Article Courtesy of The
Miami Herald
BY MONICA HATCHER
Published December 20, 2009
Miami's skyline at dusk tells the story of
the condo crisis in stark relief: Some of the luminous towers beam with
life, others flicker half-full, and still others are completely dark,
mired in legal disputes over past-due loans and stalled sales.
South Florida's condo market is still
caught up in the violent landslide of the region's housing downturn --
with developers in bankruptcy, entire projects in foreclosure and
homeowner associations struggling to stay afloat. But as the year draws to
a close, at least a few signs point toward a fledgling recovery.
"It's horrific and getting better,''
said Adam Greenberg, managing director of BayBridge Real Estate in Miami.
"In May, we were all at bars drinking at two in the afternoon. Now
I'm just getting home after a full day of showings, after a full day of
showings yesterday.''
Among the harbingers of change: The impasse
between buyers and sellers that marked 2008 ended when lenders finally let
developers sell for less than the cost to repay their construction loans.
The subsequent price cuts continue to dramatically boost sales for new
units, unleashing a mini-boom in condo sales in the downtown Miami area.
The trend let developers fend off many of
the vulture funds that were circling downtown high-rises, ready to scoop
up properties for cents on the dollar.
Tired of waiting on state lawmakers to pass
legislation, condo associations facing near collapse have turned to courts
for help to collect maintenance fees from deadbeat investors that were
needed to pay water bills, fill pools and keep the lights on.
Perhaps most important in wringing badly
needed cash from empty units have been so-called blanket receiverships
that allow a court-appointed custodian to collect rents from tenants in
every unit behind on fees. Before, a single receiver had to be appointed
for each unit individually, a process too costly for cash-strapped
communities.
"We've already collected well over
$100,000 in rent under receiverships for our clients,'' said Ben Solomon,
a partner with Association Law Group, credited with the legal innovation.
"It's resuscitating some of these associations.''
These receiverships, still being stretched
and tested, have pulled scores of condo communities from the brink,
allowing homeowners to keep vital services running in buildings riddled
with foreclosures.
"Things really got ugly at some points
during the year, but that pure desperation is what has spawned so many of
the new legal remedies,'' said John Porter, community association manager
for The Continental Group, one of the state's largest property management
companies.
A SUDDEN RELIEF
Investors, who had avoided buying
the remains of half-sold buildings out of fears of having to fund
near-bankrupt associations, are feeling more confident and moving ahead.
In many cases, the frequent bad news of
bankruptcies, foreclosures and further price drops came with a silver
lining that prompted turnarounds.
At the 628-unit Residences at the Falls
condos, for instance, Mamie Attar, a condo board member, said the best
thing to happen to the struggling community was the bankruptcy of the
developer. Before that, the company had stopped funding its share of the
budget, leading to disruptions in the water and other services. The gym
had been vandalized, the pools were unusable and the laundry facilities
were out of order.
A trustee took over and quickly turned
around the property, at 14036 SW 90th Ave. in south Miami-Dade, making
repairs and paying the bills with rents collected directly from tenants
living in units still owned by the developer.
Still, Attar worries that her relief will
be short-lived. She recently learned that the bank holding the loan on the
Residences at the Falls, Cleveland-based AmTrust, had itself succumbed to
the housing crisis undertow and was seized by the FDIC two weeks ago.
Now her anxiety has returned.
"I don't have any idea what is going
to happen now. The [new owner] can decide to keep the property . . . or
they can say to hell with it and let's sell it at whatever price and get
rid of it,'' Attar said.
As far as the value of her unit goes:
"I'd rather not know, to tell you the truth.''
PRICE DROPS FUEL FRENZY
Price was the big story of 2009,
and it remains significant; the lesson being that if condo units are
priced right -- generally far lower than owners and developers would
prefer -- they will sell.
"People love their real estate. They
don't want to admit failure and don't want to take less, but the market
never lies,'' said Michael Bedzow, president and CEO of Groupe Pacific.
"We had a capital structure that allowed us to price the units to
market, and evidence it was the right strategy is that between January and
June we sold between 25 to 35 units a month in one of the most difficult
times.''
Market watchers credit Aventura-based
Groupe Pacific, developer of Brickell on the River South, for being the
first to bite the bullet.
Just after the New Year, the firm slashed
prices twice, bringing down the per-square-foot cost by 43 percent to an
average of $220. It quickly sold more than 120 condos.
Developers and lenders stuck with
mothballed units followed suit, touching off a boomlet almost reminiscent
of the go-go years. The magic number for new units: between $200 and $230
a square foot. For resales in the downtown area, too-good-to-pass-up
prices seem to start at about $180 per square foot.
"Buyers are in charge now,'' Greenberg
said.
During the year, developers marked down
prices 30 percent or more in the darkened condo towers, and the market
responded. Closings on developer-held condos in greater downtown Miami
reached about 300 a month in the third quarter, compared with just 82 a
month the previous quarter, according to sales data from Condo Vultures.
Even though the developer losses were
heavy, the sudden movement prompted a collective sigh of relief that a
market had been reestablished. By the end of September, developer-held
inventory had dropped to 8,486 units compared with 10,126 at the start of
the year.
"There was a moment in Miami where you
thought you weren't going to be able to sell,'' said Inigo Ardid, vice
president of Key International, who in June similarly cut prices at his
condominium, The Ivy, 82 SW Third St.
For the most part, condo prices have
continued their headlong plunge, with units in both Miami-Dade and Broward
counties now worth less than half on average what they were at the peak in
late 2006.
That meant plummeting from $294,400 to
$138,400 last month in Miami-Dade and from an all-time high of $210,000 in
2006 to $83,200 in Broward. Since the start of the year, declines have
slowed and appear to be bumping along a plateau.
In troubled condo conversions such as the
Residences at the Falls, which was converted from apartments to condos
during the boom, the price declines are often far steeper.
The lower prices have lured buyers for both
existing and new condos. Across South Florida, sales throughout the year
grew at a steady clip and the number of properties for sale dropped.
In November, sales of existing condos in
Miami-Dade were up 48 percent from the prior year, while the number of
listings was down by 30 percent. That still means there are 16,665 condos
in Miami-Dade for resale, a two-year supply and almost twice the number of
single-family homes.
In Broward, sales soared 86 percent, while
listings fell 34 percent, according to preliminary statistics from the
Multiple Listings Service. There are still 11,741 condos to burn off,
compared with 6,635 houses.
INVESTORS WITH CASH WIN
The difficulties in getting condo
loans means cash buyers were -- and are -- calling the shots.
Stung by huge losses on condo loans,
lenders are still reluctant to make loans, and both buildings and
borrowers who once easily qualified now find mortgages elusive. Lending
giant Fannie Mae singled out Florida among the 50 states for special
underwriting treatment, locking out many otherwise-qualified local buyers.
As a result, foreign investors, whose
currency was strong against the dollar, were welcomed with open arms.
In some buildings, including 1060 Brickell,
as many as 80 percent of the buyers have been foreign investors -- and 98
percent of all buyers closed with cash.
Anna Tedeschi and Odette Zora, on vacation
from Italy last week, were waiting for their real-estate agent in the
lobby of the Wind by Neo condominium, 350 S. Miami Ave.
Tedeschi was hopeful that in the
topsy-turvy world of South Florida real estate she would once again become
a winner. Facing mounting losses on a Miami Beach condo she bought at the
peak of the market, Tedeschi said she was now interested in buying at the
bottom to hopefully balance her losses.
Like thousands of other new condo buyers,
Tedeschi said she planned to rent the unit until prices rebounded.
"When [buyers] see something come on
the market at these prices, people are anxious to jump,'' said Andres
Asion, vice president of sales for Fortune Development Sales.
Asion said that after the lender-controlled
project slashed prices to about $220 a square foot two weeks ago, 80 of 90
available units had gone under contract.
By dropping prices low enough to attract
retail buyers with cash, developers were able to stave off the large-scale
advance of investors who had been expected to pounce en masse on large
blocks of condos, if not entire towers, paying bargain-basement prices.
"I don't believe it panned out
anywhere near what everybody originally anticipated a year ago or 18
months ago, when every New York investor, hedge fund and opportunity fund
thought they were going to come in and swoop up all these condos at
unbelievable bargain prices,'' said Jack Winston, an analyst with Goodkin
Consulting.
Still, bulk investors with names like
UH-SI, LLC and from places like Halifax, Nova Scotia, took title to 2,228
units in buildings throughout South Florida. Other investors purchased the
balances on delinquent loans for at least 1,342 more, according to Condo
Vultures research.
The total price paid for some 3.5 million
square feet of space was $866 million, an average of about $250 a square
foot.
Investors, for the most part, will hold the
units until the market rebounds, renting them out meantime.
"What 2010 is going to be all about is
plummeting rental rates,'' said Peter Zalewski, an analyst and broker with
Condo Vultures.
MORE PRICE DROPS IN 2010
Next year, analysts expect fits
and starts in the market -- and more pain, as well, amid more developer
bankruptcies and bulk deals.
There are still empty buildings such as
MINT, 92 SW Third St., and Paramount Bay, 2020 North Bayshore Dr.,
projects that have been on ice since the original lender, Corus Bank, was
seized by the FDIC in October and a new owner took over its portfolio.
It will all lead to more price declines in
the new year, experts say.
"We are going to see price drops of 15
to 20 percent on the median price,'' said Jack McCabe, a Deerfield
Beach-based analyst and a self-described pessimist. "We are going to
see more bulk buys, a huge wave of additional foreclosures, lenders doing
far more short sales. The combo is going to be the driver that determines
pricing [downward],'' McCabe said.
The pain, in other words, continues.
"We've all adapted to it, and whatever
comes, it's at least not going to feel as bad next year,'' Zalewski said.
"It's not like we've built up a tolerance to it, but we know what it
is and how to deal with it the best we can.''
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