Losses growing for Miami condo flippers

Article Courtesy of The South Florida Business Journal
By Brian Bandell

Published February 1, 2017


More sellers of recently constructed condos in Miami-Dade County have been listing their properties at a loss, and they’ve increasingly closed at significant discounts, according to a report by StatFunding.

The Miami-based real estate finance company led by attorney Andrew Stearns used MLS listings and property to track the county’s new condo market. Sales of existing units have declined for 13 consecutive months, although prices have modestly increased, according to the Miami Association of Realtors. Many industry experts are worried about how the new condo inventory will impact the market, especially as international sales have slowed.

Looking at condo towers of at least 80 units in Miami-Dade completed since 2012, there were 13 units that sold at a loss compared to their previous purchase price, including the standard 6 percent commission taken out, from November 2016 through January 2017, according to StatFunding. The biggest lost was a unit in Faena House in Miami Beach, which was acquired for $16.5 million and sold for $12.5 million, followed by a condo in Brickell House acquired for $590,900 and sold for $490,000.

Stearns said he included 6 percent commissions in the calculation because that is standard for MLS listings. He did not include other common costs for condo flippers, such as developer fees of 1.5 to 1.75 percent, pre-funding of the condo association, monthly association fees and furnishing expenses.

“Since May, we have seen the losses accelerate and the listing for loss accelerate,” Stearns said. “So it appears we have have passed that point where the pre-construction condo market has turned … Hopefully, it’s only a small percentage of buyers who want or need to sell.”

In its November 2016 report, StatFunding found the number of new condos listed for sale at a loss on MLS increased 500 percent since May to 70 units. By the January report, nine of those units had sold at a loss.

Only 8 percent of units in new 20 buildings tracked by StatFunding were listed on MLS at a loss in the November report, but certain buildings had a high number of so-called “underwater listings,” including Millecento with 12, Nine Mary Brickell Village with 10 and Icon Bay with nine. However, 43 percent of the closed those 20 buildings traded at a loss.

The report noted that over 10,000 condos are slated to be completed in Miami-Dade over the next 24 months. Most of those buyers put down 50 percent deposits, although this usually occurs in stages with 10 percent due at the time.

Stearns said certain developers have agreed to sell pre-construction units to bulk buyers at a discount.

“The biggest risk for individual buyers is prospective is bulk sale transactions happening today at condos under construction,” Stearns said. “For the buyer who paid full price, they will be very disappointed to find out that certain purchasers bought at a significant discount to their price, which will probably impact the resale price of their unit."

StatFunding’s January report also found sold developers holding onto a significant amount of un-sold inventory in completed buildings. Projects such as Brickell City Centre Rise, Crimson, Centro and Bond had dozens of unsold units months after the initial wave of closings.

That means the developers must pay their carrying costs until buyers are found. Stearns said developers’ strategy with this unsold inventory could have a big impact on the market.