Jorge of the Jungle
September 26, 2007 by Lucas Lechuga
Of the 6,951 condos scheduled to be delivered within the next 17 months in Brickell, the new inventory represented by The Related Group of Florida roughly amounts to 50 percent. Matt Allen, chief operating officer and executive VP of The Related Group, indicated in yesterday's Miami Herald article about the Platinum Condominium auction that The Related Group would never resort to utilizing the auction system to sell defaulted condo units.
This statement is neither inaccurate nor misleading for a number of reasons:
- The Related Group is known to leave money on the table for investors. Their preconstruction prices are, for the most part, well below those that were offered at comparable developments in the area. Some developers sell their preconstruction inventory in batches, with each subsequent group of condos sold at a higher price per square foot than the preceding batch. The Related Group, however, sells out in one day and moves on to their next development.
- The Related Group is a highly reputable developer. Reputation goes a long way in this business. Many investors made a lot of money by investing in developments that were tagged with The Related Group name. Thereafter, investors blindly endorsed deposit checks to them for preconstruction condo units solely based on their reputation. Their reputation would be highly damaged if they ever sold their unsold inventory via an auction.
- The Related Group is well connected. They will never utilize the auction system because they have strong ties to the investment community. George can make one to two phone calls and have the excess inventory from his developments disappear at much higher prices than what can be obtained through the auction system. As Matt Allen stated in the Miami Herald article, "When you have an auction, the bottom feeders come out".
- My high school pitching coach taught me that pitching is just like real estate. It's all about location, location, location. The Related Group has an uncanny knack of choosing the best locations upon which to develop.
It is inevitable that even a developer as highly regarded as The Related Group will have a high number of defaults. However, their excess inventory will likely be swallowed by investment groups looking to buy at a discount. It will happen so fast that the public won't know about it until months after.
Allof the Related projects you mention are downtown & midtown areas…… What about SB and particually SoFi? Viceroy? Apogee? Heard tht Viceroy might not go…….?
Lucas,
One would think by reading this that you are drinking Related’s Kool-Aid.
What you say doesn’t make sense for one reason:
If Related left “money on the table” then they wouldn’t have to worry about fall-out rates, correct?
I can assure you, The Plaza on Brickell will be a disaster. Approx. 700 units did sell out in one day “ish” primarily to speculators.
It was the market propelling Related not the other way around.
Related enjoyed the boom and will have to deal with the “walk-aways” just like every other developer.
The only buyers out there now are a few end-users and individual speculators/investors and the institutional investors are waiting on the sidelines—probably well into 2008.
The only thing Related can do is rent the units or sell that at what the market deems “market value.”
There is no hype anymore—this is reality.
I agree CEO Perez is biilionaire he does not need to do auctions. He is loaded baby and has a huge influence and connections. He will find the way to sell it
I’m replying to your first post (“Jorge in the Jungle.”
I could not agree more with Lucas. Sellers need to decide if they are selling, and eat their losses. It is pointless to look at the listings and price your unit accordingly. The listings are not moving, in case anyone hasn’t noticed. Therefore, the list prices are irrelevant, except to perpeuate mortgage fraud.
I’ve sold two condos since slightly before everything hit the fan. One went at a good price, one at a price that I could not believe (20% lower than I thought it would fetch). The key thing was that in each case, there was only ONE offer.
Forget bidding wars – buyers are rarer than hens’ teeth. I have one remaining condo to sell, and I am pricing it way more than 5% below market, just to move it. It’s not in Lucas’s target market, but I will be so glad to be out of real estate ownership and the landlord biz.
I’m renting at the moment, and I could not be happier. I know what my landlord paid, and in the present market, he is looking at a 20% loss on the original price, plus losing at least $10K a year (after taxes) on renting to me – and he still faces the assessments, the insurance increases, and the bills if anything major goes wrong.
I understand how he feels – it’s precisely why I sold.
Also, a question for Lucas and everyone re: Related Group projects. The Lofts at Downtown look very cheap on a PSF basis. Is this because they are in a bad neighborhood, or because you have to listen to the mass transit system whistling by and damaging the foundations every few minutes?
Lucas,
Related might be a brilliant developer, and they might be well connected. But their inventory will be hit by the market just as brutally as everybody else’s. What difference does it make if Related quietely will sell their unsold inventory to some hedge fund or anybody else?
This buyer then will have to deal with the problem and it will be this buyer who will conduct some sort of sell off. What other choice does he have? To rent out does not help as long as you have a price basis of 400 $ per sqft or more. There is no way to carry inventory without loosing money if you are in for that amount.
Unless a miracle happens and 40,000 new buyers show up and want to actually own and live in a Miami condo, the market will be in deep trouble.
Kevin,
When I said that Related is known to “leave money on the table” that has nothing to do with the present time and the number of defaults that can be expected. It just means that they don’t try to squeeze every last penny out of each project. They sell out and move on. It wasn’t meant to infer that the money is still on the table.
They will certainly have a lot of defaults. I even said in the last paragraph that “It is inevitable that even a developer as highly regarded as The Related Group will have a high number of defaults”.
The point of this post was to say that The Related Group will never use the auction system to dispose of defaulted units. The Related Group has the same problem that other Miami developers have: a market that will see a tremendous amount of supply with little demand.
ok, but they are still beholdent to the banks.
If a big developers like Lennar or WCI, who have excellent reputations as well, are having problems, so will Related.
It is just that their problems ARE JUST about to begin–and believe me the news will be big AND spectacular (not necessarily in a good way, either)
Good point Kevin. Were talking about condos here. Usally single fam houses were an easier sale so condos especially w/ so many of them will be a tough sale. I’m in for the long haul as a believer in Miami but like the stock market there are bright days and they are dark days. I guess in this case we can call them years vs days.
If Related represents 50% of the inventory coming on the market, then they’re even more screwed than other developers.
Like some other posters mentioned, these condos probably can’t be rented profitably, so renting them really isn’t an option–they’d just be losing more money.
From what I’m hearing, these “vulture” hedge funds don’t want to pay more than 40 to 50 cents on the dollar for condos. And based on the Platinum auction, even that would be a bad investment if you can’t then re-sell them for more money than you paid.
For instance, if the Platinum sold out their inventory to a vulture fund for 50% off, what is that vulture fund going to do if the real market value is actually 50% off? It would only make sense for them to buy if they can sell the units for a significant profit. So there goes that option. They’d be better off holding public auctions like the Platinum did. Why throw in extra profit for a middleman?
So, bottom line, I don’t see any easy way out for Related. Auctions or not, they’re going to have to find a way to get rid of these condos. And based on the way the market is going, they’re looking at prices 50% off. Do they have enough profit margin to sell at those prices? If not, they could be headed for bankruptcy like a lot of these other builders. They will still have to answer to the banks that loaned them the money.
I don’t care how rich Mr. Perez is personally. He’s a smart guy. Smart people know when to cut their losses and move on. He’s not going to keep throwing good money after bad trying to “wait out the storm”, which could take well over a decade to pass at this point.
A major important factor why RELATED cannot do any resales is because they hired many female agents that had “connections” with the developers. These female agents used to be waitresses, bartenders, dancers. What do they know about real estate sales?
Someone just gave me this article. I must say this article is the biggest crock I ever heard. George Perez leaving money on the table!! You have got to be kidding me. He is one of the key people responsible for our problems in South Florida. At least other developers were straight forward and raised the prices in lots so people knew what they were getting into. Related assigned the apartment two sometimes three times. An apartment that sold for $300,000 could end up costing the unsuspecting third assignee $600,000. You call that leaving money on the table. His sales people lied to everyone telling them their units would be resold just like all of the rest of his propreties. Then he walked away leaving his loyal investors high and dry. This man needs to leave the state. He has lost all credibility here.
Just wait till Icon Brickell hits the market. It will be a nightmare. I dont think anyone will close on those units with prices at $5,6 or 700 per SF. Jorge will have to turn it into a rental.
AJ said: “Just wait till Icon Brickell hits the market. It will be a nightmare.”
I learned yesterday that closing notices on Related’s unnecessary project, 500 Brickell, are “in the mail”.
There’s 633 units of froth and bullsh…! The lawsuits will start to fly on that one.
Ole Jesse Ottley had better educate himself on the definitions of “lying by omission” and “ommitting material facts”. He will be hearing those phrases until nell freezes over.
Has there ever before been a Related project where “zero” people close???
Yeah pretty scary those on Brickell 500, Icon, Ivy, Mint all were selling real high and got caught up in the speculative run up so I’m curious what happens if very few close? Rental market is oversupplied as well and not priced right yet.
Will we maybee see another auction like the Platinum? Or just have a fire sale and rock bottom pricing and watch the condos move. Related may be able to hold a bit longer but what about developer of Ivy (Key International) and Mint who prob don’t have as much backing as Related?
Also look whats happening at Beach Club in Hallandale prices have plummeted over there and keep dropping. Was way overpriced to start and thats Beach front and prices are tanking. Way overpriced.
Only thing that seesm to be movign well for the average person is the LOFT buildings. Reason..they are somewhat affortable. Price all these other towers in that price range and well see more movement.
When I first saw the artist rendering of Icon Brickell in 2005, I said to myself “who would buy in this monstrosity?” There are 3 huge towers placed at the apex of a triangle and all staring into each other. Majorly claustrophobic. At least the Icon SOBE does not have that problem even though it has many other issues, which I wont go into now.
I know some of the readers of this blog bought a unit in Icon Brickell. It is a bit late for this advice but please remember in future, this is how I operate and invest;
Ask yourself, “are you willing to live in this unit that you are investing if you cannot sell it”. If the answer is yes, go ahead and invest/buy. It does not matter how many props you are buying. All of them must pass this test.
I just couldnt see myself living in a cluster of buildings with questionable views just because of a borrowed name from another building by a successful developer. I have a feeling that this might become Related’s biggest failure. Unfortunate for some but true.
I agree with the above assesemtn. People were driven by the name and overlooked the reality that their were buying in a pile of buildings with relativley similiar square footage to everything else and nothing to scream spectaculat other than the name and some fancy marketing materials.
I drive by there eveyday and agree it is a cluster f**k of buildings on a single piece of land.
There will be some nice unis avial there facing east no doubt about it but the rest good luck . Unfortunatley, liek eveyone else you got caught in the hype. Matter of fact the news tonight reported a horrible housing crisis on ABC it was the top story with Brian Williams.
Anybody have an idea how many ongoing projects Related is committed to right now? Projects where they have already laid the foundation… not ones like Icon Las Olas that may never get off the ground.
What is the real number of units they will have to bring to market in the next 2 years?
AJ said: “I just couldnt see myself living in a cluster of buildings with questionable views just because of a borrowed name from another building by a successful developer. I have a feeling that this might become Related’s biggest failure. ”
To put some emphasis on the questionable reputation of Related, I will point out the fact that Ottley and his crew of bandits “sold the river meets bay views” advertised (East views units) for an average of $40-$50 a square foot above IDENTICAL units with West views.
Never so much as mentioned the ICON being planned. Related closed on the Sheraton property about a week after “second” deposits were due on 500 Brickell.
Those massive ICON building permanently block the sun from hitting those “premium” East-view units at 500 Brickell.
IMHO, those people suck! Does anyone know what it tales in FL to have a RE’s guy’s license suspended? Just curious.
“People were driven by the name and overlooked the reality that their were buying in a pile of buildings ”
This will go down as the first and maybe last time a city was built from investors buying real estate without even knowing the area. I bet 25% of current Brickell contract holders would have a tough time finding Brickell on a map.
Nobody knew about these places, and nobody cared. They all looked nice to out of state/country investors in the shiny brochures and people just wanted an easy flip, and Jorge was the easiest. Related flip = Money in the bank for 5 years straight. Anything that easy though, always ends badly.
Hey, this is interesting and indeed eye opening. Even if you have a spectacular east viewing place there, how would you feel if the place is 70% empty !?? How would annual charges develop, I guess rather up than down…
Everyone bought in or because of flip value, or because it promised to be hip crowd location..NOT ghosttown !