BALTIMORE, MD - mid-May, the City of Baltimore will auction off more than 23,000 tax certificates on properties owned by people who have fallen behind on their annual property duties. Many of the properties involved are derelict, abandoned rowhouses owned by deadbeat absentee landlords.
But at least 350 of them are units in classy condominium developments in zip codes near the water and around downtown, some of them worth up to $1.5 million apiece. In last year's tax sale, just fewer than 50 such units in the same areas were listed.
Once sold, the tax liens against these properties will take on interest rates of nearly 25 percent annually, and if the condo owner doesn't pay off the new owners of the debt by October, their creditors could begin foreclosure proceedings. This means that units in posh buildings with harbor views, worth hundreds of thousands of dollars each, are at risk over debts worth just a few hundred dollars.
"Some individuals participate in the tax sale process in order to foreclose on the properties," said Henry Raymond, the city's chief of collections. "They locate the property, then purchase the lien through tax sale. If the property owner does not redeem the lien, then the holder of the lien can proceed, through foreclosure, to have the property foreclosed upon and take control of it through the courts."
Of course, most of those condo owners will pay off their relatively small debts before the threat of losing their homes becomes serious, but the fact that the tax liens exist points to a growing trend in a ailing city condo market: As the recession continues and more people lose their jobs, condos aren't just collecting dust — they're racking up basic bills that more and more people are becoming unable to pay.
"The era of buyers pretty much buying condos based on floor plans alone — those days are practically over," said William Rich, a vice president with Delta Associates, a Virginia-based company that tracks condominium sales in markets including Baltimore.
Delta's research shows that in the Greater Baltimore area, the existing condo inventory is not being absorbed: From March 2007 to March 2008, 13 more people canceled contracts on condo units than signed contract sales. And the number is increasing: In the past year, there were between 20 and 50 more cancellations than signings since last March, according to Delta research.
Rich said that this is because a lot of new projects were delivered in 2008 with pre-sale contracts that were written in 2006 and 2007. The decline in stock and financial markets forced many potential buyers to back out of these agreements.
"Now that there are a lot of units on the market where buyers can shop around and see what a 750-square-foot condo actually looks like, some decide they don't want that, and some have financial situations where they can't go to closing," he said.
One of those recently delivered projects is the Ritz Carlton Residences, an opulent, $250 million waterfront project with a spa, marina and concierge services, which opened on Key Highway in May.
The city list originally included 174 unsold Ritz units, each owing about $1,200 in unpaid taxes, but a spokesman from the Ritz's public relations firm said this was a city accounting error and provided The Daily Record with a copy of a tax receipt showing that the development actually overpaid by $243,000.
But the Ritz's inclusion in the auction list drew attention to the fact that since opening, according to state records, the Ritz has only closed on 15 units.
Scott Rechler, CEO of RXR Realty, the parent company of the Ritz's developer, said this week that 21 units in his building are "teed up to close," but acknowledged that the pace of sales has been slow.
"This year is probably worth 10 years of economic activity in terms of how the world has changed, [how the] financial markets collapsed," he said. "These have obviously been volatile times. Recognizing that, we're not trying to force our product upon a customer or a marketplace who are afraid that they would lose their jobs next month."
Three other projects of Rechler's have failed to get off the ground. Another Ritz planned for North Hills, New York, was supposed to get under way two years ago. A $1.5 billion project in Bridgeport, Conn., is stalled, as is a $3.74 billion project in Uniondale, N.Y.
In June, RXR sold off its 50 percent interest in a $1 billion project in the Catskills resort area of New York known as The Concord, and later that summer, private-equity firm Normandy Real Estate Partners bought millions in RXR's debt at fire-sale prices.
Now, Rechler is focused on trying to raise hundreds of millions of dollars for a distressed assets fund that will invest in New York-area office properties. But he said he would continue to ride out the storm and not abandon the slow-selling Baltimore project.
"When we bought Baltimore, we bought it as part of a project in New York. It came as the tail of the dog," he said, referring to the late 2007 takeover of the Baltimore and New York Ritz projects from developer Daniel Pfeffer. "We didn't underrate the purchase of Baltimore thinking it was a good market. We knew it was a challenging market. The storm is rougher than we anticipated, you could say. … In times like this, you want to own the best product in the marketplace, because ultimately that product will out-sell the market."
Rechler said he "can't imagine" having fewer than 30 units in the Baltimore project sold by the end of 2009.
Nearby the Ritz, Richard Swirnow's Harborview condo project is faring only slightly better. Nine out of 19 of the Harborview Homes on Valencia Court, upscale, condo-style townhomes that were completed last year, have sold. Only six of the 23 homes at Ponte Villas North, and 18 of 30 at Ponte Villas South, both part of Harborview's waterfront development complex on the south side of Baltimore harbor, have closed.
In addition, the auction list shows 75 properties in property tax default at Harborview, some with more than $40,000 in liens.
"But most of those get redeemed long before it ever gets to the point [of foreclosure]," said Franklin C. Wise, vice president of Harborview Marina and Yacht Club. "I see people on this list who are wealthy people, who probably just let it go."
Wise points to a nearly full Harborview tower — the condo building has just six of 249 units unsold, according to state records — and "stabilizing influences" of the government in his case that things are going to get better.
"All is not gloom and doom," he said. "Everything's a little bit slow … I think the stock market at this point has fairly well stabilized. We've seen the double-bottom. There are more normal patterns of economic activity in the stock market, the economic markets. All combined, it's started to bring the level of comfort back to the marketplace."
On the other side of the harbor, some of H&S Development Corp.'s luxury condos at The Vue and Eight 50 Aliceanna, both of which opened to much acclaim a few years ago as exemplars of the developer's "live, work, play" mixed-use model, are also on the tax sale list.
There are 32 units in The Vue, 21 of them unsold and owned by H&S, worth more than half a million dollars each. They risk being forfeited over as little as $600 in tax liens. There are 14 unsold condos in Eight 50 Aliceanna on the list, with liens of about $8,000 each.
In an e-mail Thursday, H&S's Christopher H. Janian said he was "not sure what the issue was yet, but our CFO is paying all outstanding tax bills today."
In midtown Baltimore's Mount Vernon neighborhood, according to the city's on-line database Thursday afternoon, the famous Belvedere Hotel has 54 units with liens, while 1209 N. Charles Street, a joint project between Baltimore's Struever Bros. Eccles & Rouse and former NBA star Magic Johnson's Canyon Johnson Urban Funds, has 70 unsold units with liens ranging from $4,000 to $19,000 each.
Struever Bros., crippled by debt on underperforming assets like this one, which its CEO called "embarrassing" this year, recently put its own headquarters building on the block.
A spokesman for Struever referred all questions to Canyon Johnson, which is the project's managing partner, but requests for comment from Canyon Johnson were declined.
Kenneth Pippin, a businessman who owns railroad ventures in South Carolina, also owns 17 units in the Belvedere with nearly $35,000 in unpaid taxes. Reached by e-mail, Pippin simply replied, "All taxes have been paid." Follow-up questions and requests for comment were not answered.
Rich, of Delta Associates, said that an important indicator of the market is that slow sales and derelict bills are plaguing both luxury and midrange condos. He defined "luxury" product as condos with added amenities and a price tag north of $500,000. Midrange means a unit that costs $250,000-$500,000.
But there may be a silver lining to the numbers. "I think [the market is] pretty close to the bottom, because hardly any new projects are delivering in Baltimore," he said. "People backing out of projects because of their financial situations will probably go down in 2009 more than any recent years."
Source: MDdailyRecord.com