Will History Repeat Itself in Miami?
October 28, 2007 by Lucas Lechuga
Earlier this week, I showed a few condos at Villa Regina to a lady who has owned a unit in the building since 1983. She and her husband purchased their condo in November of that year. She told me that for the first year and a half to two years only 25 condos were owned of the 208 total units. The bust had happened and nobody wanted to buy. The developer, Nicholas Morley, eventually went under and the building was later taken over by the FDIC. Nicholas Morley, was a big-time developer back then who was the equivalent of today's Jorge Perez or Ugo Columbo.
She said that nobody would touch Villa Regina with a ten-foot pole for the first two years after she purchased because the building was either in receivership, meaning that it was undergoing foreclosure proceedings, or it had already been foreclosed upon. As a result, the common areas were under-maintained. The building didn't have any security, air conditioning in the hallways, a concierge in the lobby nor valet service.
Before the building went into receivership, she, her husband and the condo owners who represented the other 24 units met each month to resolve the problems. They wanted answers. No, in fact, they wanted action. Each month, the condo board sent requests to the developer stating that they themselves would pay to have the building maintained 100 percent. The developer never answered their pleas.
After Villa Regina was foreclosed upon, there were rumors that Nicholas Morley wished to acquire the building from the FDIC for 10 cents on the dollar. The condo board sent letters to the FDIC to prevent this from happening. Nicholas Morley had made them suffer long enough and they didn't wish to take any chances.
An investment group stepped up to the plate and purchased the remaining units at Villa Regina from the FDIC, a few years after she and her husband had purchased their condo. She stated that "almost overnight, there was interest in buying condos at Villa Regina". I asked her for how much the investment group purchased the remaining units. She didn't know but guessed that it was around 50 cents on the dollar. The level of maintenance that was initially promised had finally been restored. People wanted in because the dark cloud that hung over Villa Regina had been lifted. The investment group was then able to sell the remaining units for a profit.
It was especially interesting to hear, from the above source, that the building fell into the hands of the FDIC. This indicates to me that the bank which loaned the money to the developer also went under as well. I don't expect buildings in Miami on the horizon, however, to fall into the hands of the FDIC for too long, if at all. The world is too widely connected nowadays. Information exchanges hands at such a rapid pace. Investment groups will act much faster in today's era than that of the 1980s. If a bank yells, "Help!", several investment groups will be there to say, "Help has arrived, but how bad do you need it?".
There's been talk that the current boom and bust in Miami is worse than had existed in the early 1980s. I've advised my readers time and again to watch out for the new digs. If you feel like buying, then look for those buildings that were built prior to 2000. They have much more stability because most units in those buildings are owner-occupied. Investors/speculators flocked to the new buildings and those that were yet to be built. The possibility of the above occurring in a new condo development in Miami is likely within the next couple of years. That's why I've been keeping a close eye on each new development's ability to close units. If you are interested in buying in a new development then you must be aware of the default rate that is occurring there. Those with a default rate higher than 30 percent, in my opinion, will be ones to stay away from until much of this excess supply is purchased.
The oversupply problem in Miami does indeed currently exist and is worse than that which existed in the early 1980s. However, the level of demand that currently exists far outpaces that of which was evident in that decade. Miami is now on the map. Miami now has world-wide attention. The strength of foreign currencies relative to the U.S. Dollar has made it more alluring for foreigners to buy here. It has also become a mecca for second-home buyers, retirees and those who wish to live in tropical climes throughout the year.
The opening lines of the movie Armageddon says, "It happened before. It will happen again. It's just a question of when". It will be interesting to see if history repeats itself in Miami and, if so, then to what extent.
Amazing story.
Even more amazing how we find it on a blog instead of the regular media (tv, newspapers, mags)
Excelent article Lucas!!!I agree 100%. Enven some critize Miami. This city has a bright future. New generations will love this city.
great piece Lucas, but what I don’t follow is why don’t the few owners have a right to obligate the owners of the rest of the units, whether it be the developer or a receiver, to pay maintenance fees. Also what if all the amenities were not in place before receivership, for example a pool, or the gym, who if anyone would pay to have all the amenities completed. Maybe you or one of your readers have experience with this: unfinished common areas and amenities seem to be a common complaint among owners which have recently closed in a new… Read more »
Makes you wonder how developers still get TCOs… If something like this happens along the way, the few owners that close will suffer. Amenities may take years to be finished. All amenities should be finished before they can force buyers to close.
You are right Lucas, History does repeat itself. Not in the way you hope though. Lets go back to the 1920’s for some clarity. http://www.stock-market-crash.net/florida.htm he 1920’s, in America, were a time of great prosperity. Skilled and educated working Americans had jobs providing numerous fringe benefits, paid vacations and pensions. In addition, automobiles were becoming commonplace for the wealthy and middle class allowing cross country travel. This good fortune set the stage for the Florida real estate bubble. Starting in 1920, many Americans became enamored by the materialistic and prosperous lifestyle of the time. During this time, the stock market… Read more »
It is wrong to think that history repeats itself and it s wrong to overlook the fact that the real estate market is not as archaic as it used to be in the 20’s ….new instruments and vehicles exists and funds are powerful enough to quickly go in……..and out….
Laurent,
Real estate is, by all measures, still a fairly illiquid investment. There have to be buyers for those funds to sell to…and that won’t happen so some time.
This is a great blog, and like any great blog should encourage comments from others. In that spirit, please don’t get offended if I have a different POV from you. Reply rationally – I’m open to ideas. Laurent, the “new instruments” you refer to (collateralized debt obligations, or in other words, the bank you got the mortgage from sold the mortgage to a bunch of Wall Streeters) are one of the major reasons why this collapse will be worse than anything before. There’s nobody to turn to if you run into a problem as an owner, and the banks relaxed… Read more »
doom and gloom on so tiny investments…
200$-300$-400$ even 500$ a sqfoot is emerging market prices…Miami is way underpriced..
people will see price falling but they won’t sell they d rather pay it full in cash…it is so cheap …
What they don’t earn in capital gain (and i do think they will make money in cpital gain!) they will make with the dollar getting more expensive compared to their currency…
If you really think 300-400-500 a sqaure foot is cheap I want you to pass the bong my way so I can take a hit. 75-90-110 a sqaure foot is cheap, and thats what housing cost in the entire middle 80% of the nation, excluding the two coasts (who had a huge bubble driven by speculation). Prices in Miami will return to 150-200 a sqaure foot, and prices will fall another 1/2 off before all is said and done. That condo you own that is 400K now will be worth 200K (in american dollars) by 2010. Don’t believe me? Just… Read more »
No one is going to be able to get the exotic financing that allowed these prices to happen in the first place. When people can only buy houses that they can actually afford you will quickly see how much these condo’s are really worth. Its happening now. Housing Fear is coming.
I think a major difference between the 1980’s condo crash and the one that will soon occur is that back then, you had an oversupply of relatively affordable condos.
Now you have an oversupply of un-affordable condos.
Market won’t pick up here until prices come way down, plain and simple.
Excellent Comments, I think the FED will cut the Federal Funds Rate by another quarter point tomorrow, pushing the dollar even lower. I expect the dollar to go to 1.60 to Euro, Furthermore I think when property prices drop 50% back to what they were in 2002 they will start moving from foreign investors. I get calls from France every week from people interested in buying foreclosures, WHne you look at the rate of foreclosures its alarming, but when you take into considerations that the banks that own these are just really servicing the loan and they were all bought… Read more »
I think all have valid points. However, we cannot generalize about the real estate market here. Lucas is aware of this as he posts alot of info about two distinct sub markets, one being the Condos on Brickell and the other about the Condos on South Beach. There is and will continue to be a decline in prices along the Brickell corridor. Too much supply at prices that locals cannot afford. Someone mentioned about prices going down to $150 – $200 /sqft, that’s about what I am thinking, primarily for the Brickell corridor. Now of course not all buildings along… Read more »
I just wish I could post the MLS listings of Miami from 1999. It was cheaper than Michigan. 4 bedroom, 3 bath 2500 sq foot house in Kendall for $199,000 kind of cheap What did that house sell for at the peak of the bubble? 700,000? Seriously guys, Prices are coming way down, everyone knows it, and thats why no one is buying. The forclosures and REO’s will drive the prices down, and people will have no choice but to sell at a huge financial loss or not sell at all in order to compete with the banks unloading massive… Read more »
I would love to own one of the condo’s in Miami that Lucas blogs about. The difference is I will pay 150 a sq foot, not 400 a sq foot.
The demand will return when the price is right.
Jose Laya Do you have the data? I believe you. It’s instinctive that SoBe would hold values better than the Brickell corridor (which even Lucas has given up on, in terms of believing the figures he posts here, if I am not mistaken). But the two booms you mentioned ended in awesome, hideous busts: The stock market of the 1990s; and the real estate boom of the last five years. Om the latter topic, the data aren’t in, because owners & developers are in denial. So I guess I am projecting, but it’s an easy guess. Prices will fall or… Read more »
@Jose Laya
And those two booms ended well, didn’t they? Sure, the founders of Google can buy any apartment here they want, but the average investor lost tons in the dot.com collapse, and is about to lose tons if he invested in Miami pre-construction condos three years ago. People don’t walk away from 20% deposits idly.
Aargh. Double post. Sorry!
What do you guys think will happen with buildings like 10 Museum? (Lucas) The lobby, gym, pool area, elevators nor spa are done yet. Do you think the developers will finish? How about the other buildings next to it? From what I have heard the guy behind Marquis has plenty of cash and will deliver as promised no matter if it comes out of his own pockets.
The developers behind Marquis are the same developer of Vitri at 5th and Alton….that didnt work out too well!
I think there should be more empahasis on what Chris said about the comparable sales from Banks unloading their REO’s most banks that hold these REO’s dont actually own the mortgage they are just servicing the loan which was bought up by Wall St, thats why we are seing such stories as that of Devaney in Key Biscayne putting up his Phantom and all his estates in Key Biscayne up for sale. I am compiling a list of foreclosures on the MLS and there are over 1,000 condos on the MLS now in Foreclosure, Pre foreclosure, short sales and REO… Read more »
Thats exactly my point Alejandro. Say you purchased your condo for 400,000 and so did everyone around you. No one is going to sell for less than 400K and everything is great. Now, your next door neighbor in an identical unit lets his condo go into forclosure and the bank owns it. The tables have just turned. The bank is not in the business of managing properties and just wants to sell the thing. Especially now with tons of forclosures they just want to get rid of. When the Bank lists that property at a price where it will actually… Read more »
let me tell you one thing guys do not dream dreams.
good buildings at good locations will do well. like plaza on brickell, my friend is sales director they call all buyers and all people said they plan to close on time. lets say 10% will not close but that is still good. brickell avenue will do just fine. bad locations with bad building will end up going down. like platinum condo.
I agree with Joe. There’s alot of new building that are just simply crap or just don’t cut it. Other buildings that are fancy and desirable will have the demand..i.e Marina Blue, 10 Museum, 50 Biscayne etc.. those are just simply eye catching building that people drive by and say “damm thats a nice building I would love to move in there”. Then there is the not so pretty stuff along Biscayne that just isn’t desireable. Those prices will plummet downward cause even the lower income buyers if finacially fesiable to them will wait to save more money to buy… Read more »
I read this article with great interest because I’m seriously considering purchasing a unit at Duo in Hallandale. I’ve been watching the MLS for a few months and the cheapest units for 915 sq. feet 1/1.5s went from $299,000 in July to $249,000 as of today. What’s holding me back is: 1) Falling prices. But then I see all these other new construction buildings going for the mid to high 300s and think $249,000 for a semi-luxury new construction unit is a steal. Do anyone really think prices can drop below $200,000 for a new construction project? 2) The maintenance… Read more »
People buy and come twice a year sometimes…if they re rich…they still pay maintenance fee though so u should get everything you re entitled to
If they decided to rent it out for the older days (a few of my friends did that) then they still pay it all and put someone in there full time
Some ar just gonna do it in the middle thrrough short term leases rent 6-8 months use the rest of the year
Robin here is a really simple way to tell if the right time is to buy…Figure out what the unit you want to buy could rent out for.
Multiply that monthly rent by 150 to figure out the most you should ever pay.
If you think you could rent out that unit in Duo for say…$1200 a month… Then $180,000 is the most you should ever pay.
The price will eventually fall to be in line with equivlant rent and my feeling is if you bought now you would lose about 70K over the next 2 years.
guys if you do not buy you have to rent it. you either buy or rent it.
when you buy you get tax benefits plus you can turn your condo into cash.
if you rent 2000$ for 10 years
thats more 240.00$ per year or $240.000 in 10 years so you get condo for free plus you deduct taxes so you basically get it for free and in 10 years you sell it and it will be more than you have paid for.
if you have brain long term real estate is good deal
Joe, I’m sorry but your post just doesn’t make any sense.
Also, don’t forget about property taxes and maintenance fees when you look at the rent vs buy decision.
2000$ per month for 10 years is 24.000*10=240.000$ i think that s what he meant and u have the tax deductions which basically come to cover ur maintenance fees..
so rent for 10 years buy forever…that s the idea…(i know there s the mortgage to take into acccount….but he seemed not bothered by that)
there are enough people who can spend 300k on a condo they will rent to you and than in 10 years when they get 240k from rent will sell that condo to you for 500k and at that time you will finally decide to buy cause it is a boom market and everybody is buying.
buy when noone wants to buy and sell when everybody wants to buy!
Ultimatley, if you rent or buy with that 240,ooo over 10 years that should pay off the majority of the morgage if you bought a condo lets say at 300k. In 10 years worst case when you sell let’s say at 300k you break even because you get all your money back. Chanches are in 10 years it will prob be worth more so you’ll get all your 300k back and taxes and maintence back.
Jose Laya said: “In the last 10 years we have experienced two huge booms: 1) The stock market boom of the late 90’s, 2)The real estate boom of the last 5 years Those two events have created an unprecented amount of wealth, not only in this city and State , but throughout the World. We may never experience two huge events back-to-back like that in our lifetime.” I don’t know if you remember, but all that “wealth” that was created during the stock market boom was given back when the market went bust. Housing will do the same. Prices won’t… Read more »
Great comments all. Just want to add a couple cents worth here. I think everyone’s concerns about wholesale lending standards being the driver of mortgage prices is right on, but I think everyone is over-concered about the reaction from banks on these standards. Yes, for the immediate short term, lending standards will revert back to the pre-Alt-A days, but the corner will turn. When it does, look for 125% loans to A-paper types at first, to help refinance bad loans they got into the last couple years. After that, look for the Alt-A loans programs to make a slow progression… Read more »
Joe Dia, You need to learn how a mortgage works. Let me educate your for a second. ___________________________ When you close on a mortgage you automatically lose about 5,000 dollars or so in closing cost that you never see again… So right off the bat you are negative 5K ____________________________ Next, Your mortgage payment is about 90% Interest and 10% equity the first 5 years you own your home. So your money is going up in smoke the same way as if your renting. Renting = 100% up in smoke Own = 90% up in smoke for first couple years.… Read more »
Everyone has valid points but we just don’t know. Who would of thought in 2003 Downtown would start to look like it is now? So in 4 years what a change. The next four year should bring a huge facelift and more to dilapitated downtown. That will draw more and more people to the center. Look at all the billboards going up with the DWNTWN slogan saying methamorphisis. It will take a while but patience is a virtue. If you can hold and live in your condo for 5 years chances are you’ll see the fruit of the investment happen.… Read more »
Renting = 100% up in smoke
Own = 90% up in smoke for first couple years.
yeah but you deduct 90% from tax return cause it is interest so you save in taxes my friend,
obviously you do not own condos cause you have no clue
I do own a condo.
Back to the point, People who rent get a 5,000 dollar standard deduction anyway. The deduction for your mortgage interest is not as great as you make it sound.
If you want a deduction that bad donate to charity lol.
Saving 800 dollars more a year on taxes is not worth losing 80,000 dollars buying a condo that is losing value for the next 3 years.
not all people take mortgage. some pay cash and enjoy it.
well u never get rich renting. so go ahead and rent
It’s almost like leasign a car. You never own the damm thing. I agree owing has it’s benefits renting you just never have anything but you do have the option of moving around much quickly if you get bored of your current home. Owners got to sale and moslty rely on that sale before they can move to their next destination.
Very good points but no one here has taken into consideration time value of money, I showed a condo yesterday to one of my clients and the realtor owner was telling me that there is no way she was going to loose money on the originalpurchase price she payed yet she had lived there for 3 years, she told me she would rather rent, I ran the numbers for her renting her condo that she is asking 480K for and rents out for 2500, I took vacancy and credit losses, property taxes, Association fee and had to explain to her… Read more »
If you look at Foreclosure Listings, the bank needs to move them I have been following them for quite a while and thats what I specialize in and 40 foreclosure condos sold in the last 2 weeks, when those prices come into the comparables all the asking prices across theboard should come down. Yesterday they listed an apt in Jade on the 42 floor 2 bed 3 bath 1730 sq ft ocean view originally purchased for 2.1 Million on 5/23/05 and the bank wnats to liquidated it and just listed it at 750K When this moves which will probably be… Read more »
First off, I want to say that I’m very happy that this post has been able to attract such a high number of comments. When writing this post I knew that it would be one of my most popular but I struggled for a while whether or not I should publish it. I knew that it was a story that should be shared, however, so I went forth with it. Everyone, by the way, provided some great points. Alejandro, You are indeed correct that the unit at Jade should be under contract very soon. That is a great deal. I… Read more »
The unit at Jade that was listed for $750,000 is now pending sale. The list price was readjusted to $1M.
Lucas I wanted this unit for myself as an investment, and it moved way too quickly I called a day later and it was under contract already like you said, More foreclosure deals like this will come to the market soon, however you have to move very quickly
They have that condo listed above now at $1.2 million. Was this a bait-and-switch move by some slimy broker?
no that is unit 4503 so its 3 floors up and was originally purchased for $2,165,000 on 9/12/05