Icon Brickell Developer Agrees to "Friendly Foreclosure"
May 12, 2010 by Lucas Lechuga
Yesterday, The Related Group and its lenders agreed to a "friendly foreclosure" for Towers 1 and 2 of Icon Brickell. This video provides our commentary as well as the details pertaining to the agreement.
I guess KW Realty lawyers are nervous about another Tibor Hollo-like lawsuit…that may be the most ridiculous, all-inclusive legal disclaimer I’ve ever read.
Drew — I was just thinking the same thing. Gotta love the lawyers.
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Lucas — Nice job with these videos. I’m still not overly bullish about the Miami market, but I admire the effort you put into this site, the videos, etc. Really well done.
Thank you Joe! I appreciate it.
Keller Williams isn’t even aware of the videos yet. I decided to add the disclaimer myself. Figured it’s better to be safe than sorry later.
Historical failure. Memories of 1980.
Wow! The proverbial pink elephant of real estate goes down! Darwin rules!
It’s about time. Not that I want to see this or any building go under. But these artificially, and unrealistically, bloated prices need to be adjusted; putting them more in parity with the supply and demand curves operating in Miami’s real estate market. Foreclosure, though a bitter pill, is the only way that this is going to happen because of the legal obligations involved.
scriv
I read in the miamiherald that related group will manage the properties still. So I don’t know if this is an iconic failure or not. related group will still make tons of money without having the large loans to repay.
It will be interesting to see what HSBC does, I assume a few large bulk sales.
They do not have to do bulk sales though it might happen. Just realistic prices like Infinity did and condos will be purchased.
I agree with Elvis. Hardly an epic failure and prices most likely wont go down much.
Icon has been selling gangbusters since the beginning of this year. They sold over 300 units in the first four months selling 126 units in April alone. Now the current prices may not have been enough to keep it in the hands of the Related Group but I don’t see anything indicating that HSBC is going to need to lower prices further. A bulk sale would definitely help speed up the process but other than that I would assume that with sales clearly picking up they would just sit back and see what happens.
what is going to happen to all the peoplw who own units there?
While the overall project over time may not be deemed a “failure,” it definitely was a failure from the developer standpoint. Millions of TRG’s and/or their limited partners’ $ was wiped out.
They went from being the owner/developer to property manager. That’s like going from company president to company janitor.
Good job on the video Lucas.
I agree with Lara, Elvis and Gixxer 1000. The foreclosure process is more of a legal formality. For those Bears still sleeping in the woods, there is only one direction that the condo market is going and that is up. Maybe at a much slower and disciplined pace, but up. We are coming out of a very big recession and absorption of condos in the Miami market will take time.
DML
Price adjustments may occur, but not too much.As much as I would like to see 2bd going for 300k adn 3 bd for 500k, it is highly unlikely that is going to happen.
Icon Brickell is a great project and in the future willl be a landmark in Miami.
Bad timing and not a project for the average buyer, though.
I wonder why they only seized towers one and two? any ideas?
DML, I agree with you. Things do appear to be on the rebound here for the most part. What surprises me is the speed at which we got to this point. A year to six months ago the majority of posts on here were from “doom and gloomers;” a lot of them talking about prices dropping another 50% and a recovery taking 10 years or more.
I wouldn’t say we’re out of the woods yet, but things are stabalizing, and some select buildings or general areas are seeing modest price increases. Recovery will be slow and prices aren’t gonna shoot up anytime soon, but I don’t think anyone is expecting that. Also kinda funny that the doom and gloom crowd seems to have packed up and left.
DJ, I concur. 6-12 months ago, someguys were predicting that it will take years and years for the 22000 condos to get sold by the developers. but by spring 2010 most developers are running low on inventory. By the end of 2010, I predict there will be no developer owned units left. What an astonishing turnaround! In 2 short years since Lehman implosion and a severe recession, we are singing an altogether different tune.
Oh, not all doom and gloomers have left. Joe and wild bill are still stuck in the past and darkness. would someone crack open their basement vent and let some light in please (and tell them it is bright and beautiful outside, do not be afraid, come out gently, you are safe).
Lucas, I don’t like the videos. It’s harder to be discrete about my time-wasting-web-antics-at-work while listening to a video. Its much easier to look busy reading a screen vs listening to a video!
Sloth:
My guess is that this is why the foreclosure was so “friendly” …. just a guess. I am assuming that the Viceroy is merely a tenant/operator and has no material ownership stake. Under such a scenario, Viceroy came in, with its brand name and reservation system, to operate the hotel aspect of the development. Under such an assumption, Related retained the rights to the profits, operation and management of Tower 1.
Put another way: Related and its lender “divided the pie” and Related got what it thinks is the part with, at least on a near-term basis, the least amount of mold on it; where as its lender walked away with towers 2 & 3, where the economic future is less predictable. Only time will tell who was correct. Again, it will be interesting to see how this pans out.
Just a guess. Again, I could be “tilting at wind mills.”
scriv
Tower 3 has a different lender. There may be ongoing negotiations there, too.
The lender behind Tower 3 is Bank of America. A syndicate of lenders led by HSBC were behind Towers 1 and 2.
SouthBeacher,
If you watch the videos on the YouTube website you can use the “transcribe audio” feature so that you can read the speech instead of listening to it.
Boy, you guys are a bunch of dreamers. Now I know how the Miami market got so overheated in the first place.
If you think foreclosure is “just a formality” or that this bank is happy to be the proud new owner of over 1,000 unsold condo units, you’re out of your minds.
Still way overpriced. To bad for all those 400-500 people that rushed to buy in now.
Bottom line is if these were realistically priced in the 200k – $350k they would sell just fine and prob sell out very fast.
No one talked about HOA dues on this and now it’s low cause the bank’s covering it all but can you imagine once this get’s turned over to the condo board how the HOA fees will sky rocket!!
Also on another note I checked out Infinity and honestly wasn’t very impressed with the units themselves. Bldg seemed nice and all but the interior of units seemed liek the layouts were very small even the bigger units w/ more square footage wasn’t all that great. Funky shapes and angles that render living space almost useless.
Joe:
You are so correct!
Foreclosure ain’t no mere “formaility.” Rather, it is financial Darwinism in action- – Nature’s way of killing the weak as well as redistributing, revaluing and restructuring their assets.
I agree with you one-hundred-and-ten-thousand percent that the lender is not happy to be the owner of these units. Nor is the building’s HOA, I imagine. This property was horribly over priced, over hyped and, simultaneously, under-planned, thought out and designed. But it did make a nice set for a scene from Burn Notice….didn’t it?
As I have said in the past, we live in interesting times. The developers learned from the mistakes they made during the housing boom that occurred in the 1980’s. This time around, it is the lenders that are getting stuck holding the bag; as the developers go into foreclosure and walk away from the architectural monstrosities they have created, leaving the lenders to dispose of the units on the open market – – and dispose of them at a loss, I note.
It will be very interesting to see what happens at this development as, according to the articles found at the links below, the unit prices have declined from $600 per sq. foot to $400 per sq. foot.
I highly recommend to all to treat this as an intellectual feast, not an economic train wreck: don’t just sit there and gawk; pull up a chair, grab yourself a slice of bread and commencing sopping up the gravy-laden brain food because THIS IS NEAT STUFF GUYS! This is financial, economic, and, potentially, regulatory history in the making!
With this in mind, here are three articles from the Wall Street Journal on the deal.
http://blogs.wsj.com/developments/2010/05/12/banks-bring-in-more-marketing-muscle-for-miami-condos/?KEYWORDS=icon+brickell
http://online.wsj.com/article/SB10001424052748704247904575240560258282620.html?KEYWORDS=icon+brickell
http://online.wsj.com/article/SB10001424052748703339304575239952028236116.html?KEYWORDS=icon+brickell
Happy Friday to all!
scriv
Don’t worry, the “bears” aren’t dead! One has to ask oneself, if the condo market has already bottomed and on the upswing, why this huge foreclosure, “friendly” as it may have been? This was THE project and so ICONic of the housing bubble as it goes belly up. They were one that people thought could “hold out” and “go the distance” and that “no way” the project would go into foreclosure. Oh, if we could only believe the hype.
Clearly, the condo market in our area is still bottoming. From there it will remain anemic. There will be no jump up in prices even when the huge inventory clears. I personally believe that a lot of these buyers…esp the cash only buyers…are buying for portfolio diversification more than anything given the continued economic (and monetary) uncertainties our there. I would be interested to see what percentage is primary residences and how many go on the rental circuit.
With that said, there is no harm in getting more serious about condo buying but that doesn’t mean prices won’t go down some more. Most of the price declines have already occurred. Personally, I have been interested in a few short sales. Will see. Again, no rush…
There is really no point in arguing back and forth if prices were too high, if there was a condo bubble, if prices will bounce back up so get in now, etc. If it ain’t clear to you by now what the situation is, then there is no hope for you.
From first hand experience, I would say that 75% of the new buyers in brickell are from south america and they all buy CASH. They are diversfying out of south america and into the dollar. Some even have to buy dollars on the black market to close in the states (cough, chavez, cough).
Crazy as it seems a busted condo market is a safer bet in the long run then holding argentianan, columbian or venezualan pesos. At least you know the dollar won’t evaporate.
reader, you may be right. but for a second home which is an investment, taxes and hoa are a brutal cost to pay unless you can expect rentals to cover that cost plus interest on the cash. if i were south american, better move is just to park in short or medium term bonds. they must have alot of faith in real estate appreciation over the next decade. guess that is where many on this board disagree with each other.
http://www.aolnews.com/money/article/with-tax-incentive-gone-home-sellers-looking-to-deal/19476702
Nationwide, the actual price reductions average 10 percent, but in many major cities they are well above 10 percent, according to the numbers Trulia.com released this week.
But in May, after the tax credit expired for most Americans, 12 of the largest 50 cities across the nation had 30 percent or more of their listings experience price reductions. By contrast, in April, only five cities had 30 percent or more listings with price reductions.
Among the nation’s largest cities, the steepest price reductions came in Detroit, where they averaged 24 percent. Average price reductions were 15 percent in Las Vegas and Miami; 13 percent in Phoenix; 12 percent in Cleveland and Mesa, Ariz.; 11 percent in Baltimore, Jacksonville, Fla., and Fresno and Oakland, Calif.; and 10 percent in Los Angeles, Atlanta, Washington, Sacramento, Calif., and Tucson, Ariz.
Gables –
I am sure some of these players are doing that as well. I agree with you and that is partly the reason I have not bought a condo as I would just rather store my cash somewhere else at the moment.
Second reason is that studies show that in order to come out ahead of a renter in the rent vs. buy scenario, a buyer needs to stay in their residence for at least 7 yrs. After that though its exponentially better for the buyer, the problem is getting to the 7 yr mark.
gables – My take on the S. Am. buyers are that a condo purchase in Miami serves several purposes most of which make the economic/investment component irrelevant to the decision. Sorta like building a bomb shelter that doubles as a vacation pad and preservation of wealth. Owning a home outright in the States offers peace of mind…and a way to launder money (before more political upheavals)…so the taxes and HOA dues are minor in comparison.
I agree completely with Renter Tom’s post #28. People need to remember that a lot of the people from Mexico and Central and South America who buy condos in Miami aren’t exactly spending hard-earned dollars to do so.
As was true in the ’80s and ’90s, many if not most of them are simply looking to stash the money somewhere, preferably somewhere that gets the money out of their home countries (and currencies). Being able to stash the money somewhere “safe” is worth any potential losses on HOA fees, opportunity costs, etc.
RT, also won’t disagree with you. but you may pay 4% on your capital to hold that property, plus loss of use for additional income. my point was if you are simply moving your money from an unstable to more stable environment-RE is not the best move. but i certainly understand the nonfinancial incentives as well.
reader, the 7 year argument will be put up for discussion in the coming years. in the days of yore, people held a single job in one area long enough to reach 7 years of home ownership. i myself have held 4 different jobs in 4 different cities in the past 7 years. this is why so many folks, just like me, have been leery of buying into a market. if you know you wont take a loss, you can do it. but in an era of deflation, real estate can be risky for many upwardly mobile professionals.
Just to continue my thought from my last post (~ #29), one of the problems with foreign buyers in Miami’s r.e. market is that they don’t have as much skin in the game as buyers from the U.S.
During the boom, a lot of foreign buyers bid up the value of Miami r.e. by getting cheap mortgages from which they could (and often did) walk away scot-free (unlike Americans whose credit rating would tank under similar circumstances). Now, a lot of the foreign cash buyers seem to be spending their ill-gotten cash profligately, which also skews the market unfavorably for local buyers.
If it’s true we’re at the bottom of the Miami r.e. bust but foreign buyers are the ones snapping up many or most of the condos, I don’t see how that’s good for Miami as a whole. All that will do is turn these allegedly upscale, luxury “residences” into glorified rental buildings.
Renter Tom- Welcome back. Why the hiatus?
Since your persona in my mind is that of a 65-yr old man, I thought maybe you had died.
Reader hit the nail on the head! Foreign buyers from some of the Latin American countries have more important financial and risk management goals other than just trying to get a decent return on a real estate investment. The flight capital from some of these countries has and will continue to impact the Miami real estate market.
Drew – Thanks for the diss…perhaps if you divide that in half you’d be a heck of a lot closer to my age. Just thought there was no point in posting with all the nonsense posts…cutting and pasting entire articles versus just a short quote and link made it sorta unreadable and tedious. Clearly there is no point in arguing about the real estate market here since it is intuitively obvious to the most casual observer what is going on. Prices are on a “rebound” now or next year. Perhaps I was just waiting for the miamicondoinvestments iPad app! Actually, Safari works great on the iPad so no app is needed.
Joe – #31. Right you are. I have heard it from the lips of many non-Americans that they will just not pay there mortgage, HOA, or any of the loans they took to take cash out….they will simply live for free for a year or so, bank the saved cash (not in the bank they got the loans from!!!) then go back to country X. They don’t give a darn about a credit score. Banks were STUPID to give loans to these people and now it will just be that much harder for foreigners of good will to get a loan.
Now back to my hiatus…. 🙂
Intersting points being made about south americans parking their money here. Makes perfect sense. I think this current recession taught us all that we’re not bullet-proof, but at least we have the luxury of having a relatively stable economy. Granted, real estate might not be the best investment for a wealthy south american, but I guess the added bonus of having your investment also be a vacation home in Miami is appealing.
RT, welcome back dude. Let’s hear about the short sales you’ve been looking at.
well RE prices in Miami/USA are closer to bottom..upper end sofla homes would need another 20% cut before price/rent mismatch disappears..and this in the face of 20% un+under employment is a cinch…
But major harikari in RE is going to happen abroad…massive price plunges in canada, OZ, UK,China, India etc are coming…Brace for it…
andi — I agree about the pricing of upper-end Miami r.e., but I haven’t seen much movement to that effect so far. I guess wealthier speculators/investors can hold out longer. There are high-end buildings on the Beach at which there have been no more than 2-3 sales all year, but prices are still holding at the crazy boom-era levels (or thereabouts). Some of these buildings are still easily 50-plus percent investor- and/or developer-owned. It will be interesting to see what happens over the next 6 months.
More info regarding cash buyers:
According to CondoVultures cash buyers made up 83% of the sales in downtown.
“Right you are. I have heard it from the lips of many non-Americans that they will just not pay there mortgage” Renter Tom
If true, that is a truly disappointing fact. But, like they say, money can’t buy many things….among which is class.
My concern for South Florida real estate is, however, not so much the individual loser/purchaser who decides to flip their lender the bird and walk away from their mortgage and HOA obligations. Individuals are easier to deal with.
My concern is the financial stability of these financially strapped “luxury” condos whose units have been bought in bulk by LLC’s because, should the owners of the bulk-buying LLC’s decide to flip their lender and HOA “the bird” and not pay their mortgage and HOA fees, these buildings face a coyote-ugly problem as collecting from an LLC is difficult, to say the least.
As a professor of mine used to preach at us when I took asset protection: it is easy to get assets into a corporation. Getting assets out … that is the tricky part.
Again, we live in interesting times here folks. Enjoy it.
scriv
I agree on the upper priced condos…most have held firm on pricing BUT they are not selling! So, we shall see the price declines in that area of the market continue for some time.
Renter Tom — Have you actually been seeing downward price movement in the higher-end market (especially in Miami Beach)? There have been so few sales, especially in my main areas/neighborhoods of interest, that it’s hard to tell what the hell is going on. Just from the MLS, it looks like a big stalemate.
Inventory and sales on a percentage basis are actually better in Miami Beach when looking at higher price points.
Inventory at the end of April for Miami Beach:
All units (2841 units) 149.16 average sales per month = 19 months
0 – $200k (868 units) 59.16 average sales per month = 14.6 months
$200 – $299k (456 units) 27.83 average sales per month = 16.38 months
$300 – $399k (372 units) 19.16 average sales per month = 19 months
$400 – $499k (252 units) 10.16 average sales per month = 24.8 months
$500 – $750k (344 units) 12.83 average sales per month = 26.81 months
$750k+ (549 units) 20 average sales per month = 27.45 months
As compared to the rest of Miami-Dade without Miami Beach sales:
All units (13073 units) 824.66 average sales per month = 15.85 months
0 – $200k (6957 units) 601.67 average sales per month = 11.56 months
$200 – $299k (41855 units) 91.5 average sales per month = 20.27 months
$300 – $399k (1180 units) 39.84 average sales per month = 29.61 months
$400 – $499k (716 units) 23.84 average sales per month = 30 months
$500 – $750k (919 units) 33.5 average sales per month = 27.43 months
$750k+ (1446 units) 16.72 average sales per month = 86.48 months
In all the price segments at $200k and above Miami Beach has less inventory. And you can really tell the difference the higher you go. For instance when you look at condos priced $750k and above there was an average of 16.72 condos sold per month in ALL of Dade county excluding Miami Beach. However in the same time frame there was an average of 20 condos in this price range sold in Miami Beach alone. So in this price range while Miami Beach only makes up 27.5% of the market it made up 54.4% of the sales. Same thing with the $500k – $750k price range. Miami Beach makes up 27% of the market but 47% of the sales.
The majority of the price declines in the upper segments will probably be in the units away from the beach.
Joe – Had looked at Sunny Isles Beach area … on the beach … be sure to check out the list prices versus what they actually sold for.
Gixxer 1000 — Not sure what your point is re: the above chart. Miami Beach is the highest-priced area of Miami’s r.e. market, so if you exclude Miami Beach, it skews the numbers. No big news flash there. You also didn’t break the inventory down into more revealing segments, e.g., $1,000,000 to $2,000,000, $2,000,000 to $3,000,000, etc. Miami Beach has well over 5 years’ worth of inventory in the truly high-end segments, which you hid by including those units in a catch-all $750,000-plus segment.
The point I (and Renter Tom, et al.) have been making still stands: Unlike downtown, which has seen big price cuts and a lot of sales, the high-end market in Miami Beach is almost entirely stagnant. As a recent Miami Herald article (just posted in one of the other threads) pointed out, just *17* new condos were sold in Miami Beach in Q1 2010. That’s an atrocious sales rate / stagnant market by any measure.
Another month-over-month home price index decline…the “double dip” is on…..or really the one large slide continues with a small government induced bump on the way down. Knife catchers…..
Joe,
“The point I (and Renter Tom, et al.) have been making still stands: Unlike downtown, which has seen big price cuts and a lot of sales, the high-end market in Miami Beach is almost entirely stagnant. As a recent Miami Herald article (just posted in one of the other threads) pointed out, just *17* new condos were sold in Miami Beach in Q1 2010. That’s an atrocious sales rate / stagnant market by any measure”
First my point was pretty clear. Miami Beach is in a much better position than Downtown or the rest of Miami-Dade county for that matter.
Second, you need to learn how to read properly:
“On the sands of South Beach, sales of new condo units are sluggish, with only 17 closing in the first three months of 2010.”
17 NEW condos were sold in SOUTH BEACH. This doesn’t count resale properties only new condos from developers. And it’s only for SOUTH BEACH not MIAMI BEACH.
There were 267 condo sales according to the MLS in the first quarter 2010 in MIAMI BEACH. 52 of those sales were priced $750k and above. Those sales don’t include the 17 developer sales from South Beach that you were referring to.
So my point is that while yes there is currently only an average of about 20 units priced $750k and above selling each month which seems low, there are only 549 of these units currently available in Miami Beach.
“You also didn’t break the inventory down into more revealing segments, e.g., $1,000,000 to $2,000,000, $2,000,000 to $3,000,000, etc. Miami Beach has well over 5 years’ worth of inventory in the truly high-end segments, which you hid by including those units in a catch-all $750,000-plus segment.”
Here they are broken down by price segments according to Lucas’ last suppy update.
$750k – $1m: 137 units (6.33 units average) = 21.6 months supply
$1m – $2.5m: 275 units (11.17 units average) = 24.61supply
$2.5m – $5m: 94 units (2 units average) = 47 months supply
$5m – $10m: 36 units (.5 units average) = 72 months supply
$10m+: 7 units (no units) = can’t calculate
So the first price segment to approach your “well over 5 years supply” remark would be the $5m – $10m category. “OMG there is 72 months of supply, thats OVER 6 YEARS!!!!” But at some point you have to use common sense to see there are only 36 of this units available. Your talking about only 36 units.
Miami Beach just doesn’t have the supply issue that downtown does. Then add in the fact that while downtown is getting more popular, it still ain’t the beach. Miami Beach is more desirable which opens it up to more buyers.
Since the high end segment doesn’t “truly” start until $1m there are only 412 of these units currently on the market. If the owners of these units were able to hold out this long while prices everywhere else were dropping why would they start dropping their prices now when prices are stabilizing????
“Another month-over-month home price index decline…the “double dip” is on…..or really the one large slide continues with a small government induced bump on the way down. Knife catchers…..”
What in the world are you talking about??? First off, new price index numbers don’t come out until next Tuesday. Second, the home price index is always two months behind so even when those numbers do come out Tuesday the numbers will be for the month of March.
http://www.standardandpoors.com/indices/sp-case-shiller-home-price-indices/en/us/?indexId=spusa-cashpidff–p-us—-
They took down the numbers for January and February 2010 so right now they only have the numbers up until December 2009. However I wrote them down in a previous thread:
February 09 154.23
March 09—-148.75
April 09 —–145.78
May 09 ——144.59
June 09 ——145.38
July 09 ——-147.27
August 09 —-148.91
September 09 149.69
October 09 —-149.09
November 09 -149.08
December 09 –148.66
January 10 —–148.32
February 10 —147.52
I wouldn’t be surprised if the January and February 2010 numbers were revised up, but even if there not were still up from the low of 145.78 in April 09 and we don’t have any numbers close to today to know if were currently going up or down.
Further info as evidence against current price declines:
http://dqnews.com/Charts/Quarterly-Charts/Miami-Palm-Beach-Charts/ZIPFLDADE.aspx
If you look at zip code 33131 which covers Brickell and the main portion of downtown it posted ANOTHER quarterly increase.
Gixxer 1000 — First, I love how you cherry-pick the data you use in your little rebuttals. The discussion we’ve been having here has been re: new condos, so I don’t really care about the resale numbers.
Second, how do you figure high-end prices have “stabilized” when there aren’t any sales happening in those segments? Again, there were *17* sales of new condos in all of South Beach* for Q1 2010. Entire buildings have gone 60 to 90 days (or more!) without a single sale. Does that sound like a “rebounding” or “stabilized” market to you?
(* You do understand the difference between “South Beach” and “SoFi,” don’t you? South Beach encompasses something like 150 square blocks of Miami Beach, in which hundreds of new condos are available, including many buildings at which 50 to 75 units are available.)
Third, I’m sorry I said “5 years” instead of the correct 3-4 years when I spitballed a calculation of Miami Beach’s high-end inventory, but my overall point remains valid: Miami Beach has a SEVERE backlog of high-end inventory. You can argue this until you’re blue in the face, but no amount of little charts and tables will change this fact.