Brickell Condo Index – February 2009

lucas
since you were a finance guy…the data might be easier to read and digest if you put it in a bid ask format that you see for stocks.

bid ask
jade 300 500

it’s not exactly the same concept, i.e., you’re listing sales prices of transactions that have cleared not what someone would be willing to pay going forward but i think most recent sales for an illiquid market such as real estate are a good starting point for what the next purchaser may be willing to pay.

richard, most of them. It doesn’t matter what the closing rate is. As soon as a few sales at drastically reduced prices occur, all the speculators holding properties in the building see they’re underwater and default. Federal Reserve Bank studies have shown this to be the #1 factor leading to foreclosure.

Lucas you are promoting misinformation: how does amalgamating all the sales into a single number give you ANY info? Maybe falling prices caused people to buy more expensive homes than they would have bought. You can only compare within the same building. Prices have fallen way more than 3.5%!!!

“they don’t make more land”
Real estate prices in Tokyo declined for 20 years. 20 years. Let it sink in. 20 years.

“renting is throwing money away”
If it costs you (say) $2,000 a month to rent vs $4,000 a month to own the same property, who do you think is throwing money away.

“priced out forever”
Dude, have you seen the number of empty apartments in buildings? Forget the coming wave of foreclosures. Today’s existing supply is so great you can sit back and let the prices come to you.

“foreign investors”
They’ve lost money like everyone else. They are out there, but not in quantities some on this blog would have you believe. Miami real estate is not the only market that was wildly inflated and is taking a drubbing. All of these RE opportunities (term is used loosely) are competing for the same investment dollars

Sit back, be patient. There’s a lot more bloodletting still to come

Hugo P,

The 6-month average actually dropped 3.5% change over the past 3 months (since the November 2008 update), not six months. Reading it again it does sound a bit confusing. The important numbers are the percentage declines amongst the individual condo buildings.

BMW M3,

Did you even read the entire post? I did show how prices have changed within the same building within the past 3 months. For example, I showed that average sales prices at The Mark on Brickell went down about 21% since then.

i hate rumor mongering but i keep on hearing it (and the review’s article today raises the issue as well )…related has some major storm clouds coming its way.

jcrimes said: “related has some major storm clouds coming its way”

Thanks for opening the door so I won’t be accused of bashing the sacred cow again:

February 20, 2009

Daily Business Review Last updated: February 20, 2009 11:03am
Related Seeks Hotel Investor

By Paola Iuspa-Abbott

The Related Group, whose new Icon Brickell is saddled with a hefty debt load, is looking for an investor or buyer for the project’s hotel component. Jorge Perez, chairman of the Related Group, recently recruited Holliday Fenoglio Fowler in Coral Gables to find a buyer or an investor for the Viceroy Hotel, Resorts & Residences at Icon Brickell in Miami’s financial district. The hotel opened last week at 501 Brickell Ave.

If a deal goes through, the cash could help Perez pay down Icon Brickell’s $176.5 million construction loan from LaSalle Bank. The loan is set to mature in November, according to Miami-Dade County property records. Executives of the Related Group did not return calls for comment. Representatives of Holliday Fenoglio confirmed they were marketing the property but declined further comment.

The 150-room luxury hotel is part of the 50-story building in Perez’s Icon Brickell development. Although the hotel is part of a high-profile project, it’s a bad time to be seeking a buyer, several real estate experts explain. “There is no financing available for hotels, and occupancy and room rates are going down,” says real estate broker Abraham Wien. “The only reason someone would put a hotel on the market at this time is because they are in financial trouble.”

Related recently completed the three-tower Icon Brickell, which has a total of 1,700 units. Closings at Tower I began in December, and so far only 17 condo sales have been recorded with Miami-Dade County. Contract holders of more than 120 units are suing Related in an effort to get out of their purchase agreements.

Related built six condo projects in Downtown Miami and the Brickell Area during the 2002-2007 housing boom. Icon Brickell is the last project to come on line. The market value of a hotel, as with most income-producing properties, is largely based on its revenue history. Determining the value of the newly opened hotel will be difficult.
“Selling a hotel in today’s market without even having a track record, means they are going to have to accept a price that is probably not much more than their construction cost,” says Mel Roth, president of International Mortgage & Equity Advisors of Florida in Parkland. “Without a track record, you have an asset that no one knows what it is worth. You are not going to be able to sell it at a premium under any circumstances. It is absolutely impossible.” That means Perez may have to sell at a discount. Wien, who often represents European and Latin American funds, indicates his clients are only interested in cut-rate properties.

Hotel buyers that need financing are likely to come up empty-handed, Roth adds. “It is more difficult to get a permanent loan on a brand-new hotel than it would be getting a construction loan to build a hotel,” he says. Lenders will finance about 65% of the value a hotel if the operator can prove its net operating income generates at least 140% of the debt coverage, he explains.

Roth knows how hard it is to land financing since the financial market began to implode in late 2007. After more than a year of negotiations, he helped secure a $250 million loan in October to complete construction of Met 2 Financial Center in Downtown Miami. Met 2 will be an office tower that will include a hotel under the JW Marriott Marquis Hotel Beaux Arts name. Roth had initially negotiated the loan with Bank of America and Wachovia, but as the credit market deteriorated, the banks had to join forces with HSBC Bank, RBC and Bank of Scotland to come up with the $250 million loan.

In relation to the hotel market, the recession is taking a toll on tourism, one of Florida’s main economic engines. Owners are seeing room rates slide and occupancy levels drop. Miami’s Downtown and Brickell areas saw the hotel occupancy rate fall to 60.8 % in December 2008 from 64% in December 2007, a drop of 5.1%, according to the Greater Miami Convention & Visitors Bureau. Countywide, the hotel occupancy level declined by 8.5%. Daily room rates in Downtown and Brickell slipped to $168.30 from $189.90, a drop of 11.4%. Countywide, room rates declined 6.6%.

“We are now at a point where we have peaked in terms of rates and occupancy,” says Guy Trusty, a hospitality consultant in Coral Gables. He explains that the hotel industry began a downward trend in early 2008, after almost seven years of growth.
Hotel values across the nation are expected to plummet by up to 30% in 2009, reveals Scott Smith, vice president of the Atlanta office of PKF Consulting, a hospitality and real estate advisory firm. In an indication of falling values, declining revenues are increasing capitalization rates, a measure of cash flow that determines a property’s market value. In the last year, cap rates of luxury hotels have increased one to two basis points, to more than 8.5%, lowering the market value of properties, says Wien, with Holly Sime Real Estate in Coral Gables. “It means your money goes further as a buyer,” adds Trusty.

Kor Hotel Group, which also operates the Tides in Miami Beach, is introducing the Viceroy brand to South Florida through Icon Brickell. Hotel rates at Viceroy Miami start at $500 a night. The fact the hotel flag doesn’t have much name recognition in the region won’t help boost the sale price or improve the chances for financing, Roth comments. Kor did not return a call for comment before deadline.

In the last six months, Related has refinanced and sold at big discounts condos it couldn’t sell at two of its new high rises in Miami-Dade. In December, Related’s TRG-Harbour House affiliate sold 101 units for $27 million in Bal Harbour’s New Harbour House, a condo conversion project. Related sold the units at prices as much as 60% below the cost of units sold to individual buyers in the last two years.

In July, Related sold 146 condos for $36.4 million in the 50 Biscayne condominium tower in Downtown Miami. The bulk buyer at 50 Biscayne was a company owned by Related and an equity partner, Lubert-Adler Partners of Philadelphia. Related and Lubert-Adler bought out Atlanta-based Cousins Properties, which built 50 Biscayne in partnership with Related. The price per unit in the 50 Biscayne bulk purchase averaged $247,739 at a time when individual condos on Biscayne Boulevard were selling for an average of about $309,936. A few months later, Related and Lubert-Adler financed some of the condos acquired in the bulk deal with a $20.87 million loan from Prudential Insurance Company of America.

If Related doesn’t find a buyer or investor for the Viceroy, the company may have to negotiate with LaSalle Bank for a loan extension. “The natural thing to do in today’s market is you go back to the construction lender, who has to recognize that there is no financing available for a hotel with no track record,” says Roth.

Paola Iuspa-Abbott can be reached at [email protected]

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Time for Big Gourge to jump on the Obamunism Bailout Wagon!!

Even the Dumb Money can no longer argue the facts for numbers don’t lie.

The Smart Money.

Let’s see. Let me put on my thinking cap. How long do I think it will take for Miami, Brickell and area condominium prices to recover to an insane price based on sheer fraud, no income requirements, no concept of someone actually ever using the condo, no or little down payment, no relationship whatsoever to home value, utility, rental or investment value no relationship to anything other than an investment pyramid.

I think things look pretty bad and it may take longer than 3rd quarter 2009, but by 1st quarter 2010 we should all be back in business. Where is that font key.

RCR…I agree with you…there will be no recovery back to these prices.

I completely disagree with the statement that prices will never come back. They will come back. It will take some time though unless it is going to be chaos of world proportions. If that happens then who cares about prices.

Awesome work, Lucas. Must have taken a lot of time to get that together. I wonder how many appraisers will steal your compilations. Who else tracks this market this closely – and currently? Can’t you trademark or copyright or somehow legally protect your “Index” in order to prevent its commercial use for free?

some thoughts on when and why a price rebound should/not occur. cities like new york, boston, san francisco, and DC have very high cost of living, even higher than miami. these cities have had high cost of living for quite some time-longer than the elevated prices which existed in miami over the past few years. but miami is different than those cities. they all have had a strong existing demand for high income workers (financials, government, medical, business executives, etc). miami did not have this demand-the boom was driven by investors and rich out of towners looking for a nice vacation home in a resort destination.

after the economic collapse occurring throughout the world, prices will stabilize based on relative demand of housing in a city. new york, boston and DC will not lose the job base that drove up the price (although new york will likely shrink its financial sector), so eventually those cities will stabilize and slowly rebound in price (not sure to what level).

miami is caught in a tougher position. the demand for its new housing stock was not from a well to do working class, but of wealthy out of towners whose wealth has been hit incredibly hard in the past year. this produces a much riskier scenario for price stabilization and rebound. i just dont see the demand high enough in the near term to stabilize prices at a high level. demand will exit for household incomes under $100k, but the demand from households over $100k will be small. prices will have to stabilize according to the proper demand demographic. i dont think we have yet reached the status of the mega cities like new york and boston.

Gables, you are completely right, Lucas has done a magnificent job of packaging market data that helps a lot into understanding the actual RE scenario. But at the end of the day, the socioeconomic topics you just mentioned are the ones that really shape the ups and downs of this RE market, for the last 35 years I have seen as this socioeconomic fads, (most of them external to Miami or like you said influenced by out of towners) have shaped the prices of Miami RE.

Lucas keep up the good work and Thanks!

forbes miami 9 th worst city……..if you are from the north east looking for miami condos, your not looking in this area!!! you want the beach aventura etc,
the recession/depression is not even 50% finished, so if you ar buying now-you are buying a falling knife!!!there is no easy credit anymore, the average person does not understand this fact!!!!!!if you still have credit cards and a job, you are ahead of the game, forget about buying condos!!!!
take out the scammers, the flippers, the ny ers are not moving to florida anymore/,
no more easy credit, new rules and regs………..its going back to simple supply and demand!!! and there will be much more supply so that =lower prices!!!!!3 years=ANOTHER 50 % DISCOUNT GUYS……….UNLESS S.AMERICA CAN SAVE THE DAY I AM PATIENT

drew299 said: “I JUST WISH I DID NOT PAY MY BILLS SO OBAMA COULD SAVE ME”

OBAMUNISM overlooks one fact in saying “fewer foreclosures = higher, stable prices”. What it overlooks is the fact the just because you put a higher price on something, it value doesn’t necessarily increase.

OBAMUNISM will hit a wall…like ole Dale Earnhardt did!

Stocks (Dow) are down to 1997 levels. Why should real estate be any different? Factor in massive Miami oversupply, rising unemployment, unaffordability of Miami condos, and I see no reason for condo prices to rise in the near term future.

Peak prices were a fantasy. They are never coming back in real terms. Get over it.

Lara is obviously in denial/delusional. She’s in up to her eyeballs in mortgages. She also doesn’t understand what’s going on (and the big big surprise that’s coming) because she keeps harping about “deals”. Honey, it isn’t a deal unless you’re getting it for 25% of what it cost to build.

Samson & Bori,

Thank you! Yes, it does take a long time to compile the data included in this post. Good thing I enjoy working with numbers.

Lucas:

You are very welcome. Keep up the great work and this great blog.

BTW, I was given a tour of Icon Brickell last week. I thought I’d hate it and almost didn’t go. Instead, I thought it was fabulous. Provided the building enforces a dress code in the common areas (white/black only, no sweatshirts, baseball caps, etc.) and keeps the place up to snuff, I’d live there in a heartbeat. Best building of them all. And what a credit to Miami. No other city anywhere in the world has anything close. If it were located on the beach, it would close out even faster than Apogee at $500/sf….even with 1800 units. I was blown away.

I’ve been to two functions at Icon Brickell now. The project is stunning. Truly. A testament to the credit bubble.

The units themselves, however, are merely so-so. I found the kitchens small, and the bedrooms undersized. The views are great if you’re facing east or you happen to be on a high floor. Otherwise they’re not so good — a huge number face … other units. And of course the HOA fees will be brutal.

I have been told that, from an accounting perspective, the project is bankrupt. I’ve also heard that a throng of bankers convened on Miami couple of weeks ago to discuss next steps. Don’t know what happened.

Not good.

tex, if your looking to rent why do you care about HOA’s? you wont be paying them.

Big Gorge will be fine. I can’t imagine his personal exposure will be anything that leaves him with less than a major fortune.

The problem with Icon Brickell is that its located in……Brickell. All those pretty Ocean Drive magazine ads made Brickell seem like the bustling Las Vegas strip or Rodeo Drive. Its not a vacation mecca and never will be. Miami is not NYC, and anyone making decent money is going to want to live on the beach.

And like someone else said, half of the views completely suck.

Un-Related:

As to your point #1, there are – to the contrary – certainly 1,700 prospective purchasers out there with decent credit who could of course close if they were offered, say, 95% financing via the conversion of the project to a co-op.

As to your point #2, what you assume might happen (all those in contract taking their money back and “running for the hills”) would be a far better scenario for the developer if the co-op approach worked especially given the avoidance of the protracted litigation now looming by those currently in contract.

As to your point #3, I fail to see why the existing lenders would not consider converting to a co-op as there seems to be nothing but trouble ahead in plodding down the condo route. Were I Lehman Brothers’ trustee in bankruptcy I would certainly prefer to have 1,700 credit-worthy borrowers on the hook for my $75M than one entity with probably no or little equity in the project at present.

Again, it all comes down to how much debt there is. Do you know?