Can the Current Financial Crisis Be a Blessing in Disguise for Condo Contract Holders Scheduled to Close?
Last Friday, I had the pleasure of having lunch with Jared Beck and Elizabeth Lee Beck of the business litigation law firm, Beck & Lee. Jared Beck, who pens The Magic City Harvard Lawyer blog, raised an interesting question: Can contract holders of condos in Miami scheduled to close in the coming months use the current financial crisis and inability to acquire financing as a valid argument for nonperformance of their contractual obligation?
I know, I know…preconstruction condo contracts clearly state that performance is not contingent upon financing. However, a recent federal ruling in Hoosier Energy Rural Electric Cooperative, Inc. v. John Hancock Life Insurance Co., contains language that may assist condo contract holders who are scheduled to close in the near future.
Here’s some background on the federal case, as provided by Jared Beck’s recent blog post entitled, “Federal Court Endorses Financial Crisis As Basis For Relief From Pre-Existing Contractual Duties; Could Real Estate Contracts Be Affected?”:
The background is somewhat complex but essentially involves the owner of an electrical generating plant in Indiana, Hoosier Energy, which in 2002 entered into a complex lease-back arrangement over some of its assets with an insurance company, John Hancock, aimed at creating a tax shelter for John Hancock. As part of the deal, Hoosier Energy was required to obtain what amounted to a line of credit from Ambac, a financial institution called a “swap provider.”
Until 2008, Hoosier Energy made all of its scheduled payments under the agreement. Then, global financial crisis ensued, and the credit rating of Hoosier Energy’s swap provider sunk like a stone. Hoosier Energy was unable to find another swap provider with a suitable credit rating who could be substituted in a timely manner. John Hancock declared Hoosier Energy to be in default and demanded a large termination payment, shortly after which Hoosier Energy filed suit, requesting a protective injunction.
Mr. Beck went on to say in his blog post that “Hoosier Energy argued that the extraordinary freeze in the global credit markets at least partially excused it from performing under the contract as an instance of ‘commercial impracticability,’ mitigating the default declared by John Hancock”. The court agreed with Hoosier Energy’s argument.
Mr. Beck concluded his post with the following:
How could this newly articulated doctrine be more broadly applied? One possibility rests with the large number of individuals who signed preconstruction real estate contracts several years ago, with the intention of obtaining mortgage financing once the project was finished. Now that many of those projects have been or will soon be competed, those buyers are unable to close because, owing to the global credit crunch, banks will no longer extend mortgage financing for certain new real estate construction at 2004 or 2005 prices.
While many of these purchase contracts were drafted with clauses stating that they were not contingent upon the buyer qualifying for a mortgage, it could be argued, on the basis of the reasoning set forth in Hoosier Energy, that the deals were signed under both parties’ reasonable assumption that financing would actually be available from somewhere once construction was completed. To quote the Southern District of Indiana in Hoosier Energy, “The crisis was not anticipated by the most senior economists in the country.” If that is true, why should the defense of commercial impracticability, based on the lack of accessible credit, be any less available to the individual real estate buyer seeking to mitigate the effect of a pre-existing contract then it would be to an electrical generating plant operator dealing at arms length with a multibillion dollar insurer? (To some degree, the question overlaps the analysis of whether “bailout” principles should apply equally to financial institutions and individual homeowners, both of whom are victims of their own inability to foresee the mortgage crisis).
The newly revised Fannie Mae guidelines, which went into effect on January 15, state that the government-controlled entity will no longer fund loans for new Florida condos if at least 70 percent of the total units in the development have not be conveyed or under a bona fide contract for purchase to either principal residence or second home purchasers. Contract holders who require financing and are scheduled to close in coming months are basically out of luck. It’ll be interesting to see how the courts handle this argument in 2009.
2 Bedroom Foreclosure at Latitude on the River – $266,000
Within the past three months, I’ve seen a handful of short-sale condos at Latitude on the River become available on the MLS. Earlier today, however, I came across the first bank-owned foreclosure condo in the building to appear.
The foreclosure condo is a 2 bedroom/2.5 bath with 1,212 square feet of interior and a 196 square foot balcony. The condo comes “decorator-ready” with concrete floors, as delivered by the developer, and is located on the southwest corner of the 20th floor. The list price is $266,000, or $219 per square foot. The most recent Brickell Condo Index published in November 2008 revealed that the average list price of condos available at Latitude on the River was $366 per square foot. There had not been any closed sales in the building at the time within the prior six months and there haven’t been any since. Lack of closed sales clearly means that prices of available condos at Latitude on the River haven’t yet fallen to a level that will attract buyers. It’ll be interesting to see if the 2 bedroom foreclosure condo at Latitude on the River will spark the interest of buyers.
View the pictures and listing information for the 2 bedroom condo foreclosure at Latitude on the River.
Brickell on the River South Closeout Sale
I received an email earlier this week about a developer closeout sale at Brickell on the River South. Prices of units include flooring and paint. The sale will open to the public January 14, 2009.
The ad states that they have “a limited amount of one bedrooms from $180,000 and two bedrooms from $213,000”.
Top 5 Miami Distressed Condo Sales in December 2008
Sorry for the long hiatus. I’m back from my long vacation and ready to get back to work. Below, you will find what I believe to be the five best condo deals of the 36 distressed sales that closed in the month of December in the MLS located in Brickell, Brickell Key, Downtown Miami and the Arts District.
- Four Seasons Residences – unit 3305 – 1 bedroom/1 bath (611 square feet) – This unit sold for $285,000, or $466 per square foot, on December 3, 2008. Foreclosure
- Carbonell – unit 701 – 1 bedroom/1.5 bath (1,031 square feet) – This unit sold for $215,000, or $209 per square foot, on December 19, 2008. Foreclosure
- Three Tequesta Point – unit 1605 – 2 bedroom/2 bath (1,694 square feet) – This unit sold for $465,000, or $275 per square foot, on December 3, 2008. Foreclosure
- Blue Condominium – unit 2310 – 2 bedroom/2 bath (1,174 square feet) – This unit sold for $330,000, or $281 per square foot, on December 1, 2008. Foreclosure
- Cite on the Bay – unit 3502 – 3 bedroom/2 bath (1,398 square feet) – This unit sold for $230,000, or $165 per square foot, on December 10, 2008. Short-sale
New Miami Condos – Closing Rates for December 2008
It’s been almost three months since my last Miami condo closing rate update. The last one was published on September 22, 2008. Unfortunately, there has not been a lot of progress in closings for most of the condo developments below since that time.
Below, you will find the date that each condo development began closings followed by the number of closed units in each condo development:
Latitude on the River had three new closings since the last update, Onyx on the Bay had three new closed condos and 50 Biscayne had two. Ten Museum Park and Loft Downtown 2 were both unchanged since the last update.
Quantum on the Bay and Plaza on Brickell each had an impressive number of closings, since the last update, considering how long ago closings began. Quantum on the Bay had 28 new condo closings while Plaza on Brickell was able to close 46.
On Friday, the Miami Herald reported that the developer of 1060 Brickell is looking to sell around 60 percent of its condos in bulk. Closings at 1060 Brickell recently reached the 40 percent mark meaning that this represents the developer’s remaining inventory.
900 Biscayne Bay and Ivy have now each reached the 40 percent mark. I’m actually quite surprised that not one of the condo developments in this last group has been able to hit the 50 percent mark. Enough time has certainly gone by. To rev up sales, 500 Brickell recently held a 4-day promotion offering a free Mini Cooper with any condo purchase from the developer’s inventory.
The next update will include Icon Brickell, Everglades on the Bay (now known as Vizcayne) and Infinity at Brickell which recently began closings.
Disclaimer: The above closing rate information was derived from public County records. There can be a 2-3 week delay from the time that a closing occurs and the time that the closing is recorded.
Top 5 Miami Distressed Condo Sales Closed in November 2008
I found a total of 17 distressed condo sales that closed in the month of November in the MLS located in Brickell, Brickell Key, Downtown Miami and the Arts District. The following are, in my opinion, the five best deals that took place along with one worth mentioning.
- Vue at Brickell – unit 1413 – 1 bedroom/1 bath (737 square feet) – This unit sold for $90,000, or $122 per square foot, on November 18, 2008. Foreclosure
- Brickell on the River North – unit 2703 – 1 bedroom/1 bath (775 square feet) – This unit sold for $172,750, or $223 per square foot, on November 19, 2008. Foreclosure
- Brickell on the River – unit 3714 – 2 bedroom/2 bath (1,058 square feet) – This unit sold for $255,000, or $241 per square foot, on November 10, 2008. Foreclosure
- Skyline on Brickell – unit 1107 – 2 bedroom/2 bath (1,367 square feet) – This unit sold for $349,000, or $255 per square foot, on November 17, 2008. Foreclosure
- The Club at Brickell Bay – unit 3524 – 3 bedroom/2 bath (1,232 square feet) – This unit sold for $249,000, or $202 per square foot, on November 4, 2008. Foreclosure
Runner-up: Blue Condo – unit 2504 – 2 bedroom/2.5 bath (1,158 square feet) – This unit sold for $305,000, or $263 per square foot, on November 25, 2008. Foreclosure
Miami Condo Index – Brickell – November 2008
It’s been three months since I last released the Brickell Condo Index. The last update for Brickell condos was published in August 2008. The data used to create the statistics below was collected on November 18, 2008 from the MLS. You may want to also compare the statistics below to those published a year ago in November 2007. It really helps to put into perspective how inflated prices were a year ago in some of the condo developments in Brickell.
The Brickell Condo Index now stands at an average price of $429.52 per square foot. This represents a 2.28 percent drop in the average asking prices of the 18 condo developments that comprise the Brickell Condo Index over the past three months.
Average price per square foot of Brickell condos currently listed on the MLS:
The average price of Brickell condos sold over the past six months has dropped 7.13 percent to $291.59 per square foot from August’s average of $313.97. As with the last update, the average would normally be higher had a sale occurred in the MLS within the past six months at Four Seasons Residences, which sells at the highest price per square foot of the 18 condo developments comprising the Brickell Condo Index.
Average price per square foot of Brickell condos sold in the MLS within the past six months:
- Atlantis – 2025 Brickell Ave | 33129 | $250.71
- Brickell on the River – 31 SE 5 St | 33131 | $264.63
- Bristol Tower – 2127 Brickell Ave | 33129 | $364.86
- Emerald at Brickell – 218 SE 14 St | 33131 | $238.88
- Four Seasons Residences – 1425 Brickell Ave | 33131 | N/A
- Imperial at Brickell – 1627 Brickell Ave | 33129 | $316.83
- Jade – 1331 Brickell Bay Dr | 33131 | $385.81
- Latitude on the River – 185 SW 7 St | 33130 | N/A
- Neo Vertika – 690 SW 1 Ct | 33130 | $228.00
- One Miami – 325 & 335 S Biscayne Blvd | 33131 | $296.13
- Santa Maria – 1643 Brickell Ave | 33129 | $661.70
- Skyline on Brickell – 2101 Brickell Ave | 33129 | $298.68
- Solaris at Brickell – 186 SE 12 Ter | 33131 | $200.00
- The Club at Brickell Bay – 1200 Brickell Bay Dr | 33131 | $201.44
- The Mark on Brickell – 1155 Brickell Bay Dr | 33131 | $289.18
- The Palace – 1541 Brickell Ave | 33129 | $260.14
- Villa Regina – 1581 Brickell Ave | 33129 | $249.88
- Vue at Brickell – 1250 S Miami Ave | 33131 | $158.55
Below you will find some additional statistics:
The first column to the right of each condo development’s name is the difference in the average sales price and list price for this month, expressed as a percentage. An “N/A” is found next to Four Seasons Residences and Latitude on the River since this percentage could not be computed as each building failed to have a closed sale within the past six months through the MLS. A high percentage indicates that there is a large discrepancy between the average asking price for condos currently on the market and what has actually sold within the past six months.
The second column is the number of active listings in each condo development currently in the MLS. The third column shows the percentage that these listings represent over the total number of condo units in each development. The cells highlighted in green reveal those condo developments that have active listings that represent less than 10 percent of the the overall units in the building. To me, this is one indication of a sound condo development. Atlantis, Bristol Tower, Four Seasons Residences, Imperial at Brickell, The Palace and Villa Regina are the condo buildings highlighted in green. The ones highlighted in red reveal those condo developments that have active listings that represent over 20 percent of the overall units in the building. There’s definitely underlying risk in buying in these condo developments and I’d only advise buying in one of these if the price justifies the risk. This month, Solaris at Brickell is the only condo developments highlighted in red. This is usually a good indication that prices will fall further in future months. The condo developments with active listings less than 10 percent are considered safe, in my opinion, and anything in the 10-15 percent range is considered normal, even in a healthy market.
The fourth column shows the number of pending sales while the fifth column displays the number of closed sales within the past six months. There are a total of 94 total pending sales in the 18 condo buildings represented in the Brickell Condo Index. In August, there were a total of 79 pending sales at the time. Once again, The Club at Brickell Bay, Vue at Brickell and Jade each have pending sales in the double digits. The same goes for closed sales within the past six months in each of these condo developments. Skyline on Brickell also hit the double digit mark with a totla of 13 closed sales in the MLS within the past six months. In August, there were a total of 123 closed sales within the past six months. This figure has gone up almost 32 percent since the August update. The 18 Brickell condo developments had a total of 164 closed sales within the past six months.The vast majority of these closings occurred in just a handful of the condo developments, however. 8 of the condo developments had three or less closings within the past six months.
The sixth column shows the difference in the average list prices from this month’s and August’s, expressed as a percentage. Those highlighted in red reveal those condo developments which had a drop in their average list price while those highlighted in green show those that had an increase. Emerald at Brickell saw asking prices drop a little over 10.5 percent while Solaris at Brickell shed about 9.8 percent from its average asking price in August. An increase in average asking prices occurred in 8 of the condo developments in the Brickell Condo Index.
The seventh column reveals the difference in average sales prices from this month’s and August’s, expressed as a percentage. Vue at Brickell saw the largest drop with a 15.94 percent decline. Jade, Neo Vertika, The Club at Brickell Bay and Villa Regina also had double digits drops. It should be noted that Villa Regina only had one closed sale within the past six months to calculate its new average. Atlantis, Santa Maria, Skyline on Brickell and The Palace each experienced an increase in their average sales prices for the previous six months.
Vue at Brickell is very, very close to hitting the $150 average per square foot mark for closed sales over the previous six months. In August, the condos available on the market at Vue at Brickell represented about 28 percent of the overall units in the building. This figure now resides at around 17 percent. It will be interesting to see how much lower the average price per square foot of condos sold at Vue at Brickell will go if inventory levels continue to improve. As I mentioned earlier, the 10-15 percent range is normal even in a healthy market. Perhaps some sort of stability is right around the corner for Vue at Brickell. The same can be said for Jade and The Club at Brickell which have also continued to show progress in reaching normal inventory levels.
Top 5 Miami Distressed Condo Sales Closed in October 2008
I found a total of 30 distressed condo sales that closed in the month of October in the MLS located in Brickell, Brickell Key, Downtown Miami and the Arts District. The following are, in my opinion, the five best deals that took place along with one worth mentioning.
- Skyline on Brickell – unit 2505 – 1 bedroom/1 bath (791 square feet) – This unit sold for $200,000, or $253 per square foot, on October 28, 2008. Foreclosure
- Vue at Brickell – unit 1501 – 2 bedroom/2 bath (1,255 square feet) – This unit sold for $170,000, or $135 per square foot, on October 17, 2008. Foreclosure
- Jade at Brickell – unit 504 – 1 bedroom/1 bath (895 square feet) – This unit sold for $220,000, or $246 per square foot, on October 24, 2008. Foreclosure
- Solaris at Brickell Bay – unit 1607 – 1 bedroom/1 bath (730 square feet) – This unit sold for $146,000, or $200 per square foot, on October 24, 2008. Foreclosure
- Courvoisier Courts – unit 704 – 2 bedroom/2.5 bath (1,230 square feet) – This unit sold for $290,000, or $236 per square foot, on October 22, 2008. Foreclosure
Runner-up: Jade – unit 3509 – 2 bedroom/3 bath (1,730 square feet) – This unit sold for $710,000, or $410 per square foot, on October 13, 2008. Foreclosure
Icon Brickell Tour – Condos
This past week I was able to tour not only the amenities and common areas at Icon Brickell but also a few condos. Below, you will find the pictures that I took of a few two bedroom condos. Keep in mind that these are model units. Condos at Icon Brickell are delivered by the developer “decorator-ready”. However, as an incentive to buy now, the developer is offering either a 3 percent decorator credit or flooring installed throughout your condo.
The first condo I saw was a 2 bedroom/2 bath plus den. It has 1,503 square feet of interior space and 218 square feet of balcony.
The hallway leading to the condos at Icon Brickell.
A shot of the kitchen and dining area.
The living room and dining area.
A close-up of the kitchen with natural stone countertops and appliances by Sub-Zero, Wolf and Bosch.
The den area of this condo.
The master bedroom.
The master bathroom with French limestone flooring.
Another shot of the master bathroom with matching limestone vanity top and porcelain sinks.
A third shot of the master bathroom.
The second bedroom.
The view of Brickell Key, Biscayne Bay and Key Biscayne from this 2 bedroom condo.
The second condo I viewed was a 2 bedroom/2 bath with 1,314 square feet of interior space and 133 square feet of balcony.
The kitchen and dining area.
The living room.
The master bedroom.
The master bathroom.
The second bedroom.
The view of the Miami River and Biscayne Bay.
