I took a snapshot of single family homes and end/interior townhouses that have posted as sold so far this month on the Washoe Assessor’s site.  I included townhouses since cluster housing like the Village at Somersett are often included in this building type.  I sorted for properties sold for $75,00 – 150,000, the low but near median market.  There were 3 sales that were between family members that I excluded, leaving 86 so far this month.

41 Investor Sales

45 First Time Buyer (FTB) Sales

I do not claim this to be a 100% scientific study, but it is an interesting look at the order of magnitude of the distribution of sales around the median and low end of the market.  This is the range were the rent/purchase equation is positive for investors, but where the FTBs need to enter the market.  Some of the “investors” may in fact be move up buyers, but they already own homes in Reno.  Some of the “FTBs” may actually be investors new to the market, but I tried to screen them out by their mailing addresses.

I quite frankly thought the percentage of FTB sales would have been a lot lower, and the Investor sales higher.  This is a good thing, if qualified first time buyers are actually able to enter the market, thanks to low prices and low interest rates (a decent number of the FTB purchases were cash, but they all looked legit).  Trustee’s Deeds at the courthouse steps are excluded from this analysis, but the resale of those properties are included.  My data set is HERE if you are interested.

With FTBs and Investors about equally represented in this price sector, competition could easily bump the median back up.  Any thoughts, or did I just Geek out for nothing?

-  Sunset Bluffs – This is the huge scar above Mogul that failed several years ago sending several subcontractors into BK.  It extends Gooseberry up from Mogul for a 41 unit subdivision, but ties into Somersett for an emergency second exit.  This is one of the very rare occasions where Reno invoked the terms of the Construction Bond for a project and is demanding that the approved improvements be completed (it is clearly visible to tourists arriving on 80).  The developer wants more time and maybe additional phases, and it will be rubber stamped.  This parcel is NOT one of the identified parcels of interest for Somersett expansion, but you know G Blake is watching the developers closely.

-  Canyon Ranch aka Bull Creek -  This project in Verdi was approved a decade ago but sat until the Lawton Sewer extension project was completed.  It got annexed into Reno along with the Mortensen properties, bought by Reynen & Bardis and added to their holdings, lost to foreclosure, and the new owner is trying to reestablish the original zoning.  Rubber stamp yes, but there are a lot of hazy issues here.

-  Somersett Golf and Country Club - THIS permit showed up to improve the Club-Tent for $3500.  The anti forces are already challenging it for the next HOA meeting.  Popcorn amybody?

The Somersett PUD was boosted to 3062 lots in March 2009 from the 2648 lots previously approved by the City of Reno.  The PUD approval is a land use designation delineating the general development plan, but also includes the Project Design Book and the CCRs for the project.   Reno really doesn’t give a rat’s patootie about enforcing the details of the design standards, and lacks standing to enforce the CCR’s, as that is a state issue.  A summary of the density and lot count changes approved by Reno in 2009 can be found HERE, approving 3062 lots, up from 2648.   If you want to view an annotated map of where the 2009 changes affected the previously approvals, take a look at this MAP.  Mouse over the yellow Post-Its for information.  You can enlarge the map for more parcel detail.

Don’t ever confuse the Somersett PUD as approved by Reno with “Somersett” as defined by the master developer written CCRs.  Additional subdivisions outside of the approved Somersett PUD can be added to the SOA.  There are 3 approved subdivisions that have been, or are in line to, annex into the SOA – Sierra Canyon II with 375 lots, Wintercreek with 142 lots, and SBE with 162 lots.  This would bring “Somersett” as defined by the SOA up to 3741 lots.  Reno doesn’t care – they only regulate land use issues, public safety issues like fire and police coverage, and gain property tax revenue from the additional lots.  They do not care about the adequacy of the  project’s amenities for the residents.

When a master developer files the Project Book and initial CCRs for a project, they shoot for the moon and plan for future success.  Somersett Development reserved the right to max out the number of lots in the project (SOA) at 5000.  Increases could come from renegotiation of the PUD agreement like happened in 2009, or by adding additional subdivisions to the SOA master association, or by adding additional land to the project.

A master developer always reserves the right to annex additional properties into the development, in Somersett’s case up to a total of 5000 lots.  Where these properties might come from is a one time reference in Somersett’s  CCRs that absolutely no buyer ever reads and forget even  understands.  Exhibit A is the legal description of the Reno approved PUD, and Exhibit A-1 (scroll down) delineates the properties SDC reserved the right to annex into the project / SOA.  If you are interested in what the original Declaration identified as the “annexable parcels”, you can see a believed to be accurate but not guaranteed map HERE.  A developers dibs on Annexabale Parcels does in no means mean the owners of those parcels are on board with the deal or that the developer has any claim on the parcels.

So how big is Somersett?  The courts are going to have to weigh in on that if the present SOA board is legally challenged. And the legal fees will be paid by the SOA.  If SOA is taken over by the actual homeowners, the big fishes will be Toll and Ryder and the receivers of REO properties, who could very possibly control the HOA election results  Is that what the Somersett activists are expecting from their efforts to wrest control of SOA?  The cure may hurt more than the disease.

This post has highlighted Somersett, but the issues are the same all all developments with CCRs and HOAs under master developer control.  If you are buying into  this sort of development, READ the CCRs to find out what they ultimately may become.  What you see is decidedly not what you may get.

This one will play out rather publicly and expensively over the next few years.  In my heart of hearts, I think both complaints probably have a lot of merit.  I would snicker at the irony of it all given the checkered past of the parties involved, but these suits have huge ramifications on the future of some mind bendingly huge properties (Wingfield Springs, Coyote Springs. the Peppermill Reno).

So how do you think this will all play out?  Safe to say that the Lazy-8 casino is in deep freeze.

The Silver Legacy is a joint venture between the Eldorado and the Circus Circus.  The Grand Sierra Resort recently sold for $42M, and the Siena sold for $3.9M.  Just so talking points to remember.

-  Circus Circus – Currently owned by MGM Resorts International, I can’t find any direct debt on the project.  But the parent company is awash in debt, and the Circus is slowly bleeding to death due to lack of attention.  When was the last remodel or refreshing of the rooms?  I hope since this shot!

-  Eldorado – They concluded a refinancing with Capital One (Peggy) this past June on  $180M and $30M loans.

-  Harrah’s – Can you believe a $5B Deed of Trust is in place through BofA?  There is no way to know how much of this credit line has been used and how much is cross collateralized with other Harrah’s / Caesar’s properties.  But after a highly unusual IPO this week, the entire corporation is only valued at $1.9B after doubling in price.  Harrah’s has been investing in the property, at least on the food service end.  There is no truth to the rumor that Hash House a Go Go is a joint venture with Renown’s cardiac care division!

I think the Silver Legacy is safe.  That’s not to say that it won’t be going into default or even bankruptcy to get the unstable Circus Circus out of the joint venture and make financing possible.  That comp will kill the Circus Circus, which will probably be sold by its cash poor parent company, and probably to the Carano clan / Eldorado / Silver Legacy.   Harrah’s is the wild card.  Depending on what the financing package really is, it looks unsustainable in view of its corporate volatility.  And that would be a big black hole to fill in downtown Reno to fill.

Yeah, I know that all of the Silver Legacy rooms have recently been remodeled, but I can’t help but end this post with a classic photo from the web:  “My Room at the Silver Legacy”:

RRB – The Early Years.

Sure, the links are lost, but it is still an amazing trip down memory lane to those days when derelict barn went for $800K, $300K in the Vue was a steal,  and Lindie, Allen Murray, Got Lots, banteringbear, deRRIcK, smarten, StJoe, SkrapGuy a host of others were still active in the discussion.  Jaded and GreenNV may even make an appearance in the comments.

Is chunky good?  To date, the successful redevelopments in the neighborhood have been property by property by folks like Marmot, Haberae, Jack Hawkins, and even our courthouse steps friends Wood is Good.  The “chunks” represent potential areas of major development, but also sites that could end up eternal black holes.

One chunk that is moving forward and redeveloping is the former Thoma Lofts site at 703 S. Virginia.  Carterville, since no one else seems to have a name for it.  Site work is now complete for what is proposed to be a private mid-block street with up to 17 or so small free-standing retail establishments, and I am anxiously awaiting actual construction permits being approved.  In the mean time, the SVA frontage is our first real look at the South Virgina Street Beautification Project that will soon rip up the street once again.  I dig the wide sidewalks, though it will take generations to continue this down SVA and apply it to all properties.  SVA will be sort of meth-mouth in the interim.

click to enlarge

NODs were up 30% to 36 in January from 28 in December and 15 in  November.  AB 284 still has a stranglehold on new NOD filings, though a few Fannie Mae held loans are starting to sneak through.  NOSs fell to 346 from 401 in December and 372 in November.  The drop off may be due to AB 284, but the minimal fall attests to the huge number of properties lurking out there with NODs filed prior to 1 October 2011 that are not affected by the bill’s reporting standards.  TDs actually rose to 257 from 223 in December and 233 in November.

The Nevada Attorney General filed a suit a few months back against LPS (Lender Processing Services) over robosigning violations.  LPS just shot back with a motion to dismiss, saying robosigning is explicitly OK per Nevada law.  Read more about it HERE.

HOA -  The initial Board of Directors of an HOA is appointed by the master developer.  This allows the developer to control the project, the ability to change directions as market conditions dictate, and control the developer friendly terms of the CCRs (for example, the Montage CCRs contained a clause that residents couldn’t object to any other projects the developer might propose with 3 blocks!).  Under Nevada Revised Statutes, when 25% of the properties are sold, one of the board members must be elected by the actual homeowners.  At 50%, one-third of the board must be made up of members elected by the homeowners.  When 75% of the properties within a development have been sold, the developer must within 60 days call for an election for an all-owner board and turn the HOA over to the  board  elected by the homeowners.  This is right out of the Nevada Revised Standards (NRS) Chapter 116 regarding Common Interest communities.

The makeup for the Somersett HOA board of directors (currently 2 developer members and one homeowner member) is on the agenda, at the demand of homeowners, for the open session meeting coming up 9 February at 9 AM.  They believe that the developer, Somersett Development LLC and related entities, does not control at least 25% of the 3062 units (3437 when Sierra Canyon II eventually annexes into the association) approved by Reno for the project, and must relinquish control of the board NOW.  I’ve reviewed all the current developer owned properties, and have to strongly agree with the parties challenging the continued developer control of the board.

Control of the HOA board is the prized possession of any master developer, and it is hard to conceive of any developer not knowing (and playing) the loss of control threshold.  Realistically and probably legally, Somersett Development should have ceded control of the board at least a year ago as they sold off some properties and lost others to foreclosure and deeds in lieu of foreclosure, and fell below the control threshold.

The second issue that will be addressed is can an “illegal” board enter into binding contracts, and can those contracts be unwound?  The Somersett HOA recently entered into an agreement with the Somersett Golf and Country Club (SGCC), a separate private entity, that at heart provides up to a $7M subsidy from HOA member dues to SGCC over the next 10 years.  Some of the Somersett homeowners are seriously not amused, and that could make the HOA meeting on the 9th Jerry Springer material.

Haberae – From the great minds behind 8 on Center comes 12 @ Deluxe.  They have also broken ground on a project in the 300 block of Stewart Street that could be up to 3 new units.

592 new homes were sold in Washoe county last year.  40 of those were in Sierra Canyon or close to 7%.  Just a fun factoid.

Village 10 is the last phase of Sierra Canyon as it was originally envisioned.  It consists of 101 lots along Del Webb Parkway West and the western edge of the project.  10A was annexed into the project on 9/28/2010, consisting of 31 lots (it was supposed to be 34, but it looks a few on DWP were shifted to 10B).  10B is supposed to be 23 lots, but may be 26 now.  10C is 20, and 10D is 24, bringing the project back up to the Lodge.

10A is currently built out.  At the current rate of sales (which has been accelerating), the rest of Village 10 will be sold out in a bit over a year.

So what next?  Villages 11 and 12 in Sierra Canyon II have approve subdivision maps filed with Reno, but the lots lack roads, sewers, and any other infrastructure improvements other than rough grading.  They have NOT been annexed into Sierra Canyon or Somersett, for that matter.  It will be really expensive for Pulte to expand the project beyond Village 10.

Do any of you have insider information on what Pulte’s plans are?  As on outside observer, I would guess that they will build out Village 10 and hold off on SC II Villages 11 and 12 until the market improves to support the infrastructure cost required to expand.  The scarcity of new product should increase the value of existing (and now rare) SC properties.  Go Team!

Legends -  The Legends project in Sparks was one of the focuses of the fine article about STAR Bonds that Brian Duggan wrote up in the RGJ last weekend.  I’m working on my own article about STAR Bonds for your consideration, especially on the 3rd approved district – the Freight House.  The bombshell is that Sparks Legends Development received a Notice of Default (NOD) on Friday on what appears to be their $155M construction loan through Key Bank, separate from their STAR financing.  The notice of the document posted late Friday, but the document won’t populate until Monday, so I don’t have any more details.  UPDATE: Here is the Legends NOD.  It looks like they missed interest payments on a $155M construction loan and $38M bond loan on 15 March 2011.

Wingfield -  The RGJ reported this morning that Wingfield Springs developer Harvey Whittemore is being sued by his partners in Wingfield Nevada Group Holding, Thomas Seeno and Albert Seeno Jr.  $8M in embezzlement is being alleged.  Whittemore and the Seenos are tied together on numerous other projects, including Coyote Springs and the pipeline project in Las Vegas.  The Seeno’s also own 15% of the Peppermill and several home construction companies, including Legacy Homes who is finishing out the Vue in Somersett.  Bring on Gloria Allred for this divorce case!

Boomtown – The sale of Boomtown hasn’t closed yet, but new management seems to be in place.  The Cabela’s STAR bonds talk got me looking into how the rest of Boomtown (PNK Reno aka Pinnacle Entertainment).  A string of loans all through Lehman Commercial Paper Inc. started in December 2003 with $330M package.  This was upped to $400M in September 2004, and upped again to $1B in December 2005.  Finally in November 2006, a loan for $1.5B – $1,500.000,000 – was issued, though it may not all have been used.  The Grand Sierra sold for $42M for reference.  Boomtown looks like it is going to be a short sale to end all short sales.  We will have more information when the sale actually closes.

Golf – HOA – If you subscribe to this blog, you got to read the short lived post about trouble at some of out local private golf clubs.  I’ll post the Golf portion at the end of this post, in case you are interested.  I took the post down because, though I stand by everything I wrote about the situation in Somersett, the post was not documented to the standards I like to hold myself to.  There will be a lot more to say soon about Somersett and its approaching “Arab Spring”.

I used to golf along the Mississippi River in Little Falls, MN.  The first hole had the river on the right, and I’d always slice it in.  Second hole was an uphill dogleg to the right, perfect for my slice, and I’d hook it back to the clubhouse.  Somewhere around the 8th hole, I found my inner Tiger and let loose with a shot down the center of the fairway that was PGA quality, aerodynamic perfection.  Then it landed and rolled and rolled and rolled – and rolled down a gopher hole.  That was my last round of golf.

Golf as a game is tough.   Golf course development is much tougher, especially here in the high desert where the climate is extreme and water is expensive.

-  The Crystal Peak 9 holer in Verdi is gone.  This one is so complicated that even I can’t unravel it.  BK, annexation issues, land development for housing gone bad, and a feud with the owner of the biggest house in Reno.

-  D’Andrea was profiled in the RGJ last week, after Sparks cut off their gray water (one step above brown water!) supply over an owed $145,000.  The 1200 or so members of the HOA are being asked to kick in another $28 a month to save the course.  1200 homes x $28 per month x 12 months = $403,200.  Huh?  Check out the golf entities – there are hundreds of thousands in mechanic’s liens outstanding for the clubhouse renovation and expansion.   There is a lot more going on here than is being reported.

-  ArrowCreek – Went through hell, found a new operator, who had a $100K+ IRS lien notice filed (since removed) and another IRS lien for the current year.

-  Northgate, AKA Aiazzi State Park.  RSCVA closed the course when it became unsustainable financially,  sold the water rights, created a special assessment district to finance its purchase as a park (as well as stripping funds from the Somersett park funds).  You can search this site for some thoughts about this one