Top 5 Distressed Condo Sales Closed in September 2009

The low/moderate end (under $200 sq/ft) market can be competitive on well-priced units, but the mid-high/to high end is stuck in reverse.

The Real Estate picture can be completely opposite depending which end you are looking at so it’s possible to say RE is bottoming yet falling. One needs to be clear which market they are talking about.

Also, regarding the foreclosure sales data, 26 REO closings sounds like it’s still a very light number suggesting there’s many units that are getting no buyer interest. Selling 26 units at or over list is only good if there are less than 26 REOs simultaneously entering the pipeline.

Exactly 26 REO closings in a market with thousands, if not tens of thousands, of unsold units, and “the worst is well behind us”?

Come on, Lucas. You seem like a good guy and your site is great, but please don’t turn into one of “those guys.”

By the way, over 25% of those REO units sold at BELOW the asking price!

I would say the worst …. with respect to price declines …. is behind us, but “well behind” us I disagree. Government intervention has slowed the fall but how long can the government keep this up? Their ability to buy MBS is not endless since they have to borrow money to buy these things….the result is mortgage rates are very very low right now. We all know that mortgage rates will rise in the future resulting homes becoming less affordable at current prices. You can pay a high price with low rates but if the rates go up the prices must come down… People who buy homes using a purchase mortgages are drivers of market, the huge majority “at the margin”. Once that gets affected by higher mortgage interest rates the next leg of price declines will come.

The best time to be a cash buyer is when mortgage interest rates are high since prices will be lowest.

http://www.marketwatch.com/story/housing-could-take-double-dip-down-in-2010-2009-10-13

I stand by my words. I agree that a large number of foreclosures will hit the market within the next year. However, the fear in the economy during the first quarter of 2009 was staggering. Demand at this time was pretty much nonexistent. As a result, prices plummeted. The first three months of 2009 were probably the worst three months of my career. Nobody wanted to do anything with their money, much less buy a condo. Rentals were even extremely slow during this time. Discretionary spending had dried.

I think the best deals in the lower half of the market were to be had towards the end of March 2009. This was around the time where you could find a unit at Vue at Brickell for $100 per square foot. I haven’t seen a sale at that level in quite some time despite the large number of foreclosures and short sales there. It wasn’t until April 2009 that I began to see buyers re-enter the market. Fast forward to the present and I can honestly say that business hasn’t been this good since 2005.

There are a large number of foreclosures on the horizon but I think the supply-demand equilibrium over the next 10 years will never be as out of whack as we witnessed in the first quarter of 2009. People are buying at current levels and in some cases there are 10+ people competing for the same unit. I’m not saying that prices are going to jump from this point. Prices will likely plateau over the next 1-2 years. I do believe though that we overshot to the bottom around March 2009 and that we’re off our lows. I’ve never been “that guy” and don’t plan on becoming “that guy”. I’m calling it as it is. It’s always about supply and demand and I just don’t believe that the ratio will ever be as bad as we saw it at the beginning of the year. Unless you’re down here in the trenches on a day to day basis then you wouldn’t know.

I was referring to the low to moderate end of the market. JL is correct that I should have been more clear about that. I think it’ll be another year before the luxury market in Miami hits bottom. However, the luxury market in Miami Beach and Sunny Isles Beach is doing just fine. For example, Jade Beach, in Sunny Isles Beach, was a tremendous success.

Oops I guess Lucas pretty much posted the same thing as me right before

I don’t know, the people I talk to that actually own condos seem pretty glum…a bunch of Eeyore’s . And I’m not talking about people struggling with $$$ either, some don’t even have a mortgage on their extra condo(s). Basically the opportunity costs and monthly expenses make them sad to still own these albatrosses. Gone are the days of simply holding an empty condo and raking in the $$$.

What about Jade Ocean in SIB? How is it doing? In SIB, the Trump Tower III remains 100% empty….no one, even though it is done (bank took over that tower?). The Solis hasn’t added a floor in over 12 months and rumors are the existing 11 floors will get torn down (for various reasons). Who would have predicted such for ocean front real estate???

I focus on higher end condos…not the super luxury nor the cheap places. I see a bunch of wishing prices that don’t get sold month after month…..

I think perhaps, the market has gone from dead to showing signs of life IN CERTAIN PARTS of the market. The good real estate agents that survived are being kept busy but we are far away from a healthy real estate market.

Lucas, didn’t mean to imply you were dead wrong. You hit several items on the money. But anybody who thinks we will have a healthy growing market is hoping rich foreign money comes here in spades. And could very well happen as the dollar continues its demise overseas. On the mulitple offer units, any word on how many were legitimate to follow through? Or are several of the offers based on proposed loans that would never be funded? Just curious.

The bottom will be hard to call. The crisis was full bore this spring, but its hard to call that a bottom because so few units traded. Need a bit more volume to declare the bottom. Agreed though that this past spring will be hard to duplicate.

There are thousands and thousands of unsold units in the MIA market. If these REOs have so many potential buyers, then how come, when their bids fail in these allegedly high-competition REO sales, these buyers don’t go to the unit next door and make the same offer?

As for Lucas’ allegation that “the luxury market in Miami Beach … is doing just fine,” are there any stats to back this up? Some of the best brand-new buildings on SoBe are still 50% or more investor-owned, and incredible buildings are still going months at a time without a single sale.

As of 1-2 months ago, according to Lucas’ own numbers here, there was almost twice as much inventory in the luxury market as there was in the lower-end market. Did this situation magically correct itself in the last 2 months and no one noticed? If not, Lucas, where are the sales numbers to back up your claim? I haven’t seen such numbers around here.

By John Gittelsohn

Oct. 16 (Bloomberg) — Robert Cooper says he has found a way to make money in South Florida’s real estate bust.

Cooper, an attorney in Aventura, Florida, sues for refunds on deposits in the nation’s largest condominium market. In the last two years, he filed lawsuits for about 1,500 buyers against companies and individuals including the Related Group of Florida, Dezer Development LLC, Corus Bankshares Inc., Donald Trump.

More suits seeking refunds under a federal law regulating condo sales have been filed in South Florida than in the rest of the country combined, according to a search of federal court records. Fueling the litigation is a price crash that makes buyers unwilling to pour more money into bad investments — even if they can get financing. Condos on which they made deposits of up to $1,000 a square foot in 2006 are now selling for $125 to $350 a foot, said Jack McCabe, a real estate consultant in Deerfield Beach, Florida.

“If you’re thinking you can come here and buy and sell condos for a profit in less than five years, you’re sadly mistaken,” said McCabe, whose clients have included Credit Suisse Group AG and Pulte Homes Inc., the largest U.S. homebuilder. “You need a seven- to 10-year range.”

Prices could fall to $100 a foot, less than half the cost of construction, and a value not seen in 20 years, he said.

Vacant Condos

In Dade, Broward and Palm Beach counties, there are more than 43,000 condos and townhouses on the market, almost 1-1/2 times the number of single-family homes, according to Condo Vultures LLC, a Bal Harbour real estate brokerage. In downtown Miami, more than 8,000 condos stand vacant and unsold, relics of a building binge that added 23,000 condos from 2003 to 2008, said Peter Zalewski, principal of Condo Vultures.

Over the past 12 months, condo prices fell 15 percent in the West Palm Beach-Boca Raton area to a median of $112,200, 36 percent in Fort Lauderdale to $85,100 and 31 percent in Miami to $144,700, according to Florida Association of Realtors data.

Those prices are likely to fall more when the $1 billion portfolio of South Florida condos financed by Corus Bankshares, the Chicago lender seized by federal regulators, goes on the market, Zalewski said.

Investors led by Starwood Capital Group LLC won a bid for Corus’s loans. Two-thirds of the 2,537 condo units Corus financed in downtown Miami are unsold and unoccupied, Zalewski said.

Corus Deal

Rather than drive prices down more, the Corus sale could help stabilize the condo market because Starwood, in its partnership with the FDIC, can hold onto the properties, said Craig Werley, principal of Focus Real Estate Advisors in Coral Gables.

“Why on earth would they create more cutthroat competition when they’re in such a good position with the federal government?” said Werley, who co-wrote a study on the condo glut for the Miami Downtown Development Authority.

For Cooper, fighting over the spoils is a full-time job. Cooper said he has reached out-of-court settlements in disputes over 500 deposits, recovering about half of his clients’ money. He won’t say how much the refunds total or how much he has earned in contingency fees, which are usually about one-third of the recovery amount.

“There’s no recession in the real estate litigation community,” said Cooper, 46.

Attractive Market

South Florida had the biggest real estate boom in the country. Housing prices in Palm Beach, Broward and Dade counties rose faster and fell more than in any of the 20 metro areas tracked by the S&P/Case-Shiller Index.

“Condos were extremely attractive because you could put down a modest down payment and leverage it extremely high,” Brad Hunter, chief economist for Metrostudy, a Houston-based real estate research company, said from his office in West Palm Beach. “If you were investing between ‘03 and ‘05, you were able to see 100 or 200 percent appreciation. Ninety percent or more of it was speculation.”

The global recession, the credit crisis and tighter bank lending put an end to Miami’s condo growth.

In February 2005, Randy Gerlick of Parkland, Florida, put a 20 percent deposit on a $700,000 condo at the Las Olas Beach Club in Fort Lauderdale. Two years later, he sold the unit for $1.1 million, receiving a check for $315,000 after paying fees. He never set foot in the condo.

Trump Litigation

Then he heard about the Trump International Hotel & Tower Fort Lauderdale, a luxury 298-unit development on the beach. Gerlick put down a 20 percent deposit, or $122,000, for a unit. As a token of the deal, he got a silver Tiffany & Co. key chain engraved with the Trump International logo and his unit number, 1009.

“Trump seemed like a natural next step,” Gerlick said in a telephone interview. “It was like, how can you lose with his name on it?”

On May 13, the Trump International’s developer, SB Hotel Associates, sent Gerlick a letter giving him until May 29 to obtain financing or lose his deposit. The letter said the hotel portion of the property wouldn’t open if less than 50 percent of condo buyers completed their purchases. It also noted that the Trump affiliation was in jeopardy under an agreement that allowed the New York developer to withdraw his name from the project.

Disclosure Issues

Gerlick’s lawyer, Jared Beck, filed a breach-of-contract lawsuit seeking deposit refunds from seven defendants, including SB Hotel, Corus, Trump and the Trump Organization.

In the complaint, Beck says the prospective owners are owed refunds in part because of deceptive advertising and promotional materials that led investors to believe Trump was integral to the project. The Trump brand added $200 a square foot to the project’s value, the suit said.

“This is one of a lot of cases where the disclosure wasn’t full or fair to the buyer,” Beck said in an interview.

SB Hotel and Trump moved to dismiss the suit, arguing they are protected by the purchase contract. Trump was involved in name only, said Alan Garten, assistant general counsel for the Trump Organization in New York.

“The main point is that we are not the developer of this project. We are just the brand which licensed the use of the Trump name,” Garten said. “Trump didn’t enter into contracts with any of the buyers or receive deposits from any of the buyers.”

Market Disconnect

The purchase contract says Trump maintains the right to sever his association with the project, Garten said.

“If you’re not going to read the contract, don’t sign it,” Garten said.

Beck, a Harvard Law School graduate who has filed suit for buyers of about 500 South Florida condos seeking deposit refunds, said the cases are part of the market correction.

“We’re going to have lots of litigation as long as there’s a disconnect between what people are under contract to pay and what the market actually is,” Beck said.

“During the boom, developers and lenders were falling all over themselves to get projects up and sold as soon as possible, applicable statutes and disclosures be damned,” he said. “The law took a back seat. The only time laws are going to be enforced is when the market’s bad. That’s what we’ve got here.”

One of the most common laws cited in deposit recovery suits is the Interstate Land Sales Full Disclosure Act, a 1968 federal law regulating housing projects with 100 or more units that requires developers to provide detailed reports describing the size, scope and delivery date of marketed projects.

Refunds Due

Since Jan. 1, 2008, 62 percent of the 215 lawsuits filed in federal courts under the Interstate Land Sales Act were filed in the Southern District of Florida, according to court records. The suits argue developers committed fraud because projects were not delivered as promised.

Betsy McCoy, assistant general counsel for the Related Group of Florida, which has developed and managed more than 55,000 condominiums, said the deposit lawsuits strain legal reasoning and offer false hope to investors facing losses. The Related Group faces 361 deposit refund lawsuits among 874 contract disputes with condo buyers, McCoy said in an e-mail.

“We have settled some lawsuits, but not many and settlement is typically payment of limited remedies the contract provides,” McCoy said. “We have not found suits to be compelling, either factually or legally, to justify settlements in any manner that exceeds the contract terms.”

Ruling Appealed

People with pre-construction deposits have a legal right to refunds of no more than 5 percent of the purchase price of the condo, McCoy said.

On Sept. 30, the U.S. 11th Circuit Court of Appeals ruled in favor of a developer, reversing a lower court ruling that awarded a deposit refund under the Interstate Land Sales Act.

“All bubbles eventually burst, as this one did,” the three-judge panel said in its opinion. “The bigger the bubble, the bigger the pop. The bigger the pop, the bigger the losses. And the bigger the losses, the more likely litigation will ensue.”

The federal appeals court opinion will encourage lawyers to file more suits in state courts, where judges have been more sympathetic, Beck and Cooper said.

Lawsuits are one of the costs of doing business when times are bad, said Gil Dezer, president of Dezer Development, developer of the Trump Royale, part of the Trump Grande Resort & Residences in Sunny Isles, north of Miami.

Seeing What ‘Sticks’

“Those lawyers are trying to throw as much out as they can to see what sticks,” Dezer said in a phone interview.

All 380 units in the Trump Royale, which licensed the Trump name, were pre-sold at an average price of $1 million each, Dezer said. About 180 of the units have now closed and others are selling at a pace of three or four a week, Dezer said. The current average price is $950,000, he said.

Owners of 17 condos are named plaintiffs in a suit in Miami-Dade County Circuit Court against the Trump Royale, which Cooper filed. Among the allegations: The developer breached the purchase agreement because the Trump Royale’s unit numbers led buyers to believe they were buying units near the top of the 55- story tower.

Trump Royale

“The plaintiffs never knew that units 3301 and higher are actually 10 floors lower than what the developer represented,” the lawsuit argues. “For example, unit 3706, plaintiff Sanchez’s unit, is actually located on the 27th floor.”

Dezer said he numbered the units to reflect the building height rather than the number of floors. A judge dismissed two counts of the complaint on Sept. 15. Cooper filed a motion for reconsideration.

During the boom years, Cooper said he represented clients who sued to buy condos, which they claimed had been sold out from under them — after they signed a contract — to people who offered a higher price.

“This was not a normal real estate market,” Cooper said. “People were going crazy.”

And now?

“As many cases as we settle, we get more new active cases,” he said.

To contact the reporter on this story: John Gittelsohn in New York at [email protected].

Last Updated: October 16, 2009 10:39 EDT

while lechuga ‘s enthusiasm is understandable, the travails in the real estate market in sofla is FAR from over. The market rebound as well real estate rebound has more to do w/ dollar decline & extraordinary QE as well as first home buyer freebee. But the glut cannot be wished away. sofla unemployment is as high as 12% + add another 12% for underemployment. There is some oversee buyers but still on the margin. The rental cost/carrying cost still diverge (for ex the unit i rent for 1800, i would end up paying 2500+ if i were to own.)
There is no doubt in my mind that $100/sq ft is ahead as FED withdraws emergency support to defend dollar// equity market worldwide tanks again and a more brutal phase of the downturn takes hold in 2010..
However, some lower end condos are definitely buys. Condos can be had in suburban sofla for 60-70,000. This is surely a good buy. Howver, one must be ready to deal w/ section 8 (very likely) tenant as price appreciation is mutiyrs away……

There does seem to be some more activity in the market (with many stories of several offers coming in for one unit), but I believe that this is just the beginning of another smaller speculative bubble.

According to Peter Zalewski, there were 930 or so closings in the last 3 months in the downtown area, which does seem to be a decent number of closings compared to the 3-4Q of 2008. These closings seem to be setting the strike price for units in the downtown area at $200psf, some lower, some higher.

We have discussed the math for such a purchase here many times before, and the bottom line is that if you bought a unit as an investment in many of these buildings at $200psf, you would lose money or would make a pretty low return (high HOA, taxes, low rents).

Rents will continue to come down due to unemployment and the large supply of rental units (Corus, etc), so prices will need to come down more to reflect that, and they will. It might take another small correction.

Finally, we should see fewer sales in the next 2 quarters as the “season” ends and the $8k tax credit program concludes in December (hope so).

When sales exceed foreclosure filings, then prices will have hit a bottom. Last numbers I saw from Condo Vultures were 2.5 foreclosures to every sale.

Anyone know where this metric is at present? Until that happens, I don’t believe a bottom is in place.

What is the point of modifying a mortgage if there is no income? Unemployment will continue to drive defaults, short sales, and foreclosures. When will Florida unemployment go below 10%….probably not in 2010. A lot pain ahead.

It is not surprise the price paid by the Mark, actually I thought it is a kind of expensive, considering that it is one of the worst condos up there, I have a friend who is renting there and the building smells funny all the time and everything looks cheap

I have to agree with those with a gloomier outlook on the market. I don’t think we’ve seen the end. There are a lot of condo units out there and a lot of activity, but they’re still not affordable. It’s not that the condos are that outrageously priced anymore, but the HOA/maintenance still makes them unaffordable to the average Miamian.

For example, I’m seeing a lot more reasonable prices coming out of the Midtown development now, but why on Earth would I pay $2o0k for a 986 sq. ft. 2/2 when I’ve got to kick in almost $700 a month in maintenance? I might as well get a $300k house, then. With those kinds of maintenance costs, the condo would have to be offered for closer to $125,000 just to make it competitive enough with the rental market that I would even begin to consider owning (and even, then, I’d probably still pass until either the HOA came down by half or the unit was offered closer to $90k).

Also, knowing that there are all of these newer units out there that are vacant disincentivizes me from buying into an older, building, too. Those are going to have to really come down.

Randomly Guy, great point. And don’t forget that if you buy into a development where there are owners who are not paying their maintenance, you will probably be required to make up for the Condo Association’s revenue shortfall via “special assessment.” Word on the street is, unfortunately, a significant number of owners in these brand new, shiny developments are behind/delinquent/not paying their maintenance.

scriv

See the link for more news on a predicted further drop in Miami RE:

http://finance.yahoo.com/news/Homes-About-to-get-much-cnnm-699910894.html?x=0

Miami is going to see another 30% drop in value. This is far from a bottom folks.
http://finance.yahoo.com/news/Homes-About-to-get-much-cnnm-699910894.html?x=0

John:

What is “Blanket Receivership”? Is it an article? Would you post a link? I would be very interested in reading it – – knowledge is power, after all.

If the “Blanket Receivership” you are referring to (and please, if you have a link, please provide one as I am genuinely interested) is what I think it is, a tactic/strategy whereby condo associations attempt to disgorge rents collected by delinquent/dead-beat investors, I fail to see how any “cram down” will occur (“cram down” is, after all, a legal term of art).

And I doubt that the associations can, absent provisions permitting such taking in the association rules, take “the investor owned units and rent them at low rates ” because they lack title to the unit and therefore cannot, as a matter of law, convey the right to possession to a tenant. No unity of title (time, title, possession), no ability to rent – – at least that’s what my professors taught me in school.

Obviously, obtaining such rights requires court action, involving court costs and legal fees. Such costs may outweigh the benefits of such a course of action given that the association can draw from its non-delinquent owners.

More importantly, securing such rights would also mean that association’s interest in the unit would have to be given greater priority (again, “priority” is a legal term of art) than the bank holding the mortgage on the unit and other secured creditors. Given that condo associations are generally unsecured creditors or, if they have a secured interest, their interest is likely to be inferior to the banks holding the mortgage, their “rental interest” would be a lower priority claim vis-a-vis the mortgage lender’s claim. Why would a mortgage lender permit an any income from the unit to go to satisfy the claims of anyone but itself?

Again, this “Blanket Receivership” issue interests me. Would you please post a link?

As an aside, a friend of mine who lives in downtown Miami, just renewed her lease and informed me that the condo association approached her and asked that she sign a contract under which if her landlord stopped paying maintenance or association fees she would pay her monthly rent to the association. My friend, being an attorney, did not sign the agreement, nor, as a matter of law, was she required to – – no privity of contract and other legal issues not relevant here. But the point of this anecdote is that it may have been an example of an attempted, albeit a poorly thought out and executed attempt, “Blanket Receivership” move. Neat stuff, nonetheless.

Best regards.

scriv

Drew:

Thanks for the great link! I can’t wait to read it.

scriv

For Scriv : http://www.associationlawgroup.com/ALG%20Press%20Release.pdf

Not saying your profs wrong, just Fl SS 718 is different because there are provisions kinda eminent domain lite, ‘cept its only rental & only the investor-owners you can go at.

The assoc files a one time blanket to cut the costs, then “takes & rents” the unit directly for maintance. Powerful ain’t it scriv? And your lawyer friend was probably confronted by a pre-blanket alternative, rightly turning it down since disclosure of maintance/assoc fees due is already in the FAR lease. “BR” is pure ownership directed there is no need to alarm the tenants. This addresses the ownershup rights and responsibilities with the association.

I add that maintance could be construed as assoc dues, the new insurance rqmnt in 718, & property taxes. The assoc always had the power to hit the bank ( or other foreclosure lender/owner ) with 6 mo or 1/2 the balance due on fees in arears. That is “Why would a mortgage lender permit an any income from the unit to go to satisfy the claims of anyone but itself?” It satisfies the nuisance yet costly outflows by the bank, i.e. its a backslapper between the assoc & bank. They now have aligned interest against & can “short” squeeze the investor-owner.

The new insurance requirement in 718: all unit onwers must obtain & maintain H-06 ( condo unit owner insurance) OR the Assoc has the ability to purchase & charge the premium for a unit owner policy for any owner not in compliance. Started in August 2009 when Crist failed to veto SB 714. That hits either the investor-owner or the bank, so the assoc can make that part of the rent “taking”. Now, all that needs to happen is the bank signals the assoc. that insurance & taxes sure sounds like excrow and … .

Watch closely here’s the “cram down”.

Suppose, I am a homesteaded condo dweller *&^%$ at special assesments of the deadbeat investor owners that have no tenants in place, have not made an association maintance fee, & in addition to seeing the unit listed as a “short sale” for the past year. I want the unit rented and paying its fair share as soon as possible. That means take the average rent per sqft for the bldg & lower it 20% to 30% to fill the unit. How many angry owners does that scenario need for fruition?

Suppose the condo is full of investors. The association will file bankruptcy or follow the same path as owner / dwellers. Remember new HUD rules start in November; 51% owner / dwellers for financing. That means no new financed buyers in a condo that does not blanket and how smart is that new cash buyer if they are not looking for blankets to backstop their investment?

For those interested in this case, here is the petition and the order granting receivership:

http://www.algpl.com/downloads/Village%20at%20Dadeland%20Signed%20Order.pdf

http://www.algpl.com/downloads/Village_Dadeland_Emergency_Petition_Receivership.pdf

See also: http://74.125.93.132/search?q=cache%3A3r5bdbmq3GsJ%3Atitlecompanyoffl.com%2Fdownloads%2FMiami_Herald_September_9_2009.pdf+%22VILLAGE+AT+DADELAND+CONDOMINIUM+ASSOC.%22&hl=en&gl=us

And, of course, Fla. Stat. §718.116(6)(c):

“If the unit owner remains in possession of the unit after a foreclosure judgment has been entered, the court, in its discretion, may require the unit owner to pay a reasonable rental for the unit. If the unit is rented or leased during the pendency of the foreclosure action, the association is entitled to the appointment of a receiver to collect the rent. The expenses of the receiver shall be paid by the party which does not prevail in the foreclosure action.”

Neat stuff.

scriv

Drew:

Thanks for the link.

I agree.

While I applaud their creativity and do not want developments like the Jade to fail or fall into disrepair because investors are not living up to their obligations – – I just don’t see how the law, Florida or otherwise, permits such an action. For example, if you read the brief submitted in response to the petition for writ of prohibition (http://associationlawgroup.com/news.html) you see that the associations are playing fast and lose with statutory interpretation – – applying a substantially more expansive interpretation which includes examination of legislative intent, etc. Granted, that’s what attorneys do – – argue the law, argue the fact, and/or both. But I am still concerned that this tactic is not supported by plain statutory language enacted by the Florida legislature.

Moreover, does this “forced rent” remedy permit the association to finish a condo unit (install the floor) so that it can be rented and charge the delinquent owner for the costs? I raise this because I thought I noticed several of the units at the Jade are not completed and therefore are not fit for occupancy. Furthermore, is the proper job of a condo association to rent units in its development?

But I suppose that these and other issues will be resolved in due course.

Still, from a spectator’s point of view, this is fascinating stuff!

Thanks again for the link.

scriv