Monday, July 14, 2008

Chasing The Bottom Line At The Potrero

This blog ignores condos, but we're making an exception just once:

On May 1st of this year The Potrero launched a sales incentive "No Mortgage Payments for 1 year". They said the offer "must end June 15th", and that they only had 25 units left.

On June 9th they extended the offer to July 15th, and announced they are "nearly 90% sold out" and that there's "no better time to buy a home at The Potrero".

On July 14th, they announced "for the month of July only, we are offering a special collections of homes at special prices.* The Broker comission rate on all remaing homes is now 4%". Oh and now they are officially "90% sold" instead of "nearly 90% sold".

The Potrero is 165 units, which means that over the course of 10 weeks they managed to move an additional eight units. So they are moving around 3 units a month (down from around 4 a month at the end of December), during peak season (spring/summer) and with their biggest incentive yet on the table. Keep in mind that their stated goal was to move 12 units a month, and for a while they were selling 18. I'm assuming what's left are the leftovers nobody wanted and is going to be even harder to sell. At this rate it's going to take some serious work to get this all closed up and finished by the end of 2008.

Now here's the rub: in business, it's not the first dollar you make that determines your profit, it's the last. That's where all the bottom line is, and that's what the developer is currently chasing. If you got a 10% markup, and you don't sell your last 10% of inventory, you didn't make any money!

As it is they were clearly hoping to be finished by February of this year, and now it's mid-July and they are still working that last 10%. While I don't think they are in danger of losing money, it's clear their profit margins are probably shrinking from what they were hoping for or expecting.

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