More Than $50B in Adjustable-Rate Mortages to Reset in October 2007
An article entitled, “Mortgage Resets: Record Bill Coming Due,” was published today on the CNN.com website. It provides great insight as to how the real estate market can go from bad to worse in upcoming months. Hybrid adjustable-rate mortgages, or ARMs, were a popular financing option for homebuyers in 2004 and 2005. Many of these homeowners will see an increase in their mortgage payment of over 30 percent once those resets occur. That is a significant increase which could lead to a tidal wave of late payments and, eventually, foreclosure for a large number of homeowners.
Historical Real Estate Roller Coaster Adjusted for Inflation
I’ve seen the following video several times in the past, but recently Wellcomemat added a chapter menu to the video to aid those impatient people (such as I). The video will display the ups and downs of the real estate market since 1890, plotted as a roller coaster ride. It takes a while to download all of the chapter menus but it is worth the wait. Jump to 1970-1990 to see the type of plunge that the United States real estate market took back then. Notice the year markers in the lower right hand corner. Continue the ride to see where the market is now, and to get an idea of where Miami real estate may be headed.
Pictorial & Video Review of The Fantastic Four in Miami
Today was a beautiful sunny day in Miami so I decided to revisit my favorite skyline-gazing spot at the southwestern tip of Watson Island, along with my trusty digital camcorder. It is the perfect location to view the progression of what I have dubbed The Fantastic Four, made up of, from left to right, Marina Blue, 900 Biscayne Bay, Ten Museum Park and Marquis. It may appear as though there are five developments but the smallest of the buildings is located further off of Biscayne Boulevard to the west. Wikipedia refers to these four developments as the Biscayne Wall, but to me it is far shy of a wall when you compare it to fully built-out skylines in cities such as New York City and Chicago.
The name The Fantastic Four came to mind though as each of these four developments are fantastic ultra-luxury high-rise buildings revitalizing the Downtown Miami neighborhood now known as Park West. Park West was recently developed to be Miami’s equivalent to Manhattan’s Park Avenue. In years to come it will become known as Miami’s luxury neighborhood. It is located directly west of I-395, also known as the MacArthur Causeway, which leads straight into South Beach.Museum Park, formerly known as Bicentennial Park, which is the green piece of land directly east of the The Fantastic Four, will be redeveloped by the Miami Art Museum and the Miami Museum of Science and Planetarium to be transformed into a world-renowned park. It may not seem like a lot of land from the picture above but it is actually comprised of 30-plus acres. The luxury condo buildings in Park West are walking distance to the American Airlines Arena, the newly constructed Carnival Center for the Performing Arts and Bayside Marketplace.
In future months, as closing dates approach, there will be many opportunities to buy into these four buildings at discounted prices. Condo units in these buildings, as well as the thousands of other units coming to market in Miami over the next 18 months, were heavily purchased by investors. Their plan was to flip each condo unit for a profit prior to closing, but demand dried and prices headed south. Many will end up walking away from 20 percent deposits and instead write it off on their taxes. Closings at Ten Museum Park have already begun and Marina Blue should begin theirs towards the beginning of August.
The following pictorial review will give you a closer look at each of these buildings as they appear today:
Note: Watson Island offers the best views of both the Miami and Miami Beach skylines. With the exception of Parrot Jungle and the Miami Children’s Museum, it is a wonder how this land has remained vacant for so long. Flagstone Property Group is supposed to develop a mix-used project known as Island Gardens, with hotel, restaurant and retail space as well as a a “50-slip mega-yacht marina that would accommodate yachts of up 450-feet long”. I haven’t heard of any progress in over twelve months and it doesn’t appear as though anyone has broken ground on the land that I stood on today.
Ten Museum Park – Pricing & Availability Update with Pictures & Video
I revisited Ten Museum Park yesterday with another client. I was able to take a few pictures and shoot a short video but our time was very limited. You can find a picture slideshow at the end of this post along with a short video clip of a unit at Ten Museum Park.
I discovered that there have been a total of seven closings so far at Ten Museum Park. I also received an update on which of the units left to close are problematic cases. They are considered problematic because the contract holder either keeps delaying their closing date and/or they have voiced a strong desire not to close. These represent opportunities as they afford the best pricing currently available at Ten Museum Park. Keep in mind that the prices below only represent the list price. They are not firm prices. Contract holders who are truly motivated or those looking to possibly walk from their deposit may be willing to take a significant loss. They were required to deposit 20 percent of the purchase price into escrow. These were originally placed under contract in January 2004.
First I will show you the 1 bedroom/1.5 bathroom units that are available at Ten Museum Park. As you can see from the floor plan above, the 08 line has a southern exposure while the 05 line has a northern exposure. The one bedrooms have 858 square feet of interior space, a 143 square foot terrace and 10-foot ceilings with floor-to-ceiling glass. The following were originally purchased in the $350,000 to $400,000 price range in January 2004.
Next, we have the smaller 2 bedroom/2.5 bathroom units at Ten Museum Park. The 07 line has a southwest exposure while the 06 line has a northwest exposure. These units have 1,239 square feet of interior space, a 122 square foot terrace and 10-foot ceilings with floor-to-ceiling glass. These were originally purchased in the $450,000 to $505,000 price range in January 2004.
Finally, we have the large 2 bedroom/2.5 bathroom units at Ten Museum Park. These units have the best water views. The view from the southeast corner is my favorite, which is the 01 line. The 02 and 03 lines have a direct east exposure while the 04 has a northeast exposure. These units have 1,949 square feet of interior space, a 192 square foot terrace and 20-foot ceilings with a split-level floor plan and floor-to-ceiling glass. These were originally purchased in the $825,000 to $995,000 price range in January 2004.
The one bedroom units at Ten Museum Park come with one parking space while all two bedroom units come with two parking spaces. There are a total of four elevators to service six units per floor. The maintenance fee is 55 cents per square foot. The Clinique La Prairie spa will be located on the 8th and 9th floors of Ten Museum Park. Other amenities found on those floors include a yoga room, cardio room and weight room. The swimming pool deck has a total of five pools and Jacuzzi, cabanas and aromatherapy stations. A total of ten percent is required at contract signing with the balance due at closing.
The picture slideshow and video clip below are from one of the large 2 bedroom floor plans at Ten Museum Park. It has 1,949 square feet of interior space, a 192 square foot terrace and a split-level floor plan with 20-foot ceilings and floor-to-ceiling glass windows.
To Close or Not to Close? – Tough Decision Ahead for Preconstruction Contract Holders as Closing Dates Approach
Closing dates are quickly approaching for preconstruction condo holders in several big name developments. Closings continue at Midtown 2 while closings at Latitude on the River and Ten Museum Park began a few weeks ago. Closings at Opera Tower and Onyx on the Bay should begin later this month.
I’m sure a good number of these contract holders have asked themselves whether or not they should close. Most have probably even crunched some numbers to figure out what they should do. With deposit money equal to 20 percent of the total purchase price at stake, it is a very important decision.
The question on everyone’s mind is what percentage of these condo units are owned by investors versus those who intend to occupy the unit. An even better question though is of the investor-owned units, what percentage are owned by people who were looking to flip their unit prior to closing versus those intending to hold long term.
Those who were looking to flip their condo prior to closing most likely had their unit in the developer’s resale program. Each resale program is a bit different and the fees required to resell the unit can vary greatly. Most charge a 6 percent commission as well as a transfer fee which I’ve seen range from as little as .75 percent to as high as 7 percent. For example, Ten Museum Park charges a .75 percent transfer fee, or 6.75 percent when including the commission, while Opera Tower charges a 7 percent transfer fee, or a total of 13 percent when including the commission.
I think Ten Museum Park might have a few forfeited deposits but nothing too serious. It gave contract holders another option besides walking away from their entire deposit. They are allowing contract holders to accept a loss but still get back a portion of their deposit money. This past week I had a client who purchased a unit at Ten Museum Park from a contract holder for $55,000 less than what it was purchased for in January of 2004. The contract holder also paid the 6.75 percent fee which totaled $61,087.50. Of the $181,000 that the contract holder laid down as a deposit, they will see $64,912.50 at closing. It’s a big loss but it is still better than walking away from the entire 20 percent.
Buildings like Opera Tower and Quantum on the Bay, however, are not giving their contract holders many options. They aren’t allowing people to take a loss until after closing. In fact, at Quantum on the Bay, it is required that you list your unit at a minimum of 16 percent above the purchase price. That is insane! Who is going to buy that? You might as well not have your unit in the resale program because it won’t sell. Quantum on the Bay charges a total of 12 percent in fees to resell a unit in their resale program.
Of course, contract holders could do a simultaneous closing to avoid these heavy transfer fees. However, most first time investors are unaware that this option exists. Even if they are aware of this option, they still need to find a replacement buyer or hire a real estate agent to help find one for them.
Time is running out and many are asking whether it is better to close on their unit or walk away from their 20 percent deposit. Keep in mind that most developers charge a developer’s fee which is due at closing. This fee is typically 1.75 percent of the purchase price. Also, units come “decorator-ready” so additional money will be required if you want to have the option of renting it out in case it doesn’t sell. Too many times I have seen people hope that they could quickly flip the unit after closing rather than invest additional money into the unit. The unit ends up sitting on the market for six months and then they decide that they’ll have to rent it out. They would have saved themselves a lot of money if they had prepared to have the option of renting the unit at the beginning rather than wasting six months. You’ll need to spend money to install floors, window treatments, light fixtures and to have the walls painted since most come with the walls only primed.
A lot of people will end up pulling money out at closing to pay for these expenditures. For example, someone might choose to do 90 percent financing so that they can get 10 percent back at closing. That 10 percent will pay the developer’s fee, closing costs and expenses for flooring, window treatments, light fixtures, etc. The money will also help pay the mortgage until the condo is either sold or rented. Unfortunately, in recent times, 90 percent financing isn’t as readily available as it was in the past.
Fantastic Deal in Brickell Key at Brickell Key One
Yesterday I came across a fantastic condo deal in Brickell Key in the building known as Brickell Key One. At $318 per square foot it offers the best price per square foot of all currently listed condo units on the entire island of Brickell Key. The next best price per square foot in all of Brickell Key is listed at $355 per square foot. There are a total of four other units that have a list price that is under $400 per square foot in all of Brickell Key.
According to my June Miami Condo Index for Brickell Key it was shown that condo units on the island are listed at an average price per square foot of $519.97, or $513.19 when using a weighted-average. Condo units sold at an average price per square foot of $433.66, or $430.09 when weight-adjusted. Units listed at Brickell Key One were listed at an average price per square foot of $393.04 and sold at an average price per square foot of $372.15.
Built in 1982, Brickell Key One is the oldest building on Brickell Key and also offers the best price per square foot. At $318 per square foot one might expect this unit to be a total mess but it isn’t. It was recently completely remodeled. The kitchen has solid wood cabinets and top of the line stainless steel appliances. The living areas have marble floors while the bedrooms and hallways have bamboo floors. The unit has a total of 1,725 square feet of interior space and two balconies offering an additional 225 square feet of exterior space. It is a 2 bedroom/2 bathroom unit and is listed for $549,000. The two pictures below will show you what the kitchen looks like.
This is not a foreclosure or short sale, just a very motivated seller. The owner has found a new home and wants to sell this condo at Brickell Key One fast. Even at this great price, the owner will still walk away with a good chunk of profit. He paid $175,000 for the unit in January of 1998.
The maintenance fee for this unit is $725 per month, or 45 cents per square foot. That is really low for Brickell Key. Brickell Key One offers a lot of amenities such as tennis courts, racquetball courts, card room, billiards room, swimming pool, hot tub, fitness center, 24-hour security, barbecue area and free valet parking for guests.
MLS Listings Continue to Grow at Midtown 2
Midtown 2 began closings for condo units around the middle of May 2007. Since that time, there has been an average of 1 to 2 newly listed condo units per day that have appeared on the MLS. I get notified with an email to my Blackberry whenever a new listing appears in the MLS in any of the newly constructed condo buildings so that I become one of the first to know when a great deal becomes available.
In the past two weeks listing activity has really picked up at Midtown 2. The good news is that a good number of people are actually closing on their units. The bad news is that these people are still looking to flip their condos. There’s also a good amount of units listed for rent at Midtown 2. That number will grow as more condo owners finish installing their floors, window treatments, light fixtures, etc. since the units come decorator-ready. Once that occurs, then most will likely place their condos on the market for sale or rent.
Prices at Midtown 2 have come down some in the past couple of weeks as condo owners are now realizing that units are not selling at their current price level. There have been zero closed sales and only one pending sale at this time. 1 bedroom condos currently start at $269,000, 2 bedrooms at $399,000 and 3 bedrooms at $665,000. As of now, the best deals available are the one bedroom listed for $269,000, which comes out to $328 per square foot, and the 2 bedroom listed at $399,000, or $353 per square foot.
I still feel that prices will continue to head south towards the $280-$360 per square foot range but recent prices have me optimistic that pricing will readjust much faster than initially anticipated. It usually takes about 12 months for owners to reach their “pain threshold” but maybe they are finally realizing that the market is much softer than they hoped.
