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You’re really “surprised” this hasn’t sold? Lucas, I don’t need to lecture you or anyone else on this board about home prices (most of you are far more knowledgeable than me), but $200,000 for a one bedroom condo is still expensive. It might not be expensive compared to the insane, unsustainable and often fraudulent prices of the past five years, but in the real world, the one where where we’re heading into a recession and banks are holding back on lending — it’s expensive.
No one should pay that much for a one bedroom condo unless it (a) has a water view or (b) is a true luxury model. This is neither.
So I’m not at all surprised it’s not under contract. Welcome back to the real world, with real prices, and real expectations. I say, Hooray!
moretrooops,
I guess the better option would be to rent the unit at a more costly monthly price. That’s the way to go. No tax write-offs either. You’re so right.
BTW, it does have a water view.
lucas
i think you’re being a little optimistic on what you’d be able to rent this place for. with a ton of units coming online in the area (wind, 1060, BOS and plaza) along with the current stock, $1,500 seems a bit optimistic.
I’ll bet it will go lower. Right now, most of these sellers in these have to find a cash buyer due to the banks blacklisting all lending due to high investor to owner/occupied ratio. Despite what people say, finding a cash investor with $200k to spare on a property that “breaks even” on a cash flow basis isn’t that great a deal…especially when appreciation is negative to flat for the next 3-4 years. With break even cash flow, you’re looking at maybe a 2-3% ROI if you consider debt reduction….most CD’s give you more than that now easily.
$1500/month is way too optimistic; these units are already renting for lower (according to craigslist) and should go even lower once all the new inventory hits the market… particular direct competition like plaza on bricell
$200k is about 10% – 15% less than the original pre-construction prices back in 2002 -2003.
the last transaction shows this condo purchased at $305,000 back in March of 2006.
For someone wanting to make this their residence, not a bad deal at all ….
The loan was from a out of state buyer. If they have a first and second loan from separate companies it will never sell at this price. I wouldn’t even bother with it.
Taxes for 2007 have not been paid yet.
Here’s some math for you: Why should I break $200K in CDs (which earns me on a guaranteed basis $8,000 per year in interest – at 4%) and use it to buy this unit (#2703) which costs $9,000 per year in HOA ($5,000/year) and taxes ($4,000/year at 2% of purchase price) just to own (nevermind the cost of furnishings/insurance)? I’d have to rent it to a solid tenant on a 12 month a year basis for $1,400 per month just to break even.
Are banks still offering 4 percent these days for CDs? I thought it was around 3 percent nowadays. Maybe I’m wrong.
Lucas,
You’re right. But I’m still getting 4+% because I bought them months and months ago which is just another reason (1%+ interest I lose) if I break them to buy the unit.
For what it’s worth, I’m thinking the smartest move for somebody like me – who likes hanging out in South Beach from December to May – is to buy the smallest unit in the nicest building in town that I can find for $500K or thereabouts. I’m out the 4% interest on $500K ($20K per year) and it costs me $22K a year in HOA, taxes and utilities. It therefore costs me $42K a year to buy. But at $800+/- per night at the Ritz-Carlton, it makes sense to buy if I spend more than 50 nights there….a year.
$200K + HOA/taxes. Say it was a primary residence. What type of job would support that?
When you had the pizza shop manager buying a $350K condo back in the day, it made it feel like a $500K mortgage was for chumps and that if you earned a $100K/year you should be looking at $1 mill properties.
Now that some reality is coming back to the market, what type of salary should a person have to be in that unit? What kind of local job in FL would get you that salary? Is it ideal for the average FL secretary? The average person right out of law school making $60K with a lot of debt?
The market is going to have to absorb a bunch of units like this in the near future and I’m curious what type of wage earners will be looking to occupy them.
part of this problem is the banks who are holding properties. LUCAS mentioned that the bank wouldn’t seriously look at his offer last year.
this also happened to me twice last summer when i was looking for my place. of the 2 places i offered that were rejected by the banks that selling them…one is now 220k below what i offered and STILL on the mkt…the other sold for 139k below what i offered. i won’t even go into the carrying costs the have/had to keep the properties looking nice for prospects. neither of them would even want to negotiate w/me when i made them offers. the people who are running the REO divisions of these banks are TOTAL idiots…and are a large part of why inventory is not being sold off. they are writing off mortgages…and eventually will write off the losses once these properties are eventually sold off…but dealing w/them is impossible…these morons still think they have some sort of upper hand in the negotiation process in the meantime they eventually wind up taking the worst deals…such morons. then we wonder why they’re mostly in such trouble.
i wound up buying a house at 260k off asking price from the previous yr. i’m still amazed at the level of stupidity…
I lived in Brickell on the River, and when I left 3months ago in Jan…the association had a large deficit. $418/mth does not include special assessments.
That RIVER view is just “ok”..nothing like the BAY view I currently have now. The draw bridge is loud, the pool only receives sunlight 2 hours a day (in the very early morning due to BOR South Tower), valet is expensive, and walls are thin…etc.
Im no RE expert, not even close. Im always interested in hearing about deals like this but, in this case, I dont really think its a “deal”. Sure, the $200K price sounds like a deal at $264/sqft considering the unit is on the 29th floor and has decent views (better once construction has finally ceased in the area). However, while you get a decent price on the unit itself, you get boned on taxes and HOA monthly fees. Thats why this “deal” doesnt make sense to me.
Let me ask a question since, again, Im no RE expert… Right now, the taxes on this place are just under $7K. That number is based on the value of the unit from last year, right? Will that number go down eventually if the unit remains unsold? Please help me understand this. Thanks, and great blog you have here.
Interesting to see the virulence displayed whenever Lucas or anybody mentions a “good deal.” I think that $200-250per sq ft in a quality building in Brickell is where things will settle. Just by saying that though I’m sure that I can provoke some heated discussion. My point is that I may be wrong but that’s my view and that’s where I’m willing to stick my neck out and buy. I personally believe that the rental breakeven argument is a hard one to beat (unless its the rent and make some money argument).
Lucas/all – banks in fact *ARE* offering 4%+ CD’s. 1 Year CD’s can easily be obtained offering 4.4% I also see a 4 year CD offering 5% as current best yields. There’s also the Corporate Preferred/ Muni Bond strategy. Yields for relatively safe and tax advantaged Munis are sky high right now due to the AMBAC/MBIA fiasco…plus, I have a 25% (my marginal tax rate) built in yield advantage since some munis aren’t taxed federally or state. Florida negates some of the benefit by not having a state income tax, but in some uber high state tax places (NY, CA, WI), this is a huge strategy.
http://www.fatwallet.com/forums/messageview.php?catid=52&threadid=682884
a good resource for the best CD yields out there.
If this rents out for $1300 a month it would make sense for a person to buy it for around $150,000 and I dont personally see it goin much lower than that unless rents drop to $900 .
That said I deal with REO departments every day and they are very hard to deal with and have no idea what they have. They treat every property as a file and they all take the same similar approach to negotiating. If the Apartment isnewly listed and they get an offer they counter back with something ridiculous like $1,000 off the asking price, and if they have benn sitting on the file for 60 days they cut the price every week by 10% until it sells. You cannot call them becase they are too biusy and do not answer phones. It is all by email and faxing contracts and they are all based out of some odd city and have no idea what is goin on in the Miami Condo Market or any idea what the difference between any area in Miami is.
Interesting video on the history of house prices.
You can buy municipal bond closed end funds that pay 6% tax free as a result of the subprime fiasco. It’s not riskless but a lot less risky than betting on real estate right now.
Interesting video on the historical prices of homes.
I kind of worry about buying any kind of long bonds. How long can the FED keep interest rates down in the face of ripping inflation and with stories of world hunger and starvation on the rise due to pricing of agricultural commodities. If you can find hi yielding medium term bonds wouldn’t it be less risky?
http://www.reuters.com/article/businessNews/idUSL1436950820080414?feedType=RSS&feedName=businessNews
I recall some posts about bubbles taking a decade to shake themselves out. Considering the down is 12500, only about 5oo points higher than the Jan 2000 peaks…it seems like the US econonomy is still struggling to shake off the sins of the past. Two asset bubbles in various states of deflation/recovery at once…wow. I fear a commodities bubble cras
Anyone go to the RE auction in FLL this weekend?
Short sales are usually a waste of time. Most of the sellers haven’t received permission from the bank to do a short sale, or an approved price range.
It gets especially hard when there are 2 mortgages on it (which is common). Usually the first mortgage holder is stubborn, since it’s the second mortgage that is really taking the hit. And the second mortgage holder doesn’t really get anything out of the deal unless the first mortgage holder gives them something, so they’re not motivated to do anything, either. Most banks these days have enough writedowns, so they’re not eager to take even more by allowing short-sales. That’s why you’re seeing such stubbornness on the part of many banks.
I would read more into this if it was a bank-owned foreclosure, not a short sale. Many agents realize short sales are a huge waste of time, and don’t want the hassle of dealing with them.
Lucas,
Thanks for showcasing this condo. While this appears a good deal now, I would imagine this is going to become the average deal over the next year. Not that prices will decrease much further (probably no more than 10% from the price listed), as a realistic bottom must be reached sometime. This price is now attractive to me, an average prospective buyer with financial capital. If the rest of the sellers in the market realize this is a realistic price point, perhaps the market will pick up again. Buyers with cash are out there, but sellers must meet our demands (rather than the buyers meeting seller demands environment of the past 5 years).
Keep showcasing these more realistic properties and prices Lucas.
Brickell had such an overgrowth of building, I’d expect these units to sell south of $200K. Bank mortgage writeoffs have just started.
I just saw this article on msnbc about rents. Here is a chart that shows rents going up and down depending on the city you are in. Miami is down 3%.
Miami $1,411 $1,368 -3.0%
Rent ONE-YEAR CHANGE
Median rents for the first quarters of 2007 and 2008, with the percentage change in valued for 12 metro areas.
Area 2007 2008 Change
Atlanta $1,007 $986 -2.1%
Austin $936 $907 -3.0%
Boston $1,593 $1,645 3.3%
Chicago $1,328 $1,355 2.0%
Las Vegas $1,053 $1,056 0.2%
Los Angeles $1,638 $1,699 3.8%
Miami $1,411 $1,368 -3.0%
New York $1,606 $1,751 9.0%
Phoenix $1,035 $939 -9.3%
San Francisco $1,579 $1,810 14.6%
Seattle $1,098 $1,211 10.3%
Washington, DC $1,608 $1,687 4.9%
All metros $1,324 $1,368 3.3%
As far as housing is concerned, money has lost its value in the last 5-6 years. 400K used to be a LOT of money for a house. All those big houses in Coral Gables near biltmore hotel were selling in the 400-600K range. Now they are in the millions.
This 200K condo seems cheap, but numbers dont add up when you do the math. As an investment, you will lose money for many years. The prospect of property value rising anytime soon is non existent. Event if you get a hot deal on a condo, what about the other empty units, special assesments, etc. The risk of buying these condos is too high right now.
A review of that pathetic river (with the grey box hotels on the other side) is not a true “water” view — not in Miami at least.
This unit is $50k overpriced — the next six months will prove it.
I went o Fll auction saturday- The club at Brickell-1 bed-185k+ 5%-ridiculous people.
2 beds at the Vue went for 150k + 5%.
2 beds at the club,with a good view-a stupid 280K + 5%.
There is a lot in front of that view-eventually,5 years?,someone will build there.
Kim,
I went. And to add to Eli’s comments. Many bottom feeders. The only problem is buyers would bid on the properties and the auctioner would say…”sold”. The only caveat is that is it subject to seller’s approval. So now the buyer has to wait and see if in fact their bid was approved. Kind of a waste of time and, in my opinion, not a true auction.
The thing that strikes me about this market is that people consistently use historical sales data to make relative comparisons about “a good deal” or “great value.” People, what happened in the past with these buildings is completely irrelevant. Just because they teach real estate agents in real estate agent school to use historical prices of “comparable” properties to set a sales price doesn’t mean its the correct, or only, valuation method. The only thing that matters is what you can sell a property for today, or, taking into a buyer’s expectations, a short time into the future. Period. Historical prices are just that… a history you can read from a book with no meaning on today’s world.
With all things being equal, when it comes to their own money, people will ultimately put it into a vacation/second property when they’re comfortable that it will either (1) not go down in value or (2) it is has a reasonable expectation to go up in price relative to other potential investments, such as a safe investment like bonds, equities or their current home. That’s why many people choose a seasonal rental as an alternative to owning… they pay a little bit more for the lifestyle but protect and keep the nest egg earning interest. I think we’re not close to either of these conditions being met in the market.
In my opinion, most of the units in the Brickell/Miami area will revert to pricing appropriate to a residential long-term average yield of 6-8% gross return on investment, regardless if they’re being bought by a owner or investor. If rents for this type of property range from $900-$1200 and you go crazy and assume an 8% yield (cap rate), that prices this property
between $135K and $180K. I think that’s your floor and we’ve still got a ways to go before we get there.
BTW, Lucas, this is a great blog. I agree with most of your posts and commentary and see your work here as one of the few positive lights in a sea of Miami RE nonsense. Please keep it up.
that is a lot of money for box with high taxes and monthly condo fee.
As a renter, I just don’t see why I’m supposed to get excited about $1500/month for glorified closet space in an as-yet unlivable neighborhood.
Lucas – I dont know how in good conscience you can state that this unit will cash flow positive. Liar loans withstanding, I dont know of anyone offering investment loans right now below 6.4%
Based on 20% down payment, 5% vacancy per year (2 1/2 weeks per year), $418/mo HOA dues, $800/year in misc expenses (repairs, advertising and self managed (despite the fact that most realtors take 1 mo rent to list rentals)and 10% ongoing management fee)…this unit is a *WHOPPING* $4700 a year negative!!!!
Truth is, in this building $1500 a month may be generous…there are units on craigslist as low as $1300 per month. BUT, if rent can be had at $1500 per month in this building, purchase price (preserving 20% down) would have to be $140,000….JUST TO BREAK EVEN!!!
Doc,
I am in agreement with your comments and understand your logical reasons for a buyer to purchase a property. What I don’t understand is when the condo market was going crazy in the years 2004 – 2006 and prices were increasing from one month to the next, the “buyers” did not hesitate to close even at above asking price and in today’s situation the prices have fallen substantially on similar properties and “buyers” are waiting for even lower prices? Is it the fear of overpaying or the hope of lower prices ?
not a great building, not a great unit, not a good location, and not worth 200k. If this was a building in downtown near biscayne like one miami, 50 biscayne, etc. than that would sell REALLY quick. to be on the river and away from the “good part” of downtown i wouldn’t pay 200k.
not worth it at 200k. this is not a luxury property and should go lower.
BILLY K said: “Is it the fear of overpaying or the hope of lower prices ?”
The reality is that the Miami market got really disjointed starting around 2001 when investors who never had any intention of living in Miami started buying up property en masse to flip.
ie. People who could care less about Miami bought as if they were buying shares of stock to flip to another person. Now, the market has flushed those speculative people out of Miami and all that’s left mostly are people who want to buy in Miami to live in Miami.
This situation where it’s about living here and not buying something to eventually sell higher to a greater fool hasn’t happened since 1999. Do you realize that in 2000 and onwards it was common to have Venezuelans and Argentineans rounding up money back home to invest in blocks of property via Real Estate agents in Miami. Does that ever happen in Philadelphia or Dallas?
Anyway, here’s the problem. We are at 2004/2005 prices now. Speculators drove the market starting in 2000/2001. Where should this market end up?
I don’t believe these buyers on the sidelines will ever step in.
20% down financing requirements eliminates over ??% of locals. Foreign investors have their own problems in foreign economies.
Anything with granite counter tops and European style cabinetry is worth at least $305,000. I would bid this property back up to at least $305,000 if my bank would loan me the money.
i agree that this unit should prob be priced at most 159k – 175k.
The prob here is the outrageous HOA fees and crazy taxes. The mortgage is fine fo rmost but when you factor in the other 2 you’re paying a whoel lot more than what you would pay as a renter. Sure you can supposedly gain equity and have write off’s on the morgage intrest but at the end of the day the carrying costs just don’t make sense. Especially locals who make a decent living but cant affort so much $$$.
Bottom line prices will have to come down to below pre-construction pricing. IT will be a blood bath but it’s the reality aything else is just false. There arent enough renters to save those hoping to stay the course for 2-3 years or more to see the market recover if that.
Bet developers wish they could block this blog from their contract purchasers.
-this sounds too good to be true; r u sure its right?
Anyone know of the possible special assesments when the condo association is turned over to the actual condo owners? I have seen many maintenance fees go up significantly so its very hard for me to do a Pro Forma of cash flows with so many variables
Billy,
That’s the irrationality of markets. In classic bubbles, such as tulips in Holland in the 1600s, Texas real estate in the 80s and the dot com’s in the late 90s to 2000, a lot of people got swept up into a panic by fear and greed… greed to get a piece of the action and fear that they’d miss out.
Here, its the downside of the bubble, where again fear and greed dictate irrational behavior. Sellers fear the lower prices, causing them to hang on irrationally, buyers fear getting in too early and loosing money, removing liquidity from the market and disrupting efficient market pricing. We’re beginning that stage now… just before the bottom drops out.
After the stock market crashed it took three years before liquidity and therefore “normal” market behavior returned. Dallas & Houston… more than a decade, if at all, and when was the last time you paid more than your year’s salary for a tulip?
Now, I realize that this seems pessimistic but the point I wanted to make is that as soon as people start putting aside the past, swallowing the difficult pill and valuing property correctly the sooner we’ll all be able to get back to a healthy market.
save this thread now and tell me how right I was when it happens…..the market will bottom WHEN……………all the remaining buildings get finished in downtown miami i.e. everglades on the bay, 900 biscayne, the met, marquis, and paramount bay. also after the presidential election, people will see change coming, they will be happy, and they will spend money. Late this year or early 2009 will be the absolute bottom……..and for you wondering, Yes I have a crystal ball.
Brickell on the River rentals from Craigslist:
http://www.google.com/search?hl=en&as_q=&as_epq=Brickell+on+the+River&as_oq=&as_eq=&num=100&lr=&as_filetype=&ft=i&as_sitesearch=miami.craigslist.org&as_qdr=all&as_rights=&as_occt=any&cr=&as_nlo=&as_nhi=&safe=images
raffi…I would add one more item to your criteria for prediction the bottom. I would add some additional time to hit bottom and this time would be “the time it takes for the condo market to become healthy enough to make the special assesments more predictable”.
Even if a condo is a steal, how do you protect yourself from the possibility of a hefty special assesment for various items including HOA reserve shortfall, cheap materials used in construction, etc.
I dont know when we will hit bottom, but when we do hit bottom, we are going to remain there for a long time.
carboncab,
i agree that real estate has never experienced a V-bottom.
sobe buyer, looks like lucas has not done his homework on this one. too much for a box, with not much rental income. sobe buyer what is the name of your own future blog
I’m very disappointed in the bloke who runs this Blog. He started the Blog like he understood the Miami Market was a joke as fas a prices were concerned. But lately he’s been trying to convince people that $200 to $300 a sq ft is a good deal.
Sounds to me like he is just another realtor trying to screw the punters.
I’ve said this before and I’ll say it again: “The smart money is holding out for $125 per sq ft which ought to happen in late 2009.
The Ace
Ace,
I don’t see $125 sq. ft coming, not now or ” late 2009.” maybe in a totally crap location, with a building that a hurricane destroyed or something. with your logic you are saying that the avg. condo in downtown miami (which all have pretty good views and location aside from loft 1) will sell 1 bed assuming they are the avg. 800 sq ft 1 bed for 100k. lets be realistic thats not gonna happen. now if you are hostile because you have gotten screwed over before thats not this blogs problem, dont accuse Lucas of being a “bloke” whatever that means. have fun waiting for $125.
Wow! Someone who can do the math at least!
Yes, $100K for an 800 sq ft apt is all that the “smart money” is willing to pay.
Will it happen of course it will, what did a 800 sq ft Condo cost in 1999…..75K tops.
The “smart money” rest it’s case.
The Ace
sorry Ace, $75k in 1999; your database is off by about 20 years … maybe 1979 ! !
well in 1999 there weren’t any condo buildings in downtown miami so i dont know what you and your “smart money” buddies are comparing to. most of those buildings didn’t even have 100k pre-construction price way in the beginning, not even close.
“Smart” Money ??
If we go with Mr Ace’s comments, in two years from now you might be able to swap your Range Rover for a condo …. Go Figure !
Well there may be some truth to that. I actually paid $80k for my 2bd 2bth condo in 2000.
Will it ever get to that point again I don’t think so but it is very crazy out there lately and in desperate times you take desperate measures.
There is over suppply but what’s scary are the unkown special assesments. Whats worse is that the taxes and HOA fees will be more than the actual mortgage. That’s the scary part.
God forbid we get a hurricane this year or any next yr. The insuranse rates will rise so much that the HOA fees will have to go up screwing just about eveyone in a condo. Then you’ll really fee the squeeze and the Special assesments kick in.
I wish condos were back in the $125-$150k range.
Keep in mind at the Platinum auction a 1350Square foot 2bd 2bd with direct bay view went for $295k or $218 a sq foot at ABSOLUTE auction price. The rest barely got to that price level and there wasn’t that much interest. So we may not be to far off from the $175 – $200 Sq ft Range soon. Maybee a bit higher in the nicer bldg but end of the day Platnum was new construction.
The crux of the problem is that this condo supply was built for investors to soak up, and not for local wage earners or legit 2nd home buyers. There’s absolutely not enough local wage earners to make a dent in the supply and 2nd home buyers are faced with a proposition that hasn’t happened since 1999… buying a home/condo in Miami, will result in a significant negative cash flow. It was easy to buy a 200K-$2 mill property when appreciation took care of carrying costs and then some. What happens now if there is no appreciation or rather if there is depreciation on top of those high carrying costs? Who wants to get in on that? Are families still getting together in Venezuela to pool their money and see how much they can lose buying up blocks of condos? Are they willing to scrimp on their purchases so they can handle the carrying costs so they can keep losing more and more money in Miami RE?
If you live here, that is one thing. But if you don’t live here, what is going to compel you to get in on a game that’s been over a couple years and may never be played again?
i wouldn’t discount ace’s comments altogether. maybe $125 won’t happen but i think the realm of sub $200 in brickell and downtown is not only foreseeable, but inevitable. the simple fact is that the people who would live in these buildings simply can’t afford to.
It is impossible to pick a bottom in any market.
Within two years all the invenory will have been bought by professional investors and rented.
With all the supply taken out prices will begin once again to appreciate and like we have heard so many times before(for those older than 30)…”if I only bought then”. History always repeats itself.
Once again—where is this 2bd/2br condo you picked up for $80K? Liberty City? Immokalee? Haiti?
“Within two years all the invenory will have been bought by professional investors and rented.”
Have you taken a look at craigslist over the past 6 months? Do you notice a trend in Condos for rent?
Does anybody know if Brickell on the River is run by the developer still or has the condo board taken over?
Does the developer still have liens from contractors?
Very important question to answer.
Lucas has always been fair!
Pointing out that asking prices today are lower than “rejected bid prices” set a year ago is VALUABLE INFORMATION. I think banks are finally coming around and realizing they need to drop prices in order to get the sale. Last year they were calling people’s bluff, but this year they are clearly the SHORT STACK at the table…
Wild Bill,
BOR North Tower is run by the association. Living in the north tower, I can tell you the developer had very few units left in his personal inventory for sale. BOR South Tower recently opened and its too late to know how many units will end up in the hands of Groupe Pacific (the developer). I do not know whether he has liens from contractors?
Alejandro…
it’s very hard to get a handle on the special assessments that an association will charge once the developer is out as there are usually 2 causes to the problem: 1) The developer makes a best estimate for the budget of the association but with the contstant changes on insurance , and other items (even valet), the budget usually goes up once the developer is out. 2) The foreclosures and delays in HOA fee payments usually force associations to create special assessments which are impossible to quantify in advance.
For example, this situation was exactly what happened in Parc Central in Aventura. The developer left and the budget needed some major work and then the building has recorded the highest number of foreclosures out of any building in Miami Dade County, and now the rest of the owners are having to cover the difference…
I think we can expect aA LOT more of these situations in the new buildings , so whatever you are quoted as an HOA fee, don’t count on it!
So much for foreign buyers bailing out Miami real estate:
http://globaleconomicanalysis.blogspot.com/2008/04/global-recession-on-way.html
I often hear people say “history repeats itself” (Post No. 61) when urging me to buy buy buy a condo today! The thinking is that since we bottomed out in the 80s and rebounded, we’re bound to do so again. Hey, it’s history stupid!
This is nonsense. It’s an empty phrase. History doesn’t “always” repeat itself — the fact is, history has never witnessed this kind of bubble in the housing market. This is a first. And the crash is unprecedented as well — 30% drop in one year? Prices continuing to free fall? Even the Great Depression didn’t witness that kind of drop. Check your Case-Schiller graph for more details.
Prices wont rebound to 2006 levels for many many years — perhaps decades. You wont have to “time” this market, and you surely wont regret waiting. We are at an unprecedented downturn right now — despite what the REIC has told you, this isn’t history repeating itself. It’s history being made.
Once Again, please elaborate ……..
JB and myself are both curious as to your $80k 2bd /2br condo that you purchased in 2000.
For all the readers of this blog that do not reside in Miami, there is absolutely no way anyone purchased a 2bd/2br condo in the Brickell area (east of Brickell Avenue) for that price in 2000.
Hello everybody.
There is a good article today on Florida’s economy at Reuters: http://www.reuters.com/article/domesticNews/idUSN1131231020080415
The thing that’s a particular concern about Miami is how little of a local economy there is to support the Miami RE, and how much of that local economy revolved around the business of Real Estate. Real Estate Agents, Mortgage brokers, Contractors, Appraisers, Furniture stores, Movers… The speculative investor component of the market is getting flushed out, but another concern is how hard the business of Real Estate is getting hit and how much Miami revolves around that business or at least used to.
Locals have to support the bottom and just about everybody I know involved in RE is pretty much looking for a way out. It’s like asking what would happen to Vegas RE if the speculators all left and the casinos went bust. Tourism in Miami is nice, but RE is the business that drives this local economy… and it’s weird to see a whole segment of the population used to making $100K-$300K/year reliably for a decade going to 0 almost overnight with little prospect of a recovery in sight.
Tourism and spending is going to be down a lot due to the recession and you have the largest segment of high paying local jobs –Commercial and Residential Real Estate- getting very ugly.
80k condo was not on Brickell to clarify. IT was more in the NW area.
However, I rememebr 2/2 in Brickel going for $200 – $249k at that time in the decent bldgs at the time.
Of course it was in the NW area; your prior comments have absolutely no justification!!!
Developers always set association fees as low as possible to entice buyers. The budget they provide is merely a starting point in the real world.
Owners often realize that the developer was paying some operation expenses out of their marketing budget. For instance, a developer often will spend an extra say $15,000 per month in landscaping and flowers to make it look nice to buyers. He might pay this out of his marketing budget. Once the developer is gone, then the landscaping is just left with bare essentials and residents start to wonder why.
I say we take turns mowing the lawn.
Maintenance fees are out of control. Yes, developers start out low but even after the building is passed over to the association the increases continue. Maintenance and Values of property are about the only things that have doubled in the last six to seven years. The value bubble has popped, now how do we deflate these maintenance fees?
Maintenance/HOA fees are often high because members of the HOA leadership arrange sweetheart deals with vendors who just happen to be “friends of friends” or “distant relatives”.
One way to keep costs low is to shine a bright light on the bidding process by sending details of the top three bids to condo owners.
Another would be electing HOA leaders who know a thing or two about negotiating.
Of course, there’s no getting around high insurance costs.
Normally, the two largest components of maintenance fees are insurance and taxes… neither of which you have much control over. After that you begin to get into charges for the amenities, such as pool service, staff, concierge, etc.
Since you have little control over the insurance rates you pay… especially in FL properties in a hurricane zone… and zero control over taxes, the only real way to adjust maintenance fees is to cut back on the building amenities. Lay off some of the maintenance/support staff, get rid of the concierge, outsource to an external management company, etc… all will lead to decreased levels of service.
I’d like to understand why the insurance paid on a building is considered such a given? Like all Homewner insurance, rates tend to fluctuate wildly from carrier to carrier. My opinion (and I stress opinion) is that most HOA’s could go much lower with an activist board. All elements of the budget (with the exception of taxes & utilities) should go up for bid ever 2 years in an open bid format, with a minimum of 3 bids. Middle bid should be selected. This goes for
1) Insurance
2) Landscaping
3) Pool services
4) Gym services
5) Concierge Services
6) Valet Services
Like in any job in corporate america…the simple adage of “What gets measured and rewarded…gets done”. Most boards are too lazy, incompetent, corrupt…or a combination of the above to do the work required to keep their costs lower. Coops tend to be much more activist.
Agree with you there. Alot of the HOA are corrupt and don’t negotiate the contracts such as valet etc..it’s ridicoulous One bld was being charged 40k a month for valet!
Do the math doesn’t make sense. 1 Valet guy say makes $15 p/h x 24hr = $360 p/day = $10,800 p/month.
Figure 2 guys during rush hours so add a couple of more bucks
That’s using $15p/g high estimate should be prob $10 p/h since they do recieve tips.
Factor in insurance for valet and company administration fee and don’t see why it’s still $40k a month.
HEY MORONS! $125 a SQ FOOT IS COMING SO GET READY!
You clowns on here laughing at the guy who is telling the truth disgust me.
I lived in Miami in 1999 and a condo like this sold for 100-110 a square foot. This was a 85K-95K Condo in 1999.
If you don’t believe me find a condo that was built in the 90’s for sale and then go to zillow and see the previous sales history.
Miami real estate prices TRIPLED since 2000. And they are going to crash 3 fold now that the speculation is over and only real people who intend to live their will be buying.
Time to come back to reality. a 800 sq foot condo is going to be selling for 125K if you are lucky by 2010.
Everyone saying this unit is 50K overpriced is wrong. It is 75-100K over priced and just get ready.
The crash is just getting started and everyone who owns a condo in Miami right now hasn’t seen anything yet.
Yes… It is time to panic… Because you are going to be wiped out financially.
125 sq foot is on its way.
Just to further illustrate my point on how clueless you all are.
Who wants to live in a 800 sq foot 1 bedroom?
1)A rich single guy with a six figure income?…
NO… He will own a much larger, more luxurious place to impress the hoes and his income demands it.
2)A Young married couple buying their first home?…
NO…They will be planning on having kids and will either buy a house or a 2-3 bedroom condo.
3)A Married couple with children
HELL NO… The kids will have no where to sleep.
NEWS FLASH!!!!
People who buy 800 sq foot 1 bedroom condos are college kids, poor single guys and girls just out of college working a 30k-60k a year job (THE MEDIAN INCOME FOR MIAMI IS 40K)
THE WILL NOT PAY 200 or 300 sqfoot anymore, those days are over because the flipping is over for good. They will buy a house to live in and they can afford 75-150k places.
Why people think that prices will not return to where they were in 2000 really flabberghast me.
THIS IS EXACTLY WHERE THEY WILL RETURN BECAUSE HOUSING IS BECOMING SHELTER AGAIN AND NOT AN INVESTMENT.
DEAL WITH IT AND GET READY FOR SOME FINANCIAL ARM-AGEDDON! YAY!
Yes, Christopher@HousingFEAR is a douche. Taking pleasure in other’s pain is not an admirable trait.
But he’s right. It is housing armageddon. And in the long run, that’s good news for us all. $300 sq. ft. for a condo hurts Miami — it doesn’t help anyone but the REIC.
I take pleasure in the pain of greedy “investors” getting what they deserve.
They had no problem during the boom buying a place for 300K and selling it 3 months later to the next greater fool for 375K.
So yeah, seeing people like that get wiped out makes me smile.
These aren’t honest homeowners losing the American dream of ownership and losing their homes.
These are greedy pigs who became hogs and now are getting slaughtered.
Christopher, not all of “them” are greedy investors. Some are people who simply wanted to live in a condo, and happened to be in the market in the past 3 years. That they bought rather than rented might make them unfortunate, even naive — but it doesn’t make them greedy or evil.
So show some restraint. Take a more nuanced approach. Incompetent mtg. brokers and bleached-teeth brokers do deserve this. And so do unscrupulous flippers.
But there are thousands right here in Miami who don’t deserve to see their life savings evaporate in a year. Pour a 40 oz for ’em, wont you.
CHRISTOPHER I tend to believe most of what you are saying.I’ve been thinking the same thing myself for a LONG time.WE are headed for a MAJOR CRASH no doubt.$125-150 a foot is going to be VERY REALISTIC very soon Thanks
Christopher, when you look at yourself in the mirror do you realize your a moron? name me one building in downtown miami that sold units for 125sq ft in 1999. whats that you cant? of course not cause there was nothing in downtown miami in 1999 except for a lot more bums then there are now (maybe you were one of them and thats why you are so bitter). the avg. will not be 125 sq ft guaranteed. go find somewhere else to post your retarded comments, oh wait you have a place, your crap blog.
There are two additional aspects to this debate that you guys might be overlooking: cost of construction and inflation. If you can buy 20% – 30% below the current cost of construction once the oversupply is soaked up in 5 – 7 years the prices of condos in the next round of building, factoring in inflation, should be 50% to 60% higher per sq ft than the price at which you bought. This should help the prices of the older (not too old) units rise and I figure it’s better than putting your money in the bank.
Also, although we are heading into a worldwide recession, there are plenty of upper middle-class and wealthy people in Latin America that love Miami and they will snap up these units long before they get to $125. Anybody have an idea of construction cost per square foot on a high rise these days?
Why is it that a big housing correction from absurd highs is considered a negative thing in the press? It’s not like this market has priced itself below historical norms of appreciation (we are still about 50% away from anything “normal”).
I see a housing crash as pretty neutral. For everybody it “hurts”, it gives another person a fair shot at getting a house that is priced closer to historical norms and closer to historical % of income levels? Is there anything inherently wrong with that?
Is it better for society if your parents paid x % of income for a house, then you pay 2x, then your kids pay 4x then your grand kids pay 8x… Now that is Armageddon.
Letting housing fall from 2X now back to X not only makes economic sense, it’s the right thing to do in the long run.
Few comments:
1) I purchased a 700 sqft 1br Brickell Key Condo with water view for $110k in 1997. Most units were going for between 100-125k. I then bought a 1030 sq ft 2 br in 2001 for $225k, again water view.. So that gives you an idea about prices a while back. I sold the 1 br for $160k in 2001. Interesting fact: I was told a similar unit was being sold REO for $178k last month. In the late 90’s Brickell Key was being built up by Swire.. I only remember Fortune House and the Santa Maria as the only other buildings being built back then
2) I have a question for the group. It is obvious that some buildings are in deep trouble and their units are being sold off for 66% of the original price. Their associations are in deep trouble and whatever you save, you pay back in assessments and high fees. What about buildings that aren’t having issues? Are people paying premiums? Are people saying, $200k with issues is better than $300k without any?
“there are plenty of upper middle-class and wealthy people in Latin America”
The problem I have with that as being a reason for above normal market appreciation in the last 8 years is that they’ve always loved Miami. They loved Miami in 1996, 97, 98, 99… why were prices flat back then?
Another reason people give is because of political instability in certain Latin American nations… do you really want to make an investment based on which way the political wind is blowing South of the Border?
Increased Latin American desirability and political unrest might be reasons, but I think they pale in comparison to the subprime, no money down, liar loan, developers taking known investor money and passing off to banks as non-investors, … speculative mojo as the root cause. Also, another big factor in this whole thing is getting in on scams is part of the Miami culture. In most cities, you might have a realtor or developer or mortgage originator or bank supervisor blowing a whistle; here they all have their hands out and want in on whatever the game is. Welcome to Miami.
JL you are so correct in your statement, “In most cities, you might have a realtor or developer or mortgage originator or bank supervisor blowing a whistle; here they all have their hands out and want in on whatever the game is. Welcome to Miami”.
Miami is infested with dirty, thieving Gypsies. Learning to scam the system faster than they are learning “the English”.
Scamming on the way up and scamming on the way down. Realtors and Mortgage Brokers allowed short sales on their own properties.
Short sales are not just about the few that bought a the peak and now owe more than the mortgage. The majority of those cases are property owners who bought before the peak, captured some equity then refinanced or took equity lines then pissed that money away or moved it to their home country where they bought themselves a beautiful home. In the last week I had several property owners come to me asking for assistance with a short sale. The people are no sophisticated so first I shed pity on them only later to learn they refinanced to by estates in Mexico or Peru.
Welcome to America
Yep I agree MIAMI – Money Is A Major Issue
M-I-A-M-I
Lots of scams going on it’s part of the culture We may all not like it but it happens it’s alot of scammign going on.
Fact of the matter is the poster who said who’s gonna live in that 800sq ft 1 Bd aprt is right. all of his points make sense. Prob a stat up male or female out of college just gettign their first job in Brickell or college kid. And as a new workfofrce person that ownership cost is just to high at 200k plus the taxes plus HOA fees. It will need to come down otherwise that single perosn might as well rent.
To rely on foreign money is a bad move. Those people have a hard time getting loans here and will not have the tax shelter of a homestead etc..
Christopher@HousingFear
Before you start commenting on how you paid $95k for a condo back in 2001; factor in justifiable information !!
The Mark (1155 Brickell Bay Drive) went for sale at an average preconstruction price between 240 – 260 sq ft back in 1999-2000 and was finished in 2001.
At $200k, the unit at Brickell on the River is approximately in the same price range per sq ft as preconstruction prices almost 10 years ago…
who cares about historical pricing of preconstruction projects or for that matter, how much something cost to build. prices going forward will trend to whatever the market perceives to be fair value. a barometer of what fair value may be could include price to income or p/e.
and christopher makes a good point – who the hell lives in an 800sq ft 1 bdrm condo in brickell? and after identifying that person, the complementary question is how many of that type “exist” in this market?
Jcrimes is spot on. These excess condos will go for whatever the buyers are willing to pay no regardless of the other factors. That’s capitalism.
I am a teacher in Miami and make $42k a year. There is no way I can afford any of these apartments in Brickell, Sobe or Downtown. The mortgage may be managable but with taxes and HOA, it becomes too great a burden.
These developers did not have to build every building with luxury amenities. They should have built some with basic amenities to get Miamians making average salaries into these areas along with the luxury crowd.
I do not need valet, concierge, etc. Frankly, I find them annoying when I visit friends who live in these buildings
Cost to build has to be relevant because no more projects will be started until the attainable price per sq ft rises above the cost to build. And if no more projects are started prices should begin to come back when the excess inventory is sold. The big unknown is: how long will that take?
The only thing that Chris@housingfear left out is that all the uneducated Realestate Brokers who were X Waiters and bartenders can go back to their trade of slinging hash and drinks, because there is no more real money to be made as a broker in this town. Or they can go back to college, if they can pass the classes. I relish in this disaster. I’m hoarding all my dollars (that are dwindling in this lowsy American economy) to pounce on a large condo for about $175 per sq foot. All the best!
Wait…Wait…Wait…Or the real estate brokers can all go back to Venezuela. You can’t swing a dead cat in this town without hitting 10 venezuelan realestate brokers, who haven’t sold anything in 6 months.
I am so funny, I kill myself
Christopher and J-Crimes asked “who the hell lives in an 800sq ft 1 bdrm condo in brickell? and after identifying that person, the complementary question is how many of that type “exist” in this market?”
I’ll happily answer that for you. I actually live an 791 square foot 1/1 at Skyline on Brickell. There are 200 1/1’s in Skyline and they are all identical in layout and square footage. Out of these 200, there are currently 25 for sale and 15 for rent. So over 16o people currently live in a 1/1 at Skyline on Brickell. Most of us work on Brickell and would rather spend a bit more on an apartment that doesn’t take an hour of traffic each way to get to. We live in a newer building with an amazing gym, great pool deck on the water, tennis court on the water, boat docks, etc… When most people come to visit me, they comment on how it feels like a luxury hotel. Many people, including myself, enjoy living in such an environment.
Storm said ”
As far as cartying costs go… The lowest available rent is 1600 per month for a 1/1. I bought for 220K in preconstruction in ’02. Association is 470 per month and taxes are a bit under 400 per month (if homesteaded). My carrying costs are 500 bucks above renting, but it is my residence so I get to deduct close to 30% of interest on mortage and 30% of property taxes. So even though I come up with the extra cash per month, I get it all back . My interest payment is about 15K per year and taxes are about 4800 a year. My deduction this year was over 6K. I actually saved a few hundred bucks by owning as opposed to renting.
I hit “Submit” by mistake. The carrying costs paragraph was my own, and not obviously not Storm.
Storm stated “I am a teacher in Miami and make $42k a year. There is no way I can afford any of these apartments in Brickell, Sobe or Downtown. The mortgage may be managable but with taxes and HOA, it becomes too great a burden.
These developers did not have to build every building with luxury amenities. They should have built some with basic amenities to get Miamians making average salaries into these areas along with the luxury crowd.
I do not need valet, concierge, etc. Frankly, I find them annoying when I visit friends who live in these buildings.”
If you make 40K per year, you should not even be thinking about living in a newer building in the Brickell/Downtown area. There is nothing wrong with exclusivity unless you are looking from the outside in and seek to be inclusive. A Miami skyline full of amenity-less buildings and boring architecture (as modern architecture is more expensive to build) would not be very attractive. And how would you expect any building with over 100 units to handle parking and guest issues if not for valet and concierge. You would have to build a separate garage or parking lot for guests in order to protect owner/renter parking spaces. Who’s going to buy up an extra acre of land in Downtown, Brickell, or the Beach to make a guest parking lot or parking garage for a new building? BTW, if you actually live in the building, you do not have to use valet service (unless you live at TMP).
If you want to live in buildings without amenities think about Coral Way between 27ave and 42 ave, think Little Havana, think Coconut Grove, think Dadeland area.
To be truly sincere: I don’t want to live in the same building as people who make under a certain amount of income. I like being surrounded by professional well-dressed people who drive luxury cars. They are USUALLY educated and well-mannered. For the most part, they care a lot about where they live and who they live near to.
Yes, I’m an A**hole.
Mr. Waverly – Great post. I agree that a lot of people just cashed out as much equity as they could…homes used to be a forced savings but then with easy home equity loans, people had little or no skin in the game left even if they had built up equity in the past….people were being paid to own a home(s) and the unscrupulous took full advantage of that. I had thought most people used the money for piggish consumption or to buy more real estate…I hadn’t thought of those that cashed out to transfer the money overseas….interesting. I guess this will be remembered as the largest U.S. bank heist in history…the banks just opened their vaults and let people loot it. We don’t even know how deep this really is, it makes me sick thinking about it and all those thieves that will get away with it and the costs to the rest of us law abiding citizens. NO BAILOUTS, period.
The BIG unknown is that with so many people with so little equity in their homes, what is going to happen? In the past, the forced savings of building up equity was THE GREAT STABILIZER in home pricing. Not anymore in many parts of the country, esp. Miami. I guess if you took out a bunch of cash you just leave the house/condo behind and return to your own country where you stored the cash. It makes me sick the cost to the U.S. economy going forward…sick sick sick. The underpinnings (built up equity) of past U.S. residential homes pricing is severely eroded…the ugliness isn’t even here yet. Thank goodness I am a renter now….every day that goes by confirms that that was the wise choice….
Listen, its mid April.
The foreign buyers have left Miami. Winter season is over. Easter break is over.
Anything that hasn’t sold by now will be collecting dust until November/December.
Guaranteed.
GT3, Thanks for your very enlightened comments. And yes your are right about one thing, you are an a**hole but atleast you know it .
That’s ok though, because it takes all kinds to make a city.
I do, however, disagree with your comment regardingaon a person making a certain amount of money being more educated or well dressed. That ‘s just elitist. I am very well educated and impeccably dressed. I chose the vow of poverty called teaching for personal reason and I knew the salary before I went in. My comment was about the fact that these buildings are all empty because they were all built for investment and not for people who live and work in Miami to inhabit. They are all out of the reach of the middle class and the middle class is what makes the economy run.
That is the reason why the developers and investors are all screwed now. There was very little long term thought but into this condo building blitz.
GT3,
I love your comments and agree with them 100%. bravo to you, I guess I am an a** hole too.
This Blog is the most entertaining thing I’ve read since receiving the foreclosure notice on my condo. Awesome Lucas!
Good point Storm. It baffles me why there can be 30-50 high rise condos being built in the same goddamn area and all of them charging $300k for a 600sqft 1BR when Miami is known as the poorest major city in the country.
Storm – Don’t worry prices will be coming down and down and down. Affordability will improve. Maybe you should look at it as an opportunity to buy into a luxury building once prices decline…. Or just find a great rental and live the lifestyle without the worries…
Thanks Renter Tom,
I am not bothered by people like GT3 or Raffi.
The overbuiding of condos has afforded me the opportunity to rent a luxurious Midtown condo (never lived in with 2 month free) for a fraction of the cost of buying it.
I, too, with my meager wages can live the exclusive lifestyle that GT3 so enjoys. So there is a silver lining to the housing crisis.
Although, with the vast vacancies in these buildings it might be a bit more “exclusive” than you bargained for.
Later, GT3, I’m off to the sauna now. 😉
I have been following your blog since i discovered it while on holiday in Florida over christmas. For the most part I find it quite informative and amusing. However some of the comments and understanding of what goes into developing a condo are off base.
I am from Tornto Canada and from what I can see the economic structure of condo development here and in south florida is quite similar. Big difference is that our market is still quite buoyant. It helps thatwe do not have the subprime bull and our banks are fairly demanding. Before advancing on construction they want to see abpout 65% sales with deposits averaging about 15% of sale price from real purchasers. That means a minimum number of investors, 5-10% max and bigger deposits from them. Developers cash equity has to be about 15%
Now for the tutorial:
No developer buildsfor himself or in a vacuum. He tries to build for what he perceives to be the market and what will make him the most money. His analysis is usually based on discussions with real estate marketing people, designers and analyis of the market. Unfortunately more often tan not that means the last big blowout project.
He has to take into consideration location, land cost and what he ultimately believes the market to be.
Here is aquick pro forma for a mid range building:
Land $40k per unit, $47/sf gross, $54/sf net assuming a 15% inefficeincy ratio
Construction $180/ gross square foot, $201/sf net assuming a 15% inefficeincy ratio
Soft cost(consultant fees, financing, permits, selling costs, marketing costs etc.) $50/sf net.
That means the COST, no profit is around $300/sf. Profit on normal project is 10%+/-
Couple of other things.
1. The sale price has almost nothing to do with replacement cost. Its about the the law of supply and demand and the return on investment.
In Toronto, where we have rent controls buildings have been selling substantially below replcement costs for years. In many cases at 50% or less.
2.Very often selling is about price point. Lots more people at lower price points and in a hot market the size of unit becames almost secondary. In the new building market poeple are buying off plans and can not visualize what what they actually buying.
3. Prices are set by the market not the developer. If the public and investors or spec’s as we prefer to call them, resisted what was being offered as they seem to be now, and investors or specs as we prefer to call them, prices go down and construstion stops until we get back to an equilibrium.
So moan, groan and rant. But also realize that playing a below cost market is also a form of speculation. This outcome is ultimately determined by timing, financing , the desireability of the product, other carrying costs and just plain luck. Its just like developing a condo from scratch.Truth is I have not run into one of my contemperaries who will not tell you that in this business he would rather be lucky than smart, any day.
Thanks, big bad developer. A cost of $300 is why the price will not fall below $175. If the price goes too low big investors will buy and hold. Furthermore, inflation will push cost to build to $375 in 5 years time. The real scary part is the rent that you can get in the interim. This is going to fall through the floor.
Some interesting data regarding condo sales South of Fifth: Of the 225 condos for sale for $1M to $16M, 24 closed in this range over the past 4 months and 12 more are in contract pending closing in this price range.
Storm,
I know people who make less than 30K per year and are very well educated and meticulously and tastefully dressed. I also have a great deal of respect for the teaching profession. I do not know you, so I am not able make any judgments about you. That aside…
The reality is that the majority of people with six figure incomes often speak better, dress better, eat better, drive better cars, and live in nicer places than people making 50K per year. Greater income provides privilges – better education, more opportunities, and more options in life. I don’t make the rules, I just play by them.
As far as luxury goes, it is an exclusive device by nature. If luxury units became available to the middle-class, they would cease to be called “luxury units.” The units you speak of were never meant to be owned by someone who’s income could not support luxury. And yes, investors are getting burned left and right because no one could see or accept that there were not and still aren’t enough end users. A lack of demand does not change the nature of the supply. If the Four Seasons has half of its rooms vacant, it may reduce the price of renting but it will not turn into a Ramada Inn.
Storm you also stated “The overbuiding of condos has afforded me the opportunity to rent a luxurious Midtown condo (never lived in with 2 month free) for a fraction of the cost of buying it. I, too, with my meager wages can live the exclusive lifestyle that GT3 so enjoys. So there is a silver lining to the housing crisis.”
My Reply:
1. Your post mentioned downtown, brickell, and the beach, not Midtown. Had you mentioned Midtown from the inception, I would not have even bothered. Midtown was specifically built for the middle class (whoever that is). Have you not noticed the beautiful Target and Marshalls downstairs?
2. Enjoy living in Midtown, but carry a weapon. But if you’re a public school teacher, you probably already do.
3. Midtown is not luxurious, by any knowledgable person’s standards.
4. Sorry, you live in Midtown. I live on Brickell on the water. Rent for a 1/1 in my building starts over 1600 per month. You are not enjoying the same lifestyle that I am. But if it makes you feel better, you can pretend.
5. Regarding you other post- the condo problem is not just a condo problem. It’s a housing problem with condos getting hit hardest. Middle class homes are going into foreclosure all over the place in South Florida. So the middle class end user is not the answer. It may be for Midtown, however, because it was always meant to be. The name hints at it a bit… MID(middle class)town.
6. BTW, I grew up middle class, and according to my standards Midtown is still far from being a middle class neighborhood.
GT3, the more your post, the more ridiculous you sound.
Now investmentseeker said:
“If the price goes too low big investors will buy and hold”
Just a question. Curious why most everybody expects South FL will get back to being an investment hotspot at some point. Isn’t it more likely investors will shun South FL? ie. Are the factors that made Miami an investment hotspot from 2000-2005 going to come back after this bust? or are the factors that were in place pre-2000 going to dictate the RE market?
I have to believe there are going to be big big changes in RE purchasing rules. ie. no more liar loans, 0% down. Also, this next part might completely kill the investment horizon if it goes through as I think it will… what would happen if banks and developers actually now do some due diligence to keep investors out of “non-investor” condo units?
The biggest reason for this rise and bust may not really have been the ready access to subprime and liar loans, rather, it may have been the total neglect from banks and developers to vet investors from non-investors. Is it a subprime problem when you have a building that was originally built and financed with the expectation of 10% investor and it turns out to be 80% investor?
That might have been the real culprit here. If investors were kept in check to 10-20% of the units as they should have been, then maybe this nuttiness may never have transpired.
Once the end recipients of some of these CDOs realize that Miami developers and mortgage originators were readily allowing/encouraging investors to purchase non-investor condo slots, then I think the lawsuits will start flying. There was an obligation by the developer to the banks to make sure only a certain % of units were investor owned.
Anybody know any developer that turned away an investor in any building? BTW, turned away doesn’t mean “Well, you can only have your name on 1 unit, but if you put your Grandmom, your Wife, your Mistress, your 2 grades schoolers and your dog on the applications, we can give you 7 units to flip. Just talk to Renee at the Front desk and she’ll put you in touch with Armando on how we can hook this up…”
JL,
If you found my post ridiculous, you find the truth ridiculous. Anyway, I put in my 2 cents and then some. Keep thinking that more middle class condos would have made a difference.
A major problem with the Miami condo communities (Brickell, Downtown) is a lack of mixed income housing. Everybody wanted to make the killing on “luxury” units-so that is all that were built. After construction, the reality sets in that all neighborhoods, and even within a building, consideration should be given to mixed income distribution. I am not saying move welfare into a condo building. But allowing a diversity of incomes to live in a building encourages a larger permanent population to live in an area.
Look at Brickell in the evening-it is quite dead. Mostly because you do not have enough full time residents. This mistake is going to be costly for quite some time with respect to the quality of life which could have occurred in Brickell with better urban planning. I am not saying Brickell is bad, but I do believe they missed a golden opportunity with poor overall planning.
GT3,
The more you post the more I agree with you. I know this thread in particular has gotten WAY off topic but some things should be said. There is nothing wrong with working class or middle class people. There is a problem though when those people pretend to be upper class, when they spend money they dont have, and buy things they cant afford. there is nothing wrong with living in kendall but you cant expect to live in brickell or miami beach making a salary that puts you in kendall. if people only bought what they could afford and stop pretending to be something they are not then maybe this whole condo problem would have been avoided. but i guess that IS the whole problem with Miami ( a city I love) most people are fakes.
LUCAS keep up the GOOD work with this blog.It is very informative realistic and sometime’s comical.I love the way you have it laid out.it’s easy to find what your looking for.I checked out that other guy’s blog…kevin tomlinson’s I think it is.You can’t even check out an MLS listing under 400K on that site.Your blog is certainly set up for the average person .Thank’s again and keep the good work.
“It is very informative realistic and sometime’s comical”
Without the comedy, there wouldn’t be much to talk about now. It’s kind of like talking about tech stock investing when the Nasdaq was getting chopped from 5,000 to 1,000. Lucas putting up a deal and getting chased away from his own blog about how lousy the deal is gets boring. I think the market will still not be near a bottom in a year, but I bet in about a year Lucas will be able to find legitimate deals to post so the blog can get back to talking about buying specific RE.
So that means there is over 2 years supply of $1M+ condos in SoBe and growing?
Howdy GT3 and Raffi,
I hope you two are enjoying your “upper class” lifestyle in those empty building on Brickell at night.
No one is trying to say that they should be living in a penthouse overlooking the water on a teachers salary. You are too rich to be so simple.
No one can deny that there was overbuilding in certain areas of Miami and now those condos are vacant. Soon they will be rented out to middle class people. Does that mean that these buildings loose some of their luster because the tenants are not the six figures type.
The downtown and Brickell area will not be the urban hub that everyone hopes it will be without middle class people moving in. Who would want to live there with only people like GT3 and Raffi sucking up all the air.
BTW GT3, Thanks for the heads up about carrying a weapon in Midtown. I used to have one but I loaned in to my homies living in those luxury buildings in Downtown and Park West.
Storm,
I cant speak for GT3 but I am not rich, nor do I live in brickell. I also don’t live an “upper class” lifestlye. when I look for housing I don’t look at Santa Maria, the upcoming Epic, or turnberry ocean. I know where my price range puts me and I dont look for the “best deal” at these buildings so I can scrap on by there pretending to be something I am not. and I agree with you that without “middle class” people the restuarnts and bars can’t work there. but the people who eat and drink there are not always the ones that sleep there. Brickell is a business hub, but the business owners should be residing there, not the entry employees.
Raffi, With somewhere over 10,000 units filling up Brickell, do you really think we have that many business owners in the business district? Simple math is there are way more luxury units than upper class people in the downtown miami area. That math may not have been lost by the developers (at least some of them), but the speculators, investors and recent buyers sure missed it.
With the stalemate that is occurring in the RE market-sellers not dropping prices and buyers not purchasing, does anybody know what quality of maintenance is occurring in these empty buildings? in a building like vue, which has endured troubles for a year or more, how well is the building being maintained? is this an issue and what other buildings are suffering? my biggest fear is buying into a building that will have significant maintenance costs, even though I appear to get a good deal in the sale price.
I believe that HOA’s can put liens on properties that fail to pay the dues. If they build up enough, they can force a property into foreclosure.
Now, how the title is handled with a mortgage, i dont know…but i’d imagine their lien is junior and they’d basically be wiped out in foreclosure proceedings. *BUT* the bank would likely be in possession of the title then, and the HOA could force the bank to pay.
Watch out for HOA dues…they can and I’d imagine in this environment will foreclose.
Condo Type Thang – Wrong. You can foreclose on any lien amount that remains unpaid. Also, in a when a bank moves to foreclose on a lien (such as the primary mortgage) the HOA is SOL on dues that exceed a certain % (I think it is 1% in FL). Hence, the HOA gets seriously screwed and the other owners have to pick up the slack. It is really unfair in my mind.
What if the HOA initiates foreclosure proceedings, not the bank?
My understanding is the HOA could collect all if only it initiates the foreclosure, but if the bank initiates the foreclosure for non-payment the HOA is limited to something like 1% of the sale price if the bank is not fully satisfied…so the bank probably won’t have to pay HOA fees while it is in foreclosure since by the time it initiates the foreclosure the unit is probably far behind in dues…. Someone from Florida may know more about this than me….
Lucas.
Has there been any bids on this unit yet….
Yes. Multiple bids. All are being submitted to the bank by the end of the day.
Lucas,
I’ve seen a few of these low priced short sell units in the past. Is it possible these are being priced so low to generate bidding wars? Or are the banks and sellers truly interested in selling at these prices? I have been in contact with a couple of short sellers who then say, lets make an offer and see if the bank will take? Yet these units are still advertised months later at the same price. Something fishy going on there.
gables –
Most “short sales” have not been approved by the bank. It’s simply a case of the seller putting a price out there, waiting for an offer, and then going to the bank to see if they can get the bank to approve it. In many cases, the bank will not.
I wouldn’t waste time with a “short sale” that isn’t already approved by the bank–at least at the asking price. Some agents will put this right in the listing comments. If there is no mention of a pre-approved price, it’s probably a waste of time.
There are also a lot of sellers out there who don’t realize that in order to do a short-sale, you have to prove to the bank that you are out of money. Once many sellers realize this (after an offer comes in and they get a mountain of paperwork to fill out), the deal may die because they won’t qualify for the short sale.
So, it’s basically a mess dealing with these things. Bank-owned foreclosures are the way to go.
I second that Bank Owned Foreclosures are the way to go if you want to close soon. But there are good deals out there in short sales, I have a person full time that just handles the short sale files for the listings we have because you have to call the loss mitigators every day if you want them to finally get on hte phone with you and negotiate. Many Short Sales are listed for a very low price so they get a lot of offers and they have no approval so they are a waste of time and efforts. You have to submit W2’s usually, bank statements and proove the economic hardship for the lender to even consider approving a short sale. Furthermore when the past owner took out the equity in the unit its very hard to close the short sale because the outstanding loan amount is much higher than the bid. i have found some good deals on short sales though
If the rent on a quality 2/2 in Brickell with all ammenities falls to the level of a typical 1200 sq ft townhouse in Kendall or Doral, I think that many young couples would move to the city. Avoiding traffic woes would be one reason. Also, the retail and restaurant offerings are bound to improve and more office space is coming. For these reasons I don’t think the rents will fall through the floor.
GT3
there is nothing “luxurious” about living in a brickell high rise on the water. you got a tennis court, a pool and a gym. so what? luxury is apogee. luxury is il villagio. luxury is not skyline. as for your desire to be surrounded by “professional well-dressed people who drive luxury cars” because the are “USUALLY educated and well-mannered” and “care a lot about where they live and who they live near to” come on, this is miami. no one here is well mannered (yeah, i’ll cast a general aspersion), although, i agree, they usually do care too much about their status. note, i’m not casting a judgment on you – chances are we share the same socioeconomic, or at least, similar income/professional backrounds. i guess i just don’t care too much about what i drive, whether i live in a “status” building or wear zegna dress shirts.
that said, my point (borrowed from the prior poster) was that when you do the math, there simply is not enough “GT3” types to fill all of these so-called luxury buildings that are coming online. think about it – icon brickell has something like 1000 units starting off at 500k for a one bedroom. who lives there? there’s only so many rich euros, south americans or aspiring young professionals.
Nobody lives in Icon Brickell because it hasn’t been completed. 🙂
Lucas, how do you think Epic will compare to Icon Brickell price-wise on similar sq. feet units. I assume Epic will command higher relative prices (I could be totally wrong)… would you say like 10% more?
Also, is that bridge inbetween them easy to cross as a pedestrian? ie. Is anything in walking distance from 1, pretty much within walking distance of the other?
The 2 condos look like they will be in direct competition or are they really more different than I imagine in terms of price-point and walking accessibility to points of the city (because of that bridge).
GT3:
“The reality is that the majority of people with six figure incomes often speak better.”
Does that include asshats like you who don’t know the difference between “who’s” and “whose?”
Upper class, my arse. Pretentious? Oui! Tres!
If living in the same building with GT3 is luxury then “no thank you”. Ditos for the equally rude and obnoxoius Raffi.
Think supply and demand and you have the world’s biggest hint at the direction of prices. The vast majority of Miamian’s can’t afford all the costs necessary to own and maintain a one bedroom”luxury” unit. The lenders will soon enough not even let us try. It will not matter in the least what the cost of construction is, was, or will be in the future, when it acomes to the pricing of the albatrosses that will be hanging around the investors, lenders, vultures, etc., wh are stuck with these unwanted properties at their high cost and carrying charges).
I am sorry for the unwitting dupes who meant well and will lose a lot. But I am much happier for the average poor, middle, rich etc., normal person going on about their life and who just wants to buy a home, second home or investment. Simple supply and demand dictates that prices in South Florida will not do anything but drop severely.
Great Blog. Thanks Carlos.
RCR
“Carlos”, excuse me I meant “Lucas”.
just have to be a smartass lucas…that’s it!
JL
in appearances alone, epic makes icon look second rate. the lofts on the inlet to the bay at epic are sick. lucas – where are those priced right now?
Not to sound biased because I have a unit at Icon, but Icon will make epic look second rate, first off it’s a brickell not downtown(ya i know there is just the Miami river between them, but you know how it is here there is certain stigmas with address. Secondly Icon will have that muti-acre greenery/park with a walkway on the water connecting it to downtown. It will have first class restaurants and such ect. There is a whole list of first class amenities and designers that are going into this project. The project will add in nicely to the tens of thousands of unit coming in. In all honesty though if anyone is interested my unit is up for grabs for half what the developer is charging!
RG said “my unit is up for grabs for half what the developer is charging!”
RG,
Can you elaborate. I’m interested in knowing the preconstruction pricing at Icon and what Related is asking on any unsold inventory. It doesn’t have to be specific. I’m interested in getting a general idea of what’s happening with Icon Brickell. For such a large project from Related, news is kind of quiet.
Jack McCabe of McCabe Research and Consulting: There’s currently a five-year supply of condo and townhouse units on the market in Dade County… an inventory of more than 24,000 units… “There are over 15,000 more condos under construction in Miami-Dade right now than were built and absorbed in 1995-2004, [when] 1,000-2,000 units/year [were absorbed.]”
That’s not bad, Miami’s going to be adding more than 15,000 of 100K+ local jobs in the next couple years, right? Either that or the smart money brigade is going to come in to buy the 15,000 condos under construction so they can pay the holding costs until 2014 when they can start selling 2k/year till 2021.
This is a fascinating blog. I’m a college teacher in the midwest, and would value your insights. I could afford to live in a 1000 sq ft unit there I believe if I could get in at around $200/sq.ft. I’m assuming around $500/mo HOA fees and about the same monthly for taxes and utilities. Is there much of a chance of getting these numbers at a nice but not stellar new complex such as (say) Opera Tower within the next year or two, if I’m patient?
I am curious about the HOA fees. My “condo” here for instance is a stand-alone unit and $180 a month buys outside maintenance including lawn and the removal of snow (a cold, white substance that falls from the sky, seasonally.) I’m certain that the monthly fee of $500 there is justified, but don’t yet fully appreciate the reasons for the big disparity vs here.
Would truly value your opinions.
Baard,
the high HOA seems to come from a number of areas-concierge, valey, pools, hvac of common areas, etc which can get expensive in the newer luxury buildings. I do think, however, the largest chunk rests with common insurance for the building. since most of these structures sit on or very near the coastline, the hurricane aspect of insurance is overwhelming. anybody on this blog currently sit on a HOA board and can confirm or refute?
The fees are higher b/c you are paying for the maint and upkeep of a high-rise bldg; think of all the components/structures such as A/C, plumbing, painting, pool, common areas, staff, mechanical, property insurance, etc. Insurance is usually the kicker, esp. in South Fla.
Relevant article… “Mortgage innovations” and Americans’ appetite for debt let people confuse being able to buy a property with being able to afford the property. Add in speculation driving up prices year after year letting people who couldn’t afford these properties to keep on buying more… and here we are now.
“Average Joe still can’t afford a home”
http://articles.moneycentral.msn.com/Banking/HomeFinancing/AverageJoeStillCantAffordAHome.aspx
“Recent mortgage innovations and Americans’ appetite for debt have created the illusion that homes are affordable and within reach of anyone, regardless of income. But just because a family purchases a house doesn’t mean they can afford it, and those who borrow as much as they can may have to make other budget cuts that affect their financial futures….
Bubbles, while painful, need to burst to purge the excesses, says Barakat. “Many younger people have told me that they have been priced out of the market and that it was not financially healthy (to buy a house). With these current prices, it is now creating an opportunity for future generations to actually afford a home. I welcome that”
Baard,
Relevant read if you plan on venturing into some of the newer condos in the near future.
The combination of things you mention — bldg insurance, building-mechanicals overhead, amenities and common-area maintenance — certainly don’t have a counterpart here; that makes sense in explaining the much higher cost. I wonder whether there will be any economies of scale in all of this: As the number of building grows. highly efficient Amenities-R-Us firms bidding low for long-term agreements.
Getting to the JL article (not that what I’m suggesting is anything new) but I was hoping to see factor-of-two lower $/sq.ft. transactions after a period of time due in large part to the high cost of paying the HOA fees and taxes incurred by the foreclosing banks. There may be a price point where people like me see the real prospect of owning in this transitioning city and banks are looking to cut their losses.
Just as a practical matter, can you go in there and dangle a check in front of a banker who has foreclosed — for a particular unit? Maybe make the case that a bird in the hand is worth two in the bush?
Baard – I take it you’re a prof at Notre Dame (does it still have a football program?) Anyway, the “economies of scale” for amenities isn’t new, so any such economies of scale have already taken place. Yes, those items you do mention do have a counterpart in the midwest…have you never lived in a condo development? A single family home has the same things, just don’t necessarily need an HOA to do it…there is always maintenance costs etc. I see you’re in the college of engineering…not a business person I take it. You might want to get a book on buying and selling real estate since your comments suggest you’re not too experienced in real estate, not that there is anything wrong with that since I’m probably inexperienced in robotics. Good luck.
Thanks Johnny; your advice is well-taken. You’ve got to allow for some dreaming, though, on the part of the frozen class.
Interesting article in Barron this week on the Florida real estate market and future…
http://online.barrons.com/article/SB120855860182527617.html?mod=b_hpp_barrons_most_viewed_day
Link to full text from above for non subscribers
http://www.morgan-florida.org/barrons-april-2008
JL…here is a discussion of that news story on a blog: http://globaleconomicanalysis.blogspot.com/2008/04/eye-of-housing-hurricane-mike-morgan.html
recent review of units at Vue showed the lowest prices have broken under the $200/sf mark. How does this translate into other units in the Brickell area? I know that Vue has now a bad reputation (fraud, HOA issues, etc) but that price point is an eye opener compared to other buildings in the area at $300 to $400/sf. Does anybody think the Vue prices will add downward pressure on the Brickell market, or is this building being ignored because of the price disparity?
My concern is that if other buildings ignore the price history at Vue, they will fall into the same trap. There are some good units out there that are going to be a nice deal at $250/sf, but if they maintain the high sale prices and do not move these units to permanent residents soon, the HOA will fall delinquent and many of these new buildings will become the Year 2008 or 2009 version of Vue. As noted in the article links above, lenders (who are increasingly becoming the new landlords in these areas) need to seriously consider the future when pricing these units for short sale.
The Vue is the low end of the newer construction in the Brickell Area. Architectually deficient (half the railings are glass, the other half steel; appears almost as if two buildings joined by accident)
Entrance is horrible, lobby, etc. etc…..
March sales numbers are in chaps and as you can now see the “Smart Money” was spot on once again. What does the “Smart Money” predict for April:
sales…down…down….down…
$….down….down….down….
Foreclosures….up….up….up….
$125 per sq ft is not a guess it’s a certainty. Perhaps the “Smart Money” was wrong on this one as it may happen sooner than late 2009!
Keep dreaming Ace !!!
It’s not a dream JGM it’s a nightmare for all you flippers and speculators!
Inventory…Up…..Up…..Up…… =
$….down….down….down…..
Lucas, I spent hours reading all these post, from # 1 till # 164, they gave me lots of food for thoughts and perhaps will play a role deciding what to do with the 1/1.5 at The IVY that I contracted to buy 4 years ago. The price there in 2004 was 425/sf (360K/846sf) or even higher.
As you know, that building is almost ready. The closing should start in a few weeks.
It is built just across the river, in front of the BOR. I assume that it should be of a comparable level or somewhat higher once the whole “Riverfront Project” will be completed.
Shall I close or just walk away? As crazy as that may sound, after reading all those post, I got the feeling that if I close now I’ll risk loosing even more money later on. No way to ever recover its total cost.
I understand that the condo glut, at this selling rate, will last at least 5 years.
I’m rather concerned for the possibility of having to foot higher HOA fees and/or “special assessments”. In fact the developer budgeted HOA dues are less than those of similar condos
Now it is all new and guaranteed for one year, but what about later on if many units fail to pay their dues? That is like a casino gamble. Of course the Sales people there tend to minimize that risk and paint a rosy picture.
It is too early to tell how their closing rate will go. Any Idea?
Pelide, why are you asking a realtor?
That’s like asking a snake if his bite is posinous.
You paid how much $425 a sq ft LOL
Walk away my friend walk away!
The “Smart Money” hath spoken.
Pelide, 4 year old contract? What does the contract say about their duty to close within a certain time? You probably don’t have a financing contingency, 4 years is a lifetime.
The Ace,
agree, but nevertheless I like the way Lucas explains/comments things and perhaps he has no direct vested interest in this particular condo.
The Ace, forgot to tell you that the layout drawings always mentioned a total 980sf (I assume balcony included) while, much later on, the official “Prospectus” I received reads 846sf. There has never been a way to get a valid explanation about the differences, nor an amended layout showing all the exact measures from wall to wall that would allow me to recalculate the total area.
Perez, the contract reads “Will be completed and available for your use by September 2007”
Once again crazy prices $425/sq ft….
Completion by Sept of 07, I am sure they will say there has been hurricanes and labor/supply shortages so May of 08 is reasonable.
Go by the project and check out the neighborhood, even if you are out of town buy a ticket and come see it for yourself. I think that building is not right across the river from BOR. and the neighborhood is sub par.
I would speak to a lawyer. Some contracts say you can get back anything in excess of 15% of the purchase price if you default. Walking away may still give you 25% of the deposit you put down assuming it was the standard 20% of purchase price. Jared Beck has a blog with some discussions on the subject.
SBKI, yes the contract reads “will refund any amount you have paid in excess of 15%”
I paid 20% so I should get back 5% if I really decide to walk away.
HOA fees $330 looks low compared to other condos since they do also include the whole Riverfront Project area (4 condos, possibly 6). Therefore if the total funds collected from the 4/6 condos should not be enough to cover the expenses for the upkeep of the whole Project, then I’m really afraid they will increase them and/or ask for special assessments in the near future.
Furhermore obtaining even a small financing is becoming very difficult or far too expensive. It was a sure thing just until few months ago. Now, they changed all the rules for MIAMI condos.
Not sure about other new bldgs but BOR maintaince went up by about 30% after the 1st year. This year there is a special assesment that is approximately the same as one month of your maintanance fee. Services have been scaled back concierge…etc..
I think developers do make it artificially low the first year and people not paying and going into foreclosure dont help…
What people need to understand that most of these condos are not meant for the average Miami person….They are meant for young professionals, retired, upper class with money to support a place of this price, etc….These projects were not affordable housing… Did they over build? Yes. Are we at a bottom who knows, but some analysis here assumes too much depenedent on the average Joe blow in Miami…