Tuesday, August 31, 2010

Murano developer sued

"Fifty-one early buyers of condominium units at the 43-story Murano at 21st and Market Streets in Center City accused the building's developer Monday of inflating sales figures to boost unit prices.

In a lawsuit, the owners accuse Los Angeles-based Thomas Properties Inc., as well as real estate agents and others, "of misstatements and lies about the level of sales at the Murano, along with other misinformation about the property and the units, from the beginning of marketing in 2005 through August 2009."

"The defendants lied to buyers, lenders, appraisers and the public about how many units had been sold," according to the 445-page suit, which was filed by Andrew A. Chirls and Lauren Cates of Haines & Associates of Philadelphia. The amount of damages sought has yet to be determined, Chirls said.

Thomas Properties did not respond Monday to repeated requests for comment.

The suit filed in Philadelphia Common Pleas Court accuses Thomas and its agents of conveying "false impressions" about sales numbers, starting in 2005, often citing "presale" figures of 60 to 70 percent of the 302-unit Murano.

The defendants knew these impressions "would have - and did have - an impact" on unit prices as well as the demand for them, "including prices actually paid by the plaintiffs," the suit states.

The value of units in condo buildings partly depends on the total sales. Sales numbers also determine the willingness of banks to lend money to purchase those units.

In June 2009, when Thomas hired Accelerated Marketing of Boston to auction 40 Murano units, the developer had sold just 112 and had 12 others under agreement - a total of 41 percent.

A total of 178 units hadn't moved since the building opened in mid-2008, just as the real estate downturn was taking hold. The auction was designed to accelerate sales in a Center City market swimming in about 2,000 unsold new condo units.

The 40 auctioned units were sold at prices more in line with the realities of the current market, which has experienced a 7 percent decline in single-family home values since the boom ended in August 2007.

A comparison of per-square-foot prices of units closed in mid-2010 and in 2008 show reductions of about $100 per square foot in some, but not all cases.

Depending on location, condo prices in Center City range from $300 to $700, with Rittenhouse Square commanding the highest, said Realtor/developer Allan Domb of Allan Domb Real Estate.

Murano prices should be about $300 to $450 today, Domb said, because of its location in a primarily commercial area of Market Street.

Twelve units at the Murano closed in the second quarter of 2010, according to the Philadelphia Recorder of Deeds, at prices ranging from $395,000 to $885,000.

These units, and others sold after the Murano auction, have pushed the sales levels to 72 percent - 217 units sold or under agreement by this summer.

The suit also contends that the developer's sales agents told buyers such as plaintiff Russ Berenstein that all units would have floor-to-ceiling windows. Yet in 2005, before his unit was built, Berenstein was "steered to a unit" the defendants knew would not have such an amenity, the suit says.

Berenstein paid $842,000 for his 1,408-square-foot condo on Aug. 21, 2008, Board of Revision of Taxes data show.

Another plaintiff, Joyce V. Newman, was told in 2006 that her 18th-floor unit "would be worth $1 million" when the building opened.

BRT records show Newman paid $545,000 for her 1,091-square-foot unit July 14, 2008.

Two 1,091-square-foot units - one on the 14th floor, the other the 20th floor, closed in April 2010 for $462,000 and $480,000, respectively, deeds show.

The majority of the 51 buyers bought while the building was under construction.

The lawsuit, which along with prior coverage of the Murano can be found at http://go.philly.com/condos, alleges other misrepresentations. They include availability of parking spaces and that windows "were specially treated to become darker as the sun became less intense" and shades and curtains would be unnecessary.

In its June 30 quarterly report, Thomas, which also owns One and Two Commerce Square, said the increase in after-tax cash flow for January to June compared with the same period of 2009 "was primarily due to increased Murano condominium sales."

In that report, Thomas said that it had extended the construction loan secured by the remaining units at Murano until July 31, with the right to two six-month extensions."

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