Miami Picture of the Day
February 13, 2008 by Lucas Lechuga
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LOL. Exhibit A.
Hey isn’t this the building that the developer said would be a “success”?
Did they scrap the condo and go rental?
Gosh, I wish I could own a unit there…..oh, wait, I think I can lease for less than half the cost of ownership. Silly me.
I wouldn’t even pay $1000 a month for a 2 bedroom at that horrible building. The units at Bay Parc Plaza which right next store are nicer, bigger and cheaper and the building is 9 years old!
Buyer Tom – exactly – when the math don’t work…just looking at the listings – 2 beds at $500k (well I presume that’s stale pricing…). So as a Landlord So I pay $12,500 tax and probably $6000 HOA. But the 2 beds rent for $24k a year. Hmm, so my gross yield (before funding) is 1.1%.
Assume I am cash buyer. My cost of capital is 5%. So I would have to assume, what, 4.1% perpetual growth in the asset value for it to breakeven.
Make the 2 bed cost me $300k and the math works if I assume half of nominal GDP price growth is added to the yield to make my total return.
See where are we at? Seems to be in per sq ft terms that means $250 per sq ft. And of course, that assumes 100% occupancy, 100% receipt of payment from your tenants. So better make than $200.
IMHO, these buildings are going to end up as apartment rental buildings. The only way out for those owning in them is if the new building owner buys you out to turn the whole building rental. (i.e.buy 70% of the building at 40c in the dollar and 30% at 70c in the dollar)
That’s where the money will be made in the next 5 years.
The developer won’t evict his own rental tenants for selling drugs, noise violations, dog waste, throwing stuff off the balcony because they will lose monthly rent. These new rental condos will be like a fraternity house on steroids. Sign me up!
The Midtown properties took it a step further and are offering “rent to own”. They will credit the first years rent towards purchase. I wonder if you have to make a commitment to buy when signing the lease.
The current prices Opera Tower is offering will have to drop, my estimate 20% off those advertised. Soon you will see FIRST MONTH FREE and MOVE IN WITH ONLY $500 SECURITY. Unfortunately for owners (I am one) Tenants do not always respect the properties like the owner. That sometimes means additional cost for upkeep passed onto the owners and less value for the property.
I recommend associations have the best possible management, a strong board and rules & regulation committees. If you do not keep Tenants and Landlords in check the building could turn into a mess and lose values faster than this market on it’s present decline.
We are going to need to go through this cycle like it or not. A full building can be a very healthy building, thus creating demand and value. In the end we should welcome Tenants because they will establish neighborhoods, restaurants, security and more.
I went inside the building and units. They do look horrible. This is clearly not a luxury building, but looks more like a cheap rental place. I think that the rental prices are fine, and they should rent quickly to many students and regular working people. The building has a plus that is on the bay, with some amazing views, but has a strong negative point on its location, just 2 blooks form there you are in the getto, the area needs maybe some 10 more years until it looks safe and nice. It also far away (not walking distance to nice shops, restaurants and bars).
If i have to rent, i would definitelly go to the brickell area, where there is plenty of units available for rent, a much nicer atmosphere, plenty of options walking distance, nice streets, etc.
It will be very instersting to see the next couple of years. I belive there is a lot of potential to the downtown area in the next 5 years to come.
go Miami !!!!! DWNTWN !!!!
Jan 29, 2008, Miami Herald:
“Hollo deemed Opera Tower a success, with the entire project sold out. “
Those rental prices are too high as well. You can rent 2 bedrooms in new buildings in brickell for $1800 a month and I’ve seen quite a few 2 bedrooms in Quantum and 1800 club for less than $2000 a month as well.
Julian,
I’ve never seen someone complicate math so much to get to the conclusion that the units are WAY overpriced. No need for fancy math here, that building is crap and prices are going to have to come down everywhere, especially at crapo tower.
p.s.- I agree with your math by the way.
Raffi – ha ha. Can’t help it, my profession in the equities world brought to the blog…!
Anyone has any idea how many closings have been in the building???
I can see this will be an 90% rental building