Banks demand dirt with condos

Posted on 30. Aug, 2009 by admin in Real Estate/Construction

by Yvette Davis

Improving the neighborhood didn’t turn out to be as easy as it seemed for a group of five East Wenatchee home owners who got caught in a tangle called Tanglewood Homes.

Plans for a new 10-unit condominium development had to be scrapped and reconfigured when the group found out the hard way the credit crunch would make it hard to sell the units. Now that the development has been reconfigured with help from the city of East Wenatchee’s planning department, construction is set to start again on what are now termed patio homes.

In late 2006 the 2.5-acre parcel at 411 19th St., next to Legends Condominiums, came on the market.

The five Legends homeowners had the first option to buy that land, and they did for $449,000, under the name Sand Canyon Legends LLC.

The land was zoned multi-family and they could have built apartments on it, but the group decided to add more high-end condominiums to better blend with the existing neighborhood. The property is located at 19th and Country Club Drive in East Wenatchee, and has the Wenatchee Golf & Country Club as a neighbor. The existing Legends Condominiums border the property, and on the east side a treed gully runs through it. The original site plan called for five buildings with two units each and a small amount of common area.

Terry Johnson, a member of Sand Canyon Legends and a partner at PKJB Architectural Group, P.S, said the homeowners got approval for the planned unit development from the city of East Wenatchee in late 2007 or early 2008. They broke ground and added infrastructure — utilities, storm water, etc. — to the lots and poured the foundations for all the buildings. They even got the first two units completed — one ready for sale and the other as a display unit — and received a sales offer.
They were on track to build the condos as they sold. But then things took an unexpected turn.

The buyers for the first unit had to sell their home in a tougher real estate market and it took longer than originally expected. During the wait, the Tanglewood owners group entered into another sale agreement with a couple from Canada. When the couple went to get a loan, however, the purchase process came to an abrupt halt. Their bank told them it was no longer lending on new condominium developments. So did a few other banks they checked with.

Eventually, they found a bank willing to make the loan — if they put 40 percent down and accepted an interest rate of more than 7 percent. On a 2,000-square-foot condo with a sales price of $420,000, 40 percent is $168,000. So they followed up with several of the lenders and found out the reason nobody was willing to loan on such developments was that Fannie Mae and Freddie Mac — the two quasi-governmental agencies that purchase the bulk of mortgage loans sold in the U.S. — would not purchase loans made on new condo developments.

“That was essentially a very big wake up call for us,” said Johnson, who added that he and the other homeowners involved in Tanglewood are not professional developers, just a bunch of neighbors who wanted to do something nice for the neighborhood.

All work on the project stopped in November 2008.

Johnson and his partners went to Lori Barnett, East Wenatchee community development director, and asked for help.

Together they worked out a plan where the condominiums would be rezoned as a subdivision of “patio homes” or “zero lot line” houses instead of regular condos, which are more acceptable to banks. The difference is, buyers at Tanglewood will now own the land under their units. Before the property would be owned by a condominium owner’s association.
But the change meant more work for Johnson and his cohorts. They started the process of switching the units to patio homes in March. A series of public reviews were required and the city council had to approve the change. In addition, all the lots had to be recorded with Douglas County so they could legally be sold.

Sand Canyon Legends obtained approval from the city council on June 23, nearly eight months after the first sale fell through.

“If the city had not agreed to the change in plans, we would have been forced to hold onto the project until the market turned around,” Johnson said.

And he has no crystal ball to tell him when that might be.

Things are looking up, though.

“There’s light at the end of the tunnel,” he said.

The buyer for the first unit has bought both that unit and the display unit next door, and the Canadian buyers can finally obtain a loan. That will allow the project’s general contractor, BHB Pacific Construction, to start work again and complete the units as they are sold.

Johnson said Banner Bank’s Bill Miller and Lance Hansen are probably pretty happy about that since they loaned money for the stalled project. Jolly Seyster, Realtor with Wenatchee’s Windermere office, can also now market the homes for sale once again. And Johnson, who celebrates his 50th year with PKJB this year can go back to focusing on other things like building data centers for Yahoo in New York City.

In all, he said this has been a learning experience about how even the little guy can be affected by what goes on in the national economy.

“The economy affects everybody,” he said. “Even at the local level.”