Distressed Condos Report – New Condo Developments
January 29, 2009 by Lucas Lechuga
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So should I buy now or forever be priced out of the market?
Roberts, Looks like there’s plenty of time to pick and chose. I’m curious to see how the prices drop over the next two or three months as the FannieMae impact really hits the market. Buildings like TMP and MB should show up quite a bit on this list going forward.
Interesting to note that the unit being sold at 50 Biscayne is asking $285k, almost exactly the average price per unit that Related-Lubert bought their 120 unit portfolio in that building a little while back.
The bulk sales, as predicted, have created a new floor for the unit prices at these buildings. Expect that to continue in all the buildings where bulk sales occur.
This is going to take mucho tiempo.
2012-2013….
I was being sarcastic
Only 13!
The MLS is such an out of date dinosaur on RealtyTrac there are over 2,000!
The Smart Money
The Ace,
You found over 2,000 distressed condos on RealtyTrac in major condo developments in Miami completed within the past two years? Highly, highly doubtful. Most of the distressed condos are in older buildings.
QUESTION to anyone? Are we still looking at $125 a sq. ft. for beautiful Miami Condo’s?The ACE predicted it…….Renter Tom …confirmed it…….AJ….seconded it……Lara ………..motioned it….and even MUIR agree’s with it.When you have this many experts in one place…..they ALL can’t be wrong.
How does $400 per sq ft. at 50 Biscayne qualify as “distressed”?
I thought at $200 sq ft i would jump on a condo. Now i can get them in buildings i am interested in, and it does not feel like a good deal. My target is closer to $150 sq ft to pull the trigger now. I am very leery the condos will become a money trap with assessments, HOA and taxes, so unless you buy quite cheap, just not a deal. still a lot of downside to this market i am afraid. this really sucks because i want to buy, but not when the price will fall an additional $50-$100k on a unit. Lucas, an idea when the banks will start playing ball, foreclosing on the properties and then moving them off the books? they are playing games at a snails pace right now.
Looks like the economy will be preforming worse, not better, with all the government interventions causing ever more uncertainty and buyer/investor hesitation. The debt shell game will grow and generations of U.S. citizen taxpayers will be burdened with a debt unimaginable just 10 years ago. This debt burden will limit consumer and household debt. When the U.S. per capita debt balloons from $34K to $54K+ a family of four will be burdened with over $200K in federal debt. The higher tax burden and higher consumer interest rates as a result of enormous federal debts will crowd out borrowing for the purchase of large assets going forward for many Americans. $5-$10 Trillion of additional federal debt in 4 years. How will this affect second home buyers in the Miami area? It certainly can’t be a positive. The debt burden will cause further distress on many more properties I’m afraid.
Looks like Canyon Ranch buyers were “Trump”d. Trump’s “lease my name” condos are one thing, but if Canyon Ranch Miami Beach has only a fleeting relationship with the legit Canyon Ranch management, then this is getting really crooked IMO.
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Developer of Canyon Ranch Living Miami Beach Sued for Deceptive and Unfair Trade Practices
How about the Dubai market? Sounds like the sweet-smell-of-success according to this article!
http://www.timesonline.co.uk/tol/travel/news/article5607619.ece
All my models of rent vs buy indicate that sell prices should be at around $150sqf and this is with no big assessments or increases in HOA, in top of this unknown you have to add the developer risk taken by purchasers of more than 7 units. I believe that the smart money will start flowing at $125sqf. Then you have an additional factor to consider in brickell, what will be the liquidation price of the ICON. This will set the benchmark for other buildings.
Danny
danny
the inevitable bulk sale at icon will be the watershed pricing moment for brickell condos. although a conversion, harbour house showed that even mighty related needed to capitulate and unload inventory. as of now, i believe about 10% of the units at icon are involved in litigation (perhaps a related troll can correct me…i know you all scan this site…one of your managers confirmed as much) and i wouldn’t doubt that in total, probably 25% of contract holders are saying they won’t close ever.
any idea of how many units have closed in the ICON. i have a friend that sold more than 10 to Foreign nationals, he is looking for 40% loans on them, no banks are willing to lend in the ICON.
The big question is how many units will be able to close..i am betting not many, the rest will go to the bank who will hold and sell them for below 300? below 250? below 200?
any idea how much is the total debt of the icon?
Banks won’t hold properties until they appreciate. Once taxpayer subsidizes bank losses they will be dumped at the price the market can bear.much lower than you’d ever imagined….
for the experts: good deal or no? 2/2 PH loft unit @ the Brickell on the River South tower 1301 sq ft. $297k ~ $228 per sq/ft
Danny… tell your friend not to spend the commission money. I know two Brokers who would have closed shop by now but have held out with the expectation of final commission on Icon and Everglades. As of last week 13 units were showing closed at Icon according to Miami Dade public records. I have learned from a good source that 20 had actually closed and that they didn’t expect any other closings. With new mortgage guidelines as of January 15th it is impossible to get mortgage. Lenders now require 70% of the property to be in contract to meet just one of those guidelines. That’s means about 1,250 units need to be in contract at Icon. What we need is some good old fashion Columbian money to jump start those buildings.
Porto Bellagio in Sunny Isles ?
Off topic…but is anyone familiar with this building ? Is it nice or is it a dump ? Seems like prices are pretty low there right now…and some units look decent in photos..but no idea otherwise about the area or whether the building has issues.
Any comments appreciated.
Phil
Off topic as well, but does anyone know ballpark what I’d be looking at to install hardwood flooring in an approximately 1700 sq. foot condo. The 2.5 baths already have flooring, so I’m assuming there would be about 1500 or so sq. feet that would need to be covered. I’m not looking for any exotic woods or anything, just your average stuff.
WHAT??
Wake up all!
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I defy anybody here to show me a new condo development building where $150 psft returns more than 4%.
That, for those of us that like that stuff, is a PE of 25.
Historically, home prices have a PE of 15-17
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Case-Schiller for Nov 2008 is at 169 for the Miami market.
That’s 2003 prices.
Case-Schiller at 100 means we revert back to the year 2000.
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Open challenge to all: show me where I can make more than 4% if I bought cash on one of these new condo developments. (I’ll ignore HOA special assessments, declining rents etc.)
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I like ACE, but he can have it at $125, I’m sticking to my $85.
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Ok, fine at $100 depending which way the winds are blowing (inflationary winds) I’d consider buying.
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Love, Muir
Zimbabwe killed its currency yesterday. When a dozen eggs cost Trillions of Zimbabwe dollars (no joke, it did….Trillions!) the currency devaluation was just incredible. While the U.S. will fair better, I hope, the only upside to Miami Condos now is that it is a hard asset, albeit with high carrying costs. I think the distressed condos will become the norm as prices continue to fall to get inline with rents.
Zimbabwe killed its currency yesterday. When a dozen eggs cost Trillions of Zimbabwe dollars (no joke, it did….Trillions!) the currency devaluation was just incredible. While the U.S. will fair better, I hope, the only upside to Miami Condos now is that it is a hard asset, albeit with high carrying costs. I think the distressed condos will become the norm as prices continue to fall to get inline with rents…
At least we don’t have Dubai’s problems…yet.
Sounds like they have the “sweet smell” of success!
http://www.timesonline.co.uk/tol/travel/news/article5607619.ece
It is a triple bank failure Friday!!! Including Ocala National Bank, Ocala, Florida. What is nice is that ALL deposits were covered including any non-FDIC insured deposits so no depositor has lost any money. Seems that the FDIC has been doing a much better job after the IndyMac failure to make these things as seemless and painless as possible. Thanks Sheila! Doing a great job under trying circumstance…..just please stop advocating write downs of mortgage principal….after all if you can’t afford when you bought it then you have to give it up! Many people lost their homes when their tech stocks crashed so what is different when their housing investments goes south too???
Just – Very interesting article.
RT, i agree with you, but with a twist. write down the mortgage principal, but then transfer the home and mortgage to a financially stable individual on the sidelines who will make the most of the property. if you bought in over your head, you do not deserve to keep the home. you get debt relief, but get spanked on your credit score, and return to the rental market and straighten up your life before you enter homeownership again. why are they worried about protecting those foreclosed individuals with a deal, while leaving the responsible financial people who want a nice, affordable house out in the cold? we will never get out of this problem if you try to even the playing field between the responsible and irresponsible. better to provide support to the responsible people-they will lead us out of this mess.
or just make the banks foreclose and push the property off their books quickly rather than stalling. this will also bring prices to the level responsible people will buy. protecting the irresponsible is absurd.
PHIL on Porto Bellagio Sunny Isles…..is that the Phil from Toronto,Ontario?? if it is…you can do Much better Phil.
Yeah, Phil from Toronto 🙂 Sunny Isles is not an area I am interested in or would buy in now….was just more surprised at the low $$/sq ft for these units. But probably a good reason exists.
What I can’t believe is that someone who has accumulated enough cash to buy one of these Chinese takeout boxes would be dumb enough to buy one now.
the condo market in downtown would chug along on bottom price of $100/sq ft and maintenance dropping to below $500. Miami beach perhaps @150. This excludes only super luxury condos and not wannabe luxuries. Marble fls /spa/gym not going to fetch any premium.
That is the reality folks.
Along the plunge, de facto, many will buy and that is a good thing as slower pace of transaction at least provides crumbs to real estate folks. No can time the bottom except for a few lucky ones.
Sofla unemployment will gather steam this yr (on the way to double digit) as lots of fluff in govt payroll will have to be pruned substantially.
Needless to say the marginally attached workforce (U6) is already in 15-20% range.
US recovery of sub 1% growth in 2010 will feel like recession. And this pattern will linger for 2-3 yrs.
Massive compression in wages for upper 5% of the population will materialize. Universal health care may be on its way as companies balk at the ever increasing cost due to red-tape/lobby infested medical sector.
The realestate market perhaps would chug along 1997-98 prices for some time.Govt can be a bit more creative in property tax regime by increasing homestead exemption (right now 50k) to 50% of the price for new buyers to account for bubble prices from 99-2006 and level the playing field & make the tax regime fair.
Global growth in 09 will be negative for the first time. US is much ahead on the curve & will be first to stabilse. So gloom is set to intensify even more outside the US as US consumer PCE dip from 70% at the peak to more stable 60% of GDP. This will mean harikari for the global GDP. US savings rate would ZOOM to 10%+ as even joses & marias shun the blings, only to pay down the debt & repair their balance sheets.
As many of you know The Smart Money has been verbally abused and ridiculed for nigh on two years for our steadfast prediction that anyone paying above $125.00 per sq foot for a luxary ocean view Miami Condo is a fool and as we all know fools and their money are soon parted.
So it is a great satisfaction and vindication to The Smart Money to learn that the majority have now become believers, better late than never so welcome to The Smart Money!
The Smart Money.
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The unanswered challenge on #19 speaks for itself.
Forget $150 psft.
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A poster a while ago said that at 7% return, investors would flock, and that this 7% return, translated to $125 psft.
He was absolutely right on the first, had his math wrong on the second.
Muir,
The cash flow per sq. ft. part of the math is rather simple (although it ignores the more difficult appreciation-depreciation potential part of the investment analysis):
$150 per sq. ft. purchase at a 4% rate of return = $6 per sq. ft. per annum or 50 cents per month.
The typical numbers I see in the recent rentals sections are $1.50 per sq. ft., although it drops as low as $1.20 sometimes.
If we estimate HOA at 50 cents per sq. ft. and taxes at 30 cents per sq. ft. (based on current millage of purchase value) then the 4% rate of return requires a rent of $1.30 per sq. ft. The typical rental at $1.50 per sq. ft. yields a higher rate of return in that case.
Of course taxes are an issue because the current assessments are still far higher than recent transaction values. If taxes are twice as high as they should be then that eats away most of the available return, unless you can rent for closer to $1.60 or dispute the tax assessment in a timely fashion.
To get a 7% rate of return on an $125 per sq. ft. purchase, rent has to be at $1.48 per sq. ft., assuming HOA and taxes as above.
So if, as you say, you are willing to ignore special assessments and declining rents then the math works out for both $150 per sq. ft. at 4% return and $125 per sq. ft. at 7% return given some of the typical recent rental activity.
But realistically you can’t ignore all the uncertainly over special assessments, potential permanent increases in HOA, rental declines, tax assessment values or millage rate changes. And a 4% rate of return isn’t all that competitive, especially in a rather illiquid asset. Either this uncertainty has to go away for the market to clear at $150 per sq. ft. or prices have to drop enough to price in all the risk of such an investment. I don’t see the former happening any time soon so we’re in for more of the latter.
Guys
I think we are forgeting a couple of very important elements in this math:
vacancy
Rental Commission
Rental management fee
provision for capital improvements.
To this we have to add the uncertainty over special assessments, potential permanent increases in HOA, rental declines, tax assessment values or millage rate changes.
One we factor all in we can certainly agree that to obtain a “good” cap rate prices will have to be at least south of 125 sqf.
we are all speaking the same language here. The conclusion is prices will drop and drop and drop until demand is higher than supply.
The question that I pose to this group is not what the bottom will be, let’s assume that it will be 125 sqf, but when the bottom will be and most important what prices will be in 5 years from now?
best
Danny, I agree.
Not only does one have to look at $ sq ft, but also at the absolute value of a unit. For instance, I do believe that units above $250k are going to be harder and harder to sell at large volume in the future, because there simply will be less households which can afford such a unit on top of HOA and taxes. A unit could sell at $125 sf, but if it is a large unit this could still add up to a large overall cost to buy the unit-plus even larger HOA based on sf.
Outside of truly luxury buildings, my guess is 2B units will sell in the range of $150k to $250k on average, depending upon location and view. Truly luxury buildings will set themselves apart and be defined by higher sales price, not RE or developers defining luxury buildings for you.
“The question that I pose to this group is not what the bottom will be, let’s assume that it will be 125 sqf, but when the bottom will be and most important what prices will be in 5 years from now?”
The bottom will be hard to call until our government can quit monkeying around with the laws and let the market begin to settle on its own. Until we eliminate false support to foreclosures, the market forces cannot act efficiently. My hope is by this summer the market will finally be allowed to fully move on its own and banks will have to fess up to the mounting REO properties. If this occurs by summer, then in the fall we will begin to see the bottom materialize across the board. How long it stays there depends upon the recession and its aftermath-still a big unknown. But if the bottom becomes strongly coupled with the recession it will get very ugly.
If they had let the market crash last fall, the bottom would not have interacted with the recession so strongly and we would probably have a strong floor already. Our future will be similar to California. Cali has a much faster and more efficient foreclosure process (fewer issues to address in the courtroom) and so they have been able to move faster to a floor. But the floor is very low. However, sales are picking up out west because of this.
gables – CNN.money.com had an interesting figure that the bailout so far costs $9,700 per tax filer (only about 160 million Americans file income tax returns, out of 300 million+). Of course only about half actual pay any tax so really the debt burden per tax payer is around $19,400 so far. Predicted to double or triple of the next year or two. Someone must stop this insanity of fed govt spending since it will crowd out private investment and purchases esp. among large ticket items (condos, autos) that require financing. I don’t see a bottom in housing this summer….not going to happen. Any consumer large ticket item will continue to get pummeled in this environment as lenders simply pulled back lending to those they know can repay….which of course are people who probably don’t really need to borrow in the first place since they are frugal savers.
Even NYC rents are cracking now…
http://www.nytimes.com/2009/02/01/realestate/01cov.html?_r=1
I have noticed some interesting behavior by some friends and family lately. They are leaving industry and opening their own consulting shops, and working fewer hours but at much higher pay per hour. The really interesting part is they are spending much more time “day trading” than in the past-and making money as well. Shorts are easier to make money than longs the past few months. But the kicker is they get a 12% tax cut since payroll taxes dont apply to their investment income. If this becomes a trend, it will tank both social security, medicare and income taxes since they can effectively work less hours, maintain similar take home income and pay less taxes. Interesting to see if it is sustainable-but only applicable to those without the debt burden of a large mortgage. Makes renting an even better proposition going forward. On the plus side, no income tax states like florida become more attractive to them in the long run once property taxes return to normal.
Have a question!!! I am looking to buy a condo in Miami for under 100K , 1 bedroom for investment purposes. Could you suggest the neighborhood, the building that could rent in reasonable amount of time. I was looking at Brickell and buildings like the Vue. Do you think, i am on the right track. Thanks , Alona