RIP Breeze & Wurzels' The Plaza, We hardly knew ye.

ALERT ADDENDUM:

MLS 2706478 price was reduced to $335K yesterday, or $99/sf! The UNTHINKABLE has happened! The $100/sf price point has been breached!

BEM came up with the idea of a "tombstone" for failed, floundering, and otherwise imploding RE projects in Central Oregon. This was just a month or two ago, and there really didn't seem to be a lot of grist for this mill, but what a difference a 20 degree drop in temps makes.

Things usually don't go from Totally Fine to Completely Destroyed, there are usually rumblings in the industry circles, and "unfounded" rumors first, and these things usually grow more intense right before the end. Rarely are really good sized projects run in an administrative vacuum where bad news is not ultimately leaked. Sometimes it's public record paired with just common sense that should tell you that something is really wrong.

The following is a post by "Guest" over on BendBB:

This article ran in the Bulletin August of 05. At the time, the estimate to complete the project was 11M (261K per unit)

Now they have a 20.3 M first, a 3M second, and 1.13 M in liens. They still have 38 units for sale which means each one has 642K against it, and to top it off most of the interiors are not finished

How on earth does something get that far over budget?

Luxury condos in the works
Old Mill project features units on single level
By Eric Flowers
Last modified: August 31. 2005 8:19AM PST
Local developers broke ground this week on an estimated $11 million luxury condominium project in the Old Mill District.

A four-story 42-unit building that overlooks the Old Mill shops and the Deschutes River, The Plaza is the first condominium project of its kind in Bend, said Becky Breeze, who bought the roughly one-acre lot for the project less than two years ago.

Unlike other multi-level townhome-style projects, the units at the Plaza are laid out on a single floor, Breeze said.

The Plaza is being developed by Breeze's husband and son through their company, Harvest. Breeze is handling the project's marketing and sales.

"It's an unusual project for Central Oregon," Breeze said. "There was just a need for a strictly residential condominium project. There are so many baby boomers and most of them don't want to have to mow lawns and have a lot of maintenance."

The project, which will be finished next fall, is one of the first in a wave of upscale condominium projects planned in Bend.

The single-level units in The Plaza will feature designer appliances, granite countertops and mountain views. The smallest condominiums units in the project are 1,600 square feet. The largest units are 2,000 square feet, said Breeze. There will also be a 1,500-square-foot party room with a plasma television available for owners.

Prices range from $500,000 to $900,000, Breeze said.

"It's really geared to the person who wants total luxury coming out of a beautiful home and wants to be able to take off on vacation and not have to worry about their house," Breeze said.

And another "Guest" post shows someone did a little extra analysis on the financing:

Anybody whose feeling a little stressed about making their payments should look at this alligator- your troubles will seem pretty manageable.

At the start of the year the first mortgage was increased to $20,316,00.00 and they took out a second for $3,000,00.00 Assuming 8.5% on the first and 10% on the second, interest only payments are $194,050. per month.
They’ve sold 4 units and have 38 available. The property taxes on the remaining units run about $22,000 per month. Insurance, utilities, and association expenses run about another 20 grand each month.
On top of all that, the nationwide ad campaign eats another 75K monthly.

This thing has generated 3.2 M in gross sales and is burning through $311,000.00 a month in expenses. See any problems?

The Plaza is clearly a project destined for the Central Oregon tombstone dustbin. Breeze & Wurzel are what I call MEO's: Mount Everest Optimists. This is the simple statistical Grim Reaper claiming the requisite number of victims in rarefied atmospheres. And the percentage extinguished goes up geometrically with altitude. If Everest was 1,000 ft taller, the number of dead on it's slopes would be quadrupled, at least. I've heard Everest would be physically unclimbable were it 1,000 ft taller.

This is really a sad phenomenon. Central Oregon is populated with some really decent, hard working people, and like everywhere it has it's intolerable assholes. But this Bubble we had seemed to convince a huge number of people, that Optimism In The Face Conditions Contrary To Commonsense was a sustainable, preferable, and superior "lifestyle". I know several people who were doing the RE thing on the side back in 2005. It was the Easy Gateway To Millions... in only 2hrs a day!

The "sad" part of this is that there are a lot of "normals" -- people just trying to get along, raise a family, have a life -- who are having their dreams crushed. These aren't the Media Darlings that seem to elicit unending waves of schadenfreude from so many, but the second tier; subcontractors, and other small independents that suckle at the tit of the local RE juggernaut.

Even Breeze, who has flat-out lied to the local media and whose overly optimistic ebullient outlook for all things RE tends to make her the white hot target of much grave-dancing, is actually a very nice person who came to Bend decades ago, when RE was as dead as it is Hot today. She actually built up an extremely prosperous RE brokerage from nothing. And much of it was probably due to a bullheaded optimism in the face of conditions that would have convinced most to give up.

I guess I don't want to go overboard in prosecuting Breeze as some sort of industry behemoth that's been a permanent fixture of Bends corrupt RE elite, she's really not. She built up a business from nothing, and employed many people who made a payroll of millions over the years. What Breeze has done for Bend is actually very admirable.

That's really what is so awful about this Bubble. It took people like Breeze, who aren't really trying (IMO) impose their will on the population with some demonic purpose, made them believe that conditions abounded around them for an easy ascent to the pinnacle of what became an "Everest" of sorts, in Bends 2005-2006 RE market. And not only were people seeming to easily scamper to the top, they seemed to reach some sort of ephemeral "phantom peak", 1,000ft higher than had ever reached before. People seemed to be achieving The Impossible in such high numbers, that the Old Limitations no longer applied; there seemed to be a New Paradigm being born of what was truly possible in Bend. Maybe... just maybe, Everyone Really Could Be Rich!

And people seemed to reach, or come close to reaching this impossible peak before reality came crashing down on them, and the crashing, at first fairly slow in coming -- early 2007 -- has accelerated with breathtaking rapidity. Sometimes it feels like I am watching someone through a telescope struggle for their lives on an ascent that I warned them about was a bad idea, but they went anyway. It's really easy to say "I Told You So!", in times like this, and I almost certainly will again. But we should also remember that Becky and others who are asphyxiating and will probably ultimately perish in the collapse of Bends mega-Bubble, are experiencing an extremely unpleasant philosophical remorse about choices they made that will probably in all likelihood end their careers, as they know it.

I don't know, I just seem to try to put myself in Beckys' shoes once in awhile, and try to realize that she is suffering a crushing defeat after a life of struggle to achieve some measure of stature & recognition in her life. She really is a producer, and is a decent person who has achieved a lot.

Maybe there's not much to be done for Becky and other like her, who will continue to founder on the slopes of an ascent that was destined to claim almost anyone who attempted it. And incredibly there are still believers who think that they can also achieve the Impossible. I find this just sad. There will be so much misery created by this process. And it just seems like that there should be at least a modicum of respect for the dead & dying.

But enough whining. Breeze made her choice, and it's coming back to haunt her. The Plaza certainly deserves a place on the Bend Bubble 2 Mausoleum Tombstone. Although not dead entirely, The Plaza is certainly comatose with no hope of ever being resurrected. It was put on an Umpqua rebreather Iron Lung, but the corpse is starting to necrose and be picked apart, and the first buzzard to arrive is Kenneth Dalke laying claim to a limb of the rotting Plaza corpse. There will be more. But all these carrion feeders will have to wait in line, because Umpqua will get first shot at gorging on the corpse when they pull the plug.

So it is with some measure of regret, but also devious schadenfreude delight, that I announce The Plaza as the first entry in the BendBubble2 RE Bubble Bursting of The Dead tombstone. There will be more. Sorry Becky... But I Told You So.

RIP Plaza -- You never had a chance, and like the 8-legged girl, you'll ultimately be ripped apart. Section 8 housing? Old Folks Home? That's anybody's guess, and it's up to Umpqua Bank to decide. God Bless You, you 8-legged freak.

Moving on...

There's an interesting post on Duncans blog:

Had a woman in the store who works for Morgan Stanley. They've moved to the fourth floor of the Franklin Crossing building.

She told me she's worked for them since they were Reynolds; then Reynolds, Dean Witter, etc. etc. Been in Bend since 1988, so she's seen many of the changes. That's a long time, I give her that, especially to keep the same job. But:

"You just missed most of the trauma that downtown went through in the '80's," I said. "We were just coming out of the trough around '88. But I will say, almost all of the old guard that were here then are gone."

And, as these things go, I asked her what she thought of the housing market. I asked her if she had ever heard of the housing blogs, and she hadn't. (I've yet to run into a housing person who has.) But when I mentioned that I thought, with so many jobs related to housing, that there was a possibility that the population of Bend could even drop, she shook her head decisively.

"Too many wealthy people are moving to town," she said.

"Yeah, but Bend is too big to fill with only rich people. How many are we getting per month? 10 millionaires, twenty millionaires? It just can't be enough. They might be building their custom homes, but what about the rest?"

She more of less dismissed my argument. "There is some real big money coming to town. I know."

This is basically the Bend is the Next Aspen argument. Of course, Duncan attempted to illustrate that Not Everyone Is Hyper-Wealthy. Dismissed immediately, as usual. Now, I've explained ad nauseum, why Bend CANNOT be The Next Aspen, it's a mathematical certainty and any rudimentary analysis of economic facts quickly will tell any reality based researcher the same.

My comment to this post was as follows:

This woman's grasp of the "macro" economic picture of Bend is viewed thru the windshield of a Hummer -- the unsavory bits are hermetically sealed OUT.

Sometimes I am in awe of people's ability to filter out those aspects of reality that they find unpleasant. Or how a pervasive environment slanted in one direction -- like extreme wealth -- can so permeate one's Paradigm Of Life so throughly, that they become unable to imagine anything else.

This woman, much like Becky Breeze is so immersed in a paradigm of prosperity that she seems unable to imagine anything else. And what's more amazing is that this eternal optimism is completely pervasive in Bend. Except on this blog, perhaps. People seem absolutely convinced that Bend can become some sort of economic miracle where everyone is hyper-wealthy, some sort of Central Oregon Dubai.

I am continuously amazed by this. People's ability to ignore warning after warning, and soldier on as if nothing is wrong. I think that from a business perspective, I am a lot like Duncan: hoping beyond hope for the best... but always, ALWAYS keeping a wary eye on the horizon for storm clouds. Extended periods of Good Times should be enjoyed. But never should they be misconstrued as permanent. Good times like good weather out at sea or on a mountain side, especially Ebullient Good Times, ALWAYS END.

And in a similar vein, it is clear what the local medias reaction to the economic wasteland being created here is:

1) Act as if it is 3 years old, and that they well acknowledged it long ago & in fact predicted it
2) The Plunge is so long in tooth, that is has to be Near The End

Of course this is total bullshit. The Bulletin & KTVZ barely acknowledged anything except perhaps a Slight Slowdown for the past 3 years. Now that this thing has turned into a full-fledged rout, well They Knew It The Whole Time, and besides that Good Times Are Again Imminent. Anyone with a brain cell knows full well this is bullshit.

And Near The End? Well, I guess The End is closer than it was. We're at NASDAQ 4,000, after the absolute peak of 5,050 back in 2000, if we can use that Bubble as an analogy. Sure, we are closer to The End, but the end is down around 1,200. There is wave upon wave of pain still to come.

Again, I am stunned that "Experts", people far smarter than Becky Breeze, Duncans stock broker, any other Bend developer, or the NAR economist, who have predicted time & time again that housing would descend into a soft landing. It is only in the past 2-3 months that all the soothsayers and other experts, even The Fed Chairman, are even starting to acknowledge that the housing market is so, SO much worse than they could have possibly imagined.

And it's just starting. The NASDAQ analogy will hold. Discretionary sellers will become pressured discretionary sellers will become non-discretionary sellers will become price-slashing sellers will become forced liquidation sellers will become bank foreclosures. There are a pittance of people in those last 2 categories compared to what's coming.

And Bend promises to put the average Bubble market to shame. The implosion here will be so catastrophic, it will just boggle the mind. Now, it seems that Yes, I've been saying this FOREVER, and the Perma-Optimists have countered for just as long that Bend Is Different, Bend is Hyper-Wealthy, Bend is the Next Aspen, and a litany of other for why Bend will escape the housing collapse relatively unscathed. I simply ask that you compare the track record of this blog for Real Prediction with that of other media outlets in the area, not post hoc revisionism, like The Bulletin.

I am not a pessimist, nor optimist, I am a Realist. I simply try to observe without bias what is happening around me, study peoples motivations & optimization of their own situation, and try to project an outcome. Bends economy is simple to analyze: At it's heart is the fact that Income is miles below Costs, we are a town caught in an inflationary cost spiral and wages have not budged. Selfish optimization dictates people will leave, costs will implode, incomes will explode higher, or some combination of these. This is the primary equation of life in this town.

Wages have shown no impetus to go up around here, and if anything seem like they will remain flat or go down. So, it seems rational to assume that people will leave until there is some sort of cost parity. Businesses are already leaving, planning to leave, or simply shutting down. For entities for whom the calculation is purely financial, the answer is "We're Leaving". This stock broker in Duncans' store seems to believe that Aspen can exist within Bend, and maybe it can. Look at NYC, there is a higher concentration of billionaires there than anywhere on Earth. But NYC CANNOT become Aspen, a city of 9 million billionaires. Bend CAN have a core of wealthy, but it will ALWAYS be a small core. What this woman, and many others do not seem to understand, is that Bend, if it is to remain a viable working town of 80K+ people, has to reach some sort of Wage/Cost parity, or there will be population flight. We can't ALL be Generals.

And we are not there. Costs (ie home prices) will continue to decline until some measure of the population can economically sustain themselves. It's just a fact. And the recent mortgage turmoil is going to make this geometrically harder in places like Bend. They have closed the Jumbo loan window where Bendites have been queuing up there for the past 3-4 years to make ends meet. We have not even come CLOSE to feeling our full measure of the housing fallout pain. Thinking that we will rebound in ANY WAY in the near future, is simply blind hope, and it'll never happen.

Who's been right so far?

I'll repeat the advice I have been giving for months, advice many have dismissed as almost pathological: If you want to sell your house, there will be about 100-200 people who will be able to buy it over the next year. These people will have the choice from thousands of homes available now, and ones coming on the market, as well as a vast black-market of dark matter homes that are available, but not Officially For Sale. If you really want to sell and MUST SELL, you must price your home 25% below area PPSF comps, now. Your house is NOT special and neither are you, that's just reality. Some of you DO have special properties, but not in a good way, like The Plaza, the Shire, almost any condo around. These are white elephant properties that will require a minimum cut in half today, or more. Your "COST" is not a buyers concern... only the rock bottom will sell, and even then you'll have to be lucky.

Here are some PPSF declines from Feb of this year thru Oct, I posted over on BendBB:


Ponderosa Cascade $207.50/sf (-20.8%)
Upper Terrace (The Plaza) $400.15/sf (-19.2%)
Deschutes River Ranch $372.00/sf (-17.1%)
Darnel Estates $144.00/sf (-15.5%)
Woodside Ranch $266.58/sf (-15.7%)
Wyndemere $337.75/sf (-14.9%)
Shevlin Meadows $200.50/sf (-15.4%)

Those are brutal declines, and what's amazing is that most of the declines are in the final 60 days of that period. No one got truly desperate until September. "Upper Terrace" is a proxy for The Plaza. Darnel Estates is a flipper bait, McMansion paradise over on the East side, with a lovely view of 27th street. These are the sort of hypoxia- driven fantasies dreamed up by Kool-Aid addled builders during the Bubble.

So, how bad could it possibly get?

Look at this listing in Desert Skies. $102/sf on brand new flipper bait crap. This is standard issue flipper bait: No window frames, cheap fixtures, 1 yr half-life flooring, and every other shortcut they could muster. This thing was built in 2005 and is not even close to it's wear-driven degradation nadir. This house, and the vast bulk of Bend housing built in the past 4-5 years, WILL NOT AGE WELL.

So it's $102/sf today, it was listed in May for $399,900, or $118/sf. Where will it be in a few years when this place is a ghost town of rundown flipper bait McMansions, with a flipper owner sick & tired of making tax payments, utility payments, upkeep & every other expense with no hope of EVER breaking even? My guess is FAR LESS than $100/sf. My guess is $50-60/sf. Nice, pre-flipper stuff with a big yard? $80-90/sf. Upper middle class BT, Awbrey stuff? $110-120/sf. Primo, Pronghorn stuff? Maybe $200-300/sf. There will be some who truly don't give a crap about mortgage rates or dropping $2 mill on a loss-leader house, cuz they got 100X that just sitting in the bank. But that is .01% of the population.

That's why I say slash it 25% TODAY. In Desert Skies (Skeeze?), that's $75/sf TODAY, and doesn't that beat $50/sf 4 years from now? Add in the mortgage, utilities, upkeep in the meantime, and $75/sf today is a HUGE BARGAIN. And you need to stop re-running the Hyper-Optimist scenario over & over in your head. It's time to get real. Bend is NOT different. Companies here that have to make realistic monetary decisions are LEAVING, never, EVER to return. We are 18 months BEHIND the curve on the most catastrophic loss of wealth this country has seen in a generation. Your house is one of THOUSANDS, it is NOT SPECIAL, there are HUNDREDS just like it.

The market is collapsing. If you've made the transition from Discretionary Seller to Pressured Discretionary Seller, are you really going to wait until your in Forced Liquidation mode to sell? That's when someone else will make the decisions, not you. Look at those numbers again: Some of the Best of The Best have cut 20% since Feb, which have been relatively Good Times compared to what's coming, and they STILL CANNOT SELL.

The Bend RE market is like a supermarket: Each item is something on the shelf. Revenue at this market has been cut by 50-70% percent. It's crunch time. It's Do Or Die. Only the absolute Best Stuff At Dead Rock Bottom prices even has a chance of selling. Your middling priced house is awash in a sea of other items that only have one thing in common: THEY'LL NEVER SELL unless they are Dead Rock Bottom.

Have a look at BendBB's list of price changes, and you'll notice one thing starting to become a rarity: The single digit percent markdown. EVERYBODY is slashing prices by double digits, Everybody. Then look at sales volume: They still are not selling at current prices. Look at this listing by Debbie "Sotheby's" Tebbs: TEN price cuts totaling 24% (this is understated really, because if you check BendBB's data, you see that back on Apr 28, Debbie actually INCREASED the price of this dog from $2.5MM to $2.9MM! Unbelievable.), down to $1.9MM down from a $2.5MM listing price and STILL it will not sell. This town will be overrun by huge 5,000sf McMansions that no one wants.

I'll say it again: Slash your prices TODAY by 25% below comp PPSF's. If you don't, you'll NEVER sell. Realize that Desert Skies IS GOING to $50/sf. Newport Market Eco-Lux putrid crap? $80/sf, if you are VERY LUCKY. Awbrey? $120/sf. Skyliner? Maybe $80/sf. We WILL BE CUT IN HALF SOON. The Bad Part? It'll keep going after that!

Remember that weird little log home in Promise Lane I talked about as a "Good Deal" several posts back? Well, it's either been pulled or sold, because it's gone. And it was a good deal at around $120/sf. That house today probably could not fetch $100/sf. The seller was Smart Enough to undercut the market, not a little, A LOT, and got 'er sold.

But we're in Collapse Mode now. Selling At Any Price has just gotten 10X as hard. Any comparison to even the recent past is void. Especially if your home is "worth" over $417K. If you're there, well God help you. People like Becky Breeze, Randy Sebastian, and others are going to be financially ravaged by this truth.

And don't be fooled by the stock market, which is holding up apparently extremely well, considering what's happening in this country. But look closer. I was looking in my change jar, and found near the bottom the Best Performing Investment I've made this decade: A Canadian $20 bill I got back on a 2004 vacation. Probably doubled in value. Looking at the US stock market through the Canadian dollar, and just about any other currency except the dollar reveals the Truth: The US stock market has advanced only about 5% since 2003 in Canadian dollar terms due to a wildly devaluing US currency. And China, the Worlds New Central Banker WILL NOT STAND FOR THIS. They own TRILLIONS (well, maybe just a single crappy trillion now) in US treasuries, and are tired of watching their investments be debased by easy US Fed Chairmen. You wanna see economic fireworks? You watch the Chinese reaction to any future Fed easing. They'll flood the World in treasuries, push rates thru the roof, and throw the World into an immediate recession, something that is virtually inevitable now.

Duncans stock broker customer, Bend RE types, and other perma-optimists don't seem to realize this. Driving forward using the rear-view mirror is DEATH. Bend will collapse. And this isn't a compartmentalized collapse that is contained to RE: it'll spread EVERYWHERE. Just watch: Businesses closing is effect of an untenable economic situation. It'll continue & accelerate.

Bend media has decided to do Bend citizens a horrible disservice, and take a head-buried-in-sand approach. they are ignoring The Single Biggest, Most Important Story in Bend In A Generation: The Housing Collapse. Believe me, THIS is The Story for which Bend will ultimately become Infamous.

Now for a few postscript comments:

Well, the dream has died, Sally Heatherton is No More.

For the few short weeks we debated her identity, we laughed, we cried, and we laughed some more. Bend will be a little less Marvelous for her passing.

What I thought to be Most Marvelous is that Sally was "real" enough, that many recognized her as someone they knew. I think she was born out of the antithesis of the Clothesline Woman, who has herself become an icon of the dwindling decency and commonsense folk of Bend. So it is a sad irony that the Clothesline Woman is being squeezed out by the Sally Heathertons of the World.

So while Sally has passed on, she actually lives on a little in all the many big haired, big boobed, fake butt Escalade-driving mega skanks that now overrun Bend. There really are people in Bend in large numbers as genuinely horrendous as Sally Heatherton. So next time you see one of these Whorey Abominations say, "Oh Hi Sally. Thanks for wrecking this town for everyone. Can I help you out with your bags, you fake tittied bitch?"

I look at BendBB's data, which really kicks butt, several times a week trying to spot trends, mainly in the area of outliers, what is going up or down the most. For awhile there was no real geographic trend, no area that really stood out. Although the SW area was an area of a large number of declines, the averages were not really huge.

But the West side is having what appears to be a real rout take hold recently. I did a "FULL JOIN" on May and Oct data, and found that the biggest declines are mainly grouped in the Awbrey area. That horrible Eco-Lux-Modern travesty in Grandview (near Newport Mkt) has been whacked for over 17%. 5 reductions in Westside Meadows account for the largest decline in listing prices at -18.7%. If lots are allowed in the calculation, the North Rim of Awbrey pops almost to the top with a whopping 36 reductions for an average beating of 18.2%. Of course, The Plaza is near the top of almost any reduction average, no matter how you slice it, at -17%.

It appears that the West side is joining is the carnage. I wonder how this bodes for Tetherow?

And a final Paul-doh prediction: Inventory will fall some over the Winter, but not nearly as much as in years past. There is TONS of dark matter (unlisted) RE being held in abeyance in Bend. It's everywhere.

Look at BendBB's "New Listings" pages, and you'll see a lot of stuff that has been completed forever, will just pop onto MLS. And folks they are STILL building out there. The "Builders Gone Wild" nightmare scenario, seems to have some traction. Have no illusions, this Winter is going to be Hell. We'll see Months of Inventory that just blow you away. It's already near a year and a half, and that's with just the front edge of the credit contagion factored in.

It's going to be carnage. And what's truly shameful is The Bulletin & KTVZ & the rest are taking a head-in-the-sand approach to the Biggest News Story in Bends History. Shame on You!