels fell off afterwards.

It gave back several properties and land for future use (like the multifamily under construction on Pharr) to lenders and trimmed back staff to just a few. The reality is that the company was best suited to run their own condos as apartments, so the lenders kept them around in a management capacity. There were a few recourse loans against the company, but those lenders decided that it was in their best interest to allow Novare to exist than raid it for every penny. Furthermore, the head of the company was determined to do the right thing and get recover as much as he could for the creditors.

The rise, fall and re-emerge cycle is nothing new to developers.