How Bad Can Things Get for the Miami Condo Market?

July 21, 2007

An article was released today on Bloomberg.com that exposed the seriousness of the overdevelopment problems that we have in the Miami condo market and the ensuing repercussions that will affect the Miami economy. The article was entitled “Miami Condo Glut Pushes Florida’s Economy to Brink of Recession”. To readers of my blog, however, the news presented in the article was nothing new.

As I’ve mentioned before, the bulk of the problems will stretch from Brickell to as far north as the Miami Arts District. That is where most of the development has occurred in the past three years. There will also be problems in Sunny Isles Beach along the beach. There is a ton of development there as well. Condos in Coral Gables have held strong and have actually gone up in some cases. South Beach condos have also held strong. The condos in older buildings throughout Miami will hold strong because speculative money doesn’t reside in those buildings. It resides in the buildings that were recently completed and those that are currently under construction.

Maintenance fees and ensuing special assessments are also an issue with new buildings. Jade recently had a special assessment to cover the maintenance money lost from the 17 foreclosure units in the building. Jade currently has the most foreclosures of all condo buildings in Miami. Imagine buying into a new building where only 50 percent of the units have closed. Could you imagine the type of special assessment that will get billed to those who have closed? The 17 units at Jade only represent a little over 5% of the overall units in the building. Imagine 50 percent! The upkeep of the building will be the first to go in these newer buildings.

I get a number of people who call me every week who are waiting on the sidelines for that spectacular deal. They know that I’ll find it. I have made it my job to find people the best deals possible at that particular time. That will always be my job and my ultimate goal. If anyone knows the seriousness of the condo market right now it is me. There are others in the industry who know it, but won’t acknowledge it.

That being said, those of you waiting to buy a condo 40 cents on the dollar, it won’t happen. For you at least. You may be able to attend a few auctions where you might be able to buy something at a significant discount but, for the most part, the bulk of the great deals will happen so fast that you’ll never hear about them. Let me be the first to spill the beans and let you all know how this will all go down in 10 steps:

1. A significant percentage of contract holders will walk away from their deposit money.
2. The developers will be left holding the short end of the stick and receive huge amounts of pressure from the banks in possession of the construction loans.
3. Developers will fold.
4. Developers will then pass the short end of the stick to the banks holding the construction loans.
5. Banks in possession of these construction loans will be in big trouble. They will then in turn look to sell these loans to vulture capital funds that are hovering the skies of Miami.
6. Vulture capital funds will buy these construction loans at a significant discount. 50 cents on the dollar or more is not out of the question due to the conditions that reside in the Miami condo market.
7. Vulture capital funds will then list these units with Realtors, such as I, who have a long list of people waiting on the sidelines to buy at a discount. They will then resell these units at a 15-30 percent discount from what they were originally purchased in 2004 and 2005.
8. Buyers, from all over the world, will buy condos in Miami at a 15-30 percent discount. Those who contact me will be at the top of this list to receive these significant discounts.
9. Vulture capital funds will pocket the 20-35 percent spread. Vulture capital funds have been hovering the skies of Miami for years. Their time has come. Patience is a virtue.
10. Miami condo prices will stabilize at the newly reduced level and business will go on as usual.

Condo overdevelopment throughout the country has become a problem. However, Miami is the epicenter of this problem. As the Bloomberg article states, banks were the first to lend money to Miami developers and the first to pull out. I’ve been contacted by at least five large vulture capital funds in the past month looking to profit from the enormous opportunities that will become available in the Miami condo market. All eyes are on Miami. A dark cloud hangs over Miami but opportunities will abound. As the saying goes, “This too shall pass”. But will you be prepared to take advantage of these opportunities?