How Bad Can Things Get for the Miami Condo Market?
July 21, 2007 by Lucas Lechuga
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:
- A significant percentage of contract holders will walk away from their deposit money.
- 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.
- Developers will fold.
- Developers will then pass the short end of the stick to the banks holding the construction loans.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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?
Of the 17 Jade units in foreclosure, it looks like only 2 have gone thru the foreclosure and the banks acquired them.
As an example, in one the ’04 original price was $840,000, then it sold 2 years later for $1,150,000, then sold 2 months later for $2,080,000 (fraudulent?). This buyer was foreclosed on, and the bank got a judgment of $1,029,956. The bank sold it in March for $1,133,000. That’s $654/sf for a 1730 sq. ft, 18th floor, 2 bed, 3 bath, tax assessed at $816,000.
Seems like a pretty fair price, which shouldn’t devalue this beautiful building. How does someone sell for a $930,000 profit in 2 months. Lucas, if it’s legal, I want in on that!!!
I think everyone would want in on that if it were legal. Jade is a fantastic building. It is unfortunate that the mortgage fraud that occurred there has tainted its reputation. I think banks will realize in the upcoming year that mortgage fraud in Miami was much more prevalent than they initially suspected. I also don’t think they realize the great number of foreclosures that will occur. In the past month, I’ve noticed that some banks are not very willing to work with homeowners going through foreclosure. They want what they’re owed and that’s that. This attitude will change tremendously in the upcoming year.
The good news is that much of the “doom and gloom” will occur behind closed doors. It will happen fast. There are vulture capital funds in place who have been waiting for this very opportunity for years. Once the first one takes a bite then all of the others will swoop in.
These fund managers should wait until the very last moment. 50 cents on the dollar might seem fabulous but 20 cents on the dollar is not out of the question. Hold your ground and the others will follow. The banks are at your mercy; not the other way around. The credit crisis enfolding on Wall Street will create opportunities for these vulture capital funds that are unimaginable.
To answer your question, the deals lie within the older buildings. There is just too much uncertainty with the newer buildings. A developer mentioned the other day at our open house that it is impossible to build something now at $350 per square foot due to the high construction costs. Anything at $350 per square foot or less in Brickell is a bargain. Only the older buildings offer these types of deals. You just need to make sure that you buy into a building that is well maintained and has had a recent special assessment that has already been paid.
Lucas – I don’t know if I should continue to be concerned or excited with this news. In the end, it is what it is, and it would be great if it just happened as fast as possible. How are you defining a good deal for someone who is ready to buy something today, but may be hesitating because they are reading to much doom and gloom news in the press?
Jade sold at about $500 a foot presontruction, which at the time I thought was greatly overpriced. In April 2005 there were 5,125 Condos on the MLS, now there is about 23,000 Condos on the Market add to that the 37 New Condo Buildings that represents another 20,000 units coming to the market. With the recent crisis in the Subprime Market I dont see how these Hedge Funds are going to get in any time soon, the cost of capital is rising and many of these funds will shorts the REIT index, but speculation cannot be certain until we see forclosed properties bulk up in banks and they go off at auction which could happen before the Capital Funds get in
I closed on a unit in the Platinum recently and decided to lease it out. Realistically, what is the low end and high end one can expect during the auction they will have on 9/20? If it’s worth my while…I may buy another and rent it out as well. Although I’m concerned the rental market inventory will become just as bad and the units may sit empty longer once the other projects come to an end….
Your question is the million dollar question. I have buyers who want to attend the auction with me but will only buy if the price is right. NBC6 will be covering the story next Friday. Condo owners at Platinum Condominium (with the exception of those who have read my blog) do not know about the auction. They will be notified at next Thursday’s meeting which is why NBC6 has to wait until next Friday to reveal the story. Let’s just say that I expect some units to be acquired for positive cash flow if they are rented.
Actually, I was there today for the final touches, and there is a huge banner that has announced the auction…this is how I know of it.
Really? I’ll have to check it out tomorrow. I was told by NBC6 that the auction house was planning to notify the building at next week’s condominium meeting. I guess they already know about it. That’s news to me.
They had an open-house this weekend for the unsold units. The building looked nice. But why would anyone buy one from the developer now when they huge banner on the top floor clearly states the units will be auctioned off.
Weird to me…but I’m just glad I was able to get the apartment leased.
I heard that the open house this weekend was an opportunity for potential bidders to inspect the units prior to the auction. I also heard that there will be another open house closer to the auction date. Who knows though.
Hi Lucas,
I bought a unit at Midtown 4, wondering if you have heard anything. Supposedly they are starting a resale program in October. Please let me know if you have the inside scoop. Thanks
Jeremy,
No, I haven’t heard anything about a resale program. I’d be very surprised if that happened.
I am looking to lease a unit at 900 Biscayne. Specifically a 2 bed plus den/3 bath on the 27th floor. Any idea what this type of unit will rent for?
Thanks,
Raynard