Developers Renting Their Inventory as a Last Resort
October 8, 2007 by Lucas Lechuga
The question that resounds throughout the article is whether or not this approach makes economic sense for these developers. Their hope is that the rental income earned will buy them time until the market rebounds.
The Midtown Miami development lies at the forefront of the article. Midtown 2 has had considerable problems with closings since they began in May of this year. As stated in the article, I have found only 179 closings for their 338 total units. The class-action lawsuit against the developer by contract holders certainly hasn't helped matters. However, the root of the problem lies in the fact that the preconstruction prices offered by the developer were much too high for that neighborhood. Units were sold with a promise that the neighborhood would somehow be transformed within three short years. The reality is that the neighborhood is still at least another 3-5 years away from delivering on that promise. Initial prices at Midtown 2, and Midtown 4 for that matter, were higher than more desirable Brickell condo developments such as Plaza on Brickell, 500 Brickell and Axis.
Sandra de la Torre, a sales agent at Midtown Miami, stated in the article that 20 developer units were available for rent and 20-25 were available for sale. I highly doubt that this is the only inventory that the developer has in his possession, given that only 179 closings at Midtown 2 appear in public records. It is much more likely that at least 30 percent of the building will eventually be available for lease through the developer. I haven't heard anything lately regarding the class-action lawsuit, so maybe it is still pending and a large portion of the unaccounted units can be tied to that.
Rental prices will need to be quite attractive at 2 Midtown in order for potential tenants to be enticed into signing a lease there. Many more options will become available for renters in the upcoming months in more desirable neighborhoods at attractive prices. In the Miami Arts District, The 1800 Club, in my opinion, will drive rental prices down throughout the neighborhood once closings begin and investors eventually opt to lease their units. The prices at The 1800 Club were quite attractive when sales were initially launched. This is one condo building where it might make economic sense for the developer to rent its remaining inventory. The neighborhood immediately surrounding The 1800 Club has a greater chance of rebounding within the next couple of years than that surrounding Midtown Miami. Vulture capital funds should keep a close eye on The 1800 Club because it could become the ideal development to invest in future months if prices dip below initial preconstruction prices.
Plaza on Brickell and Axis are two condo developments in Brickell that will drive down rental prices throughout the neighborhood once they are completed. Both were attractively priced and will ultimately provide Brickell renters with highly competitive rental prices. Both developments were backed by a high percentage of investors who will also likely lease their units to wait for the next upturn in the condo market.
The Sail on Brickell was also mentioned in the article as being another development that has sought to rent its remaining inventory. I was not aware that Renzi Development had failed to close on it 152 total units until I read this story. I wasn't surprised, however, given that it is a second-tier condo development in Brickell that has been riddled by mortgage fraud. As a result, the Sail on Brickell will no longer be included in the Brickell Condo Index. It will eventually be replaced by Latitude on the River once it has closed on all of its units.
As for Midtown 2, I think they'll be lucky to get rental rates of $1.75 per square foot. The "rent and wait" option doesn't make economic sense for this development, in my opinion. The developers of the Sail on Brickell, which doesn't reside on Brickell Avenue, will also have difficulties in making their rental numbers work. I think one bedrooms there will eventually rent for around $1,250 per month.
what is a second-tier condo development.
i will be closing on a 1,485 s/f, 2/2 condo at the sail w/in the next 2 weeks, as a primary residence. got it for 379,000.00. it appraised at close to 500,000.00. what do you think??
Can you also address the Sunny Isles and Aventura developments and markets?
Not any time soon. The coverage I have now is time consuming enough.
Great write up, maybe the developers will be able to at least collect enough money from the rentals to run the condo association. I love your blog Lucas but I am just surprised that no one talks about the biggest issue with not enough apartments closing, that there will be special assessments and no money to run the common areas in all these buildings!!!! If I was Jorge I would run away from my deposit and cut my loses unless I bought that place to live in it, can afford it and plan on holding it for at least 5 years
I live at The Sail in Brickell, the one that Renzi have and Renzi development hasn’t done anything right yet. I moved in in sept. 2007 and from that date my life ,regarding my appartment in The Sail, should turn out to become a hell. I rent directly from Renzi and there’s all kind of faults in the building that they won’t repair. Rumoured says that they haven’t paid workers and other bills for at least 4 weeks now.
Be carefull not to deal with Renzi, they will try anything to bend the contract and they are not afraid to lie directly to your face.
I’m lucky that I only rent….
long story short: A few years ago and I have to say a few years ago .. I went into contract to purchase a pre const condo from Renzi’s developement, The Blue on Coral Way ( they said it was 70% sold at that time ..ha-ha) – 2 years later it still wasn’t built – one day i rcvd a letter stating they were raising the prices 20% b/c they could not get financing fron the banks oh and the hurrican made it hard for them to continue ( they still had not even started) . They stated they we needed buyers to sign new contracts and up the sale price oh and they insisted the condos were now selling for way more $$. I’m a lucky one. because i am in the real estate business and challenged them on everything. I got all my deposite back and till this day the building is not complete. sorry not enough time to get into all the details – but Renzi Developement and staff use are best left alone!!!No not do business with Renzi ….get your money back!!!
I invested in Renzi´s BLUE and got scammed. They still have my money. Is there anything I can do?
I am assuming that you signed the new contract- and if they proposed completining date as stated on the new contract has come & gone. Then they did not meet their obligations to the contract. Therefore, you are entitled to a deposite refund. Ask them who their attoney is ( i will look for my old documents) their attoney is that is holding the funds and write a simple letter ( send certified /return recpt) – stating to return your funds being held in esrow. If you did not sign a new contract then send the letter today.
So I believe that Renzi development likes to hold deposits!!!!! they are holding mine as well. Did anyone find out whom their attorney is? i’ve sent letters, made phone calls, done all but sue. Terrible terrible issue with this company!!!! anyone please help