DEAL ALERT: Developers Offering Attractive Close-Out Pricing on Existing Condos
December 22, 2015 by Lucas Lechuga
While the market is buzzing with attractive pre-construction investment deals, not many people think to inquire about the buildings that are existing and still have a bit of inventory. For some investors, these existing buildings can bring a better investment than the speculative development deals that others are flocking to. The close-out phase of an existing building is actually one of my favorite times to sell in a project for a few reasons:
- Mitigated Risk
The investor can see the actual building and apartment they are buying, so much of the risk of the design and construction phase has gone by. Since the apartment exists already, the buyer knows exactly what they will receive, not a photo of a building that they hope comes to fruition the way it is shown in the rendering. - Faster Return
If you buy existing inventory for purposes of a rental investment, you can lease the property immediately. You will be able to see your money work for you straight away while other investors wait to see how their investments will perform after the building is completed. - Financing
Mortgages become far easier after half of the apartments in a development have closed. Since the lender can also see the building, they know what their risk is and are more willing to lend money with lower down payments. This is true for both local and international investors. - Flexibility
Developers are investors too, and when they are in the close-out phase they are almost finished with their project. I don't care how many people say that there is no emotion in business, that is wrong. There is something emotional about being close to the finish line and that makes developers more eager to sell those last apartments to get to their goal. Many times we see developers offering HOA credits, discounted prices and special leaseback programs to entice buyers into helping them reach their goal. If buyers can reach their goals by helping developer reach their goals, isn't that a perfect scenario? I think so...
With these points in mind, I have a prime example of a building that is currently in this situation.
City24 is a boutique luxury building in Edgewater with 119 apartments. It was originally built in 2008 and has all of the amenities and finishes that residents of the neighborhood have come to expect. There is a 24 hour doorman, gym, pool & jacuzzi, secured garage parking, the apartments have stainless appliances and quartz countertops with tile or wood floors, washer/dryers in the apartment, pretty views, easy accessibility to restaurants and fun events... the things we look for in the Downtown Miami area.
Out of the 119 original apartments, the developer needs to sell only 6 more in order to be finished. We have toured the remaining 6 and have not seen a reason that these specific apartments remain unsold. The developer is offering the full inventory for $2.5M, which works out to roughly $385/square foot. Naturally, if one investor were to purchase all 6 apartments, a lower price or additional perks would be considered.
At the offered price, the remaining apartments would equate to a pre-tax return of 5% when rented for full market value. The typical investment apartment in the area today brings a 3% return, so the buying investor would start off with an advantage on this package. Additional parking spaces, HOA credits or price negotiations would help the both the buyer and the seller while making good use of the property.
If you would like more information on specific apartment numbers, sizes, prices or packages, don't hesitate to reach out. We can work together to present a package that meets your investment goals on this or similar projects.
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