Some Icon buyers want out of deal

Buyers would later describe it as a frenzy, the feeling that they had to get their hands on a new product that was going fast.

As Tom Petty and the Heartbreakers' "Into the Great Wide Open" and Lou Reed's "Walk on the Wild Side" played over loudspeakers, a crowd of mostly young professionals gathered in a sleek, industrial-style sales center to study floor plans and take a shot at buying a unit in the Icon in the Gulch, then the hottest condominium in Nashville.

A big board near the center of the room listed the 207 condos in the building's lower half, a quarter of them already marked with gray "Held" stickers — and it wasn't even lunchtime yet. In side rooms, buyers signed contracts and wrote checks that would bind them to the tower.

Now, two years after that morning in April 2006, some buyers are fighting to get out of their deals.

Contract holders on two dozen or more units have told the building's developer that they now want out, according to real estate agents, lawyers and several of the buyers themselves.

They say tight lending standards have made it too costly for them to take out the loans they needed to buy their units. Some also acknowledge that the condos were investment purchases, and now that the market to resell units at a quick profit has dimmed, they're not sure that they'd want to close even if they had the money to do so.

The building's developer, Franklin-based Bristol Development Group, says it is closing on units at a "brisk pace" of about one per day since July and writing contracts with new buyers weekly. The firm says it has closed on more than 70 of its417 condos. Condominium units on the upper floors are not yet finished.

Bristol declined to estimate how many buyers have asked out of their contracts.

"While we fully expect our buyers to honor their contractual obligations, we realize this is a tough economic climate," Bristol Chief Executive Charles Carlisle said in a statement. "Therefore, our sales team, closing staff and preferred lenders have been in regular contact with all reachable buyers to offer assistance and support in any way they can. We are determined to help our buyers through the closing process for the mutual benefit of everyone involved."

The Icon's contracts with buyers give Bristol the right to take legal action against buyers and require them to close, but the firm has not yet done so.

No buyers have filed suits to get out of their contracts, either. But several who were interviewed recently say they have no intention of closing.

"One way or the other, somebody's going to have to give on this," said Rebecca Garland, a Brentwood attorney who says she has advised at least 20 people who may walk. "Bristol needs to come to grips with that."

Buyers get cold feet

The dispute between Bristol and the Icon's buyers boils down to this: Two years ago, Bristol sold 417 condos to a group of eager buyers, and some now believe they made a mistake.

"We know what they're doing, and you know what they're doing," said O. Wade Nelson, an attorney with the Nashville firm Smith Cashion & Orr. "They're looking for any way they can not to have to close on that … unit."

Buyers are asking out of their contracts in the Icon at the same time Bristol is trying to sign up people for another condominium in the Gulch, the Velocity. It also comes as finishing touches are being put on two other buildings, the Rhythm on Music Row and the Terrazzo, a few blocks away.

It's a situation being repeated today in many condo towers across the country. In once-hot real estate markets such as Miami and Las Vegas, countless contract holders have filed suits against condo developers, seeking a release from their deals.

But most of those disputes have centered on whether buyers are entitled to get their earnest-money deposits back, not whether they can be forced to close.

Other Nashville high-rise developers have faced buyers who wanted to back out, and they have handled the situation in different ways.

In the Adelicia condominium near Vanderbilt University, developer Corner Realty Partners organized a resale effort before closing to help contract holders find new owners for unwanted units.

Meanwhile, Giarratana Development, which is in the process of closing deals in the Encore tower on Demonbreun Street, wrote a clause into its contracts that allowed it to keep buyers' deposits and fees if a buyer backed out, but not to take any other action.

"We're not going to sue anybody," said Tony Giarratana, the firm's head.

Behind these situations is a slower economy. Two years ago, the nation's real estate market was near its peak, with condo towers selling out in a matter of hours from Florida to the West Coast. The collapse of that confidence helped trigger the slump that now grips real estate nationwide.

In the market's heyday, no building in Nashville inspired more excitement than the Icon. Its first phase — more than 200 units in the main tower — sold out in just two days. The second phase, which Bristol had originally planned as apartments, sold out in two weeks.

Even at the time, questions were being raised about the depth of these buyers' commitment. In interviews, many said they were at least as interested in the building's profit potential as its actual features. Several also had signed contracts in other downtown condominiums, amassing small portfolios of real estate holdings.

One factor that may have attracted investors was the Icon's low deposit requirement. Bristol asked buyers to put down only $5,000 to $9,500 for a unit, depending on size. That works out to about 2 percent to 3 percent of the purchase price.

Most other high-rise buildings asked for a higher portion of the final price. At the other extreme, the Adelicia set its minimum deposit at 10 percent, or about $55,000 for the average unit.

"At the time, I felt like 10 percent (of the purchase price) was what was needed to be comfortable that we had real buyers," said Ray Hensler, Corner Realty's president.

Confidence evaporates

As of Friday afternoon, Bristol had recorded 69 completed contracts, or about 17 percent of the building's total, with the Davidson County Register of Deeds since closings began in late May.

In the first three months of the Adelicia's closings, 128 deals were completed, or
69 percent of its units. The Encore, meanwhile, closed 137 deals, or 41 percent, in that span.

Some who signed contracts in the Icon, including most of those interviewed who now want to back out, say they are pleased with the building itself. With two pool areas, two fitness centers, good views and a prime location in the emerging Gulch neighborhood, the Icon has met their expectations of a hip, urban, industrial-style building.

For its part, Bristol says the demand for urban living in Nashville will help it sustain strong sales despite the weak economy.

But some buyers say they lack the financial wherewithal to close — or they are concerned that enough of their potential neighbors are dropping out that closing may be a bad investment.

"They're saying, 'If I don't have to purchase this, I don't think I would,' " said Grant Hammond, a real estate agent who represents a dozen Icon buyers and holds a contract on a unit himself. "Nobody's buying anything, anywhere. … It's a product of people not being confident with buying again until something happens."

A major factor is the shifting financial markets, which have made it harder for homebuyers everywhere to get a loan.

Two years ago, many Icon buyers went to Bristol holding preapproval letters for loans that required little money at the outset. Their hope was to refinance or resell their units before borrowing costs rose.

But now those offers have expired, and the buyers say they can't find such favorable terms again.

"Life has changed," said Larry Sheridan, a real estate agent who represents eight Icon buyers and holds contracts for two units himself. "These people want to get out of their deal because they want to get out of their deal, but some just can't close."

In recent months, these buyers have contacted Bristol to ask out of their contracts. The response has often come in letters denying their claim.

"The seller intends to perform pursuant to the purchase agreements and expects you to do the same," the letters say.

As problems in the real estate market have deepened, Bristol has done a poor job of communicating since the sales event two years ago, some buyers said.

While the developers of the Adelicia and the Encore proactively stayed in touch with buyers, buyers said the first direct contact they received from Bristol was a letter earlier this year informing them that it was nearly time for them to close.

"They didn't remarket it like they did two years ago," Hammond said. "Bristol has not helped themselves out."

Clarity sought

Many Icon contract holders who are wavering want more clarity as to how Bristol plans to resolve the situation, said Garland, the Brentwood attorney.

By laying out some rules as to which buyers can walk and which must close, Bristol can help contract holders decide for themselves how serious they are about backing out.

"Bristol should say, 'OK, here's our policy,' " Garland said. "At least that way, everybody can look and say, 'OK, that's us. OK, I can take that risk.' "

Some contract holders also want Bristol to loosen restrictions on relisting units.

Sheridan, the real estate agent, said a Bristol representative sent him a cease-and-desist letter when he tried to list his clients' units online and with the area's multiple listing service. The firm cited a clause in their contract that bars buyers from listing their units until after they've closed.

Meanwhile, Bristol's preferred agent, Village Real Estate, has listed other units on the MLS. On Thursday, 11 Icon units were listed for sale, including four whose unit numbers did not match those of units that had closed.

"I was extremely proactive in trying to find replacement buyers," said Sheridan, who estimates he will lose $120,000 in commissions if he cannot find substitutes for his clients. "But I couldn't market the unit. … I said, 'I'm trying to work with you.' "

In the meantime, buyers are exploring their legal options.

One strategy is to argue that changes to the building's design are substantial enough to negate the contract. That has been tried in bigger condo markets, with mixed results.

For instance, Di Garrison, a real estate agent who bought a condo on the Icon's second floor with a business partner, has told Bristol that she won't close because of flaws in her unit's finish and because a balcony that she had thought would be elevated is now accessible from ground level, a safety concern in her opinion.

"When we were getting close to closing, I really wasn't sure of our financial situation, and I sent a letter saying we're not sure we're in a financial position to close this," Garrison said. "But they were sort of threatening about this, so we decided we should really follow through. Then, we really did a walk-through.

"We were told (by a legal adviser) that because of the letter, they will take you through mediation. … They have continued to say, 'We feel that you're in default.' "

A more common strategy may be to invoke the Interstate Land Sales Act, a law that requires condo developers to finish within two years or have their deal reviewed by federal regulators. The law is meant as a protection to consumers, with the two-year deadline forcing developers to complete their buildings rather than hold onto investors' money indefinitely.

In the Icon's case, there's not much question that Bristol has exceeded that deadline, said Richard Smith, another attorney with Smith Cashion & Orr who has seen the contract. But that doesn't mean the argument can be played as an automatic trump card.

"The reality is how material is that breach?" he said. "How are they (buyers) going to be prejudiced and harmed by closing 30 days late?"

But as the situation at the Icon has remained unresolved, other buyers have come to question their next move.

Wayne Freeman, a Nashville engineer who holds a contract for a unit on Icon's 19th floor, said he remains optimistic about the building's long-term future. But as he hears about buyers' backing out on the floors below him and as investments he has made in other buildings have lost value, he has begun to question whether closing is a good idea.

"I don't want to go into a situation where I've already lost equity … but I'm also the type of person where, if I've given my word, I live up to it," Freeman said. "The way money has tightened up so much, I don't even know if I could get a loan anyway."

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