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.
A Picture & Video Tour of 50 Biscayne in Downtown Miami
I had walked into 50 Biscayne a few times prior to today but didn’t have my camcorder on me each time. I wanted to share with everyone what a great job The Related Group of Florida did with this development so I decided to go back to 50 Biscayne today with the objective of sharing some pictures and video of the common areas with my readers.
Today, I was able to get shots of the lobby, swimming pool deck, fitness center and views to the east from the 10th floor pool deck at 50 Biscayne.
Below you will find a picture slideshow of each at 50 Biscayne:
The following will show you the video that I shot today of the lobby, swimming pool deck, fitness center and views to the east at 50 Biscayne:
I took a peak into the two club rooms but each was locked so I wasn’t able to shoot either of those. Both looked very well decorated, however, from the peaks I got through the doors of each. The valet drop-off area was also very impressive, with a cascading water feature along the wall. I forgot to get shots of the business center at 50 Biscayne located on the main floor.
Of the 529 total condos at 50 Biscayne, I’ve been able to find 33 recorded closings. There can be a 2-3 week delay in recording a closing. Hundreds more are likely to follow in the coming months. Closings began October 1, 2007. I’m expecting about an 18.7 percent default rate at 50 Biscayne. That’s just my estimation, however. Take it for what you want. Enjoy!
Latest Prices at Ten Museum Park
Below you will find the latest prices for units at Ten Museum Park. These are defaulted units that were taken back by the developer. They have been discounted 15 percent off of their original prices set in January of 2004. Contact me if you’re interested in viewing any of these units.
1 Bedroom/1.5 Bath – 858 interior SF/143 exterior SF
1608 – $335,000
3008 – $350,000
1905 – $325,000
2 Bedrooms/2.5 Baths – 1,239 interior SF/192 exterior SF
4106 – $450,000
2 Bedrooms/2.5 Baths – 1,906-1,949 interior SF/192 exterior SF
1602 – $799,000
2504 – $825,000
3 Bedrooms + den/5 Baths -4,005 interior SF/533 exterior SF
Developers Renting Their Inventory as a Last Resort
On Friday, the Daily Business Review published an article entitled, “Condominiums: Holding Pattern”. The article points out that several developers of recently completed condo developments have opted to rent their unsold or defaulted inventory to remain afloat.
The question that resounds throughout the article is whether or not this approach makes economic sense for these developers. Their hope is that the rental income earned will buy them time until the market rebounds.
The Midtown Miami development lies at the forefront of the article. Midtown 2 has had considerable problems with closings since they began in May of this year. As stated in the article, I have found only 179 closings for their 338 total units. The class-action lawsuit against the developer by contract holders certainly hasn’t helped matters. However, the root of the problem lies in the fact that the preconstruction prices offered by the developer were much too high for that neighborhood. Units were sold with a promise that the neighborhood would somehow be transformed within three short years. The reality is that the neighborhood is still at least another 3-5 years away from delivering on that promise. Initial prices at Midtown 2, and Midtown 4 for that matter, were higher than more desirable Brickell condo developments such as Plaza on Brickell, 500 Brickell and Axis.
Sandra de la Torre, a sales agent at Midtown Miami, stated in the article that 20 developer units were available for rent and 20-25 were available for sale. I highly doubt that this is the only inventory that the developer has in his possession, given that only 179 closings at Midtown 2 appear in public records. It is much more likely that at least 30 percent of the building will eventually be available for lease through the developer. I haven’t heard anything lately regarding the class-action lawsuit, so maybe it is still pending and a large portion of the unaccounted units can be tied to that.
Rental prices will need to be quite attractive at 2 Midtown in order for potential tenants to be enticed into signing a lease there. Many more options will become available for renters in the upcoming months in more desirable neighborhoods at attractive prices. In the Miami Arts District, The 1800 Club, in my opinion, will drive rental prices down throughout the neighborhood once closings begin and investors eventually opt to lease their units. The prices at The 1800 Club were quite attractive when sales were initially launched. This is one condo building where it might make economic sense for the developer to rent its remaining inventory. The neighborhood immediately surrounding The 1800 Club has a greater chance of rebounding within the next couple of years than that surrounding Midtown Miami. Vulture capital funds should keep a close eye on The 1800 Club because it could become the ideal development to invest in future months if prices dip below initial preconstruction prices.
Plaza on Brickell and Axis are two condo developments in Brickell that will drive down rental prices throughout the neighborhood once they are completed. Both were attractively priced and will ultimately provide Brickell renters with highly competitive rental prices. Both developments were backed by a high percentage of investors who will also likely lease their units to wait for the next upturn in the condo market.
The Sail on Brickell was also mentioned in the article as being another development that has sought to rent its remaining inventory. I was not aware that Renzi Development had failed to close on it 152 total units until I read this story. I wasn’t surprised, however, given that it is a second-tier condo development in Brickell that has been riddled by mortgage fraud. As a result, the Sail on Brickell will no longer be included in the Brickell Condo Index. It will eventually be replaced by Latitude on the River once it has closed on all of its units.
As for Midtown 2, I think they’ll be lucky to get rental rates of $1.75 per square foot. The “rent and wait” option doesn’t make economic sense for this development, in my opinion. The developers of the Sail on Brickell, which doesn’t reside on Brickell Avenue, will also have difficulties in making their rental numbers work. I think one bedrooms there will eventually rent for around $1,250 per month.
Bayfront Brickell Condo Foreclosure to Sell Below $200 Per Squar Foot?
I’ve been keeping a close eye on a 4 bedroom/4 bath split-level bank-owned condo at Atlantis on Brickell for quite some time. It has 2,628 square feet of interior living space and is located on the third floor. The price has continually been reduced throughout the months that I’ve kept an eye on it, but it now looks appealing. The list price on this unit is $559,900, or $213 per square foot, at the present time.
Below you will see the price changes since it was listed on May 16, 2007:
05/16/2007 – $799,900
06/13/2007 – $759,900
07/16/2007 – $719,900
08/03/2007 – $679,900
08/28/2007 – $644,900
09/25/2007 – $559,900
Unfortunately, the pictures that accompanied the listing are no longer available. I haven’t personally viewed this property yet, but the pictures that were previously available made it apparent that the unit definitely needed some TLC. A few people in my office did visit the unit about six weeks ago and did confirm that the unit does need much work. On the high end, a $170,820, or $65 per square foot, build-out project should make this unit into an A+ residence. A $500,000, or $190 per square foot, offer should seal the deal on this condo given the continual decrease in price every month. I’m sure that Deutsche Bank is growing tired of keeping this property on their books month after month.
A 3/3 with 2,171 square feet of interior space on the same floor at Atlantis on Brickell, which needs some work of its own, is currently listed on the MLS for $750,000, or $345 per square foot. Invest $65 per square foot to fully renovate the unit, with an overall price per square foot of $255, and you should do well.
Saturday Afternoon View of the Arts District
It was a gorgeous afternoon here in South Florida yesterday. I was heading west on the Venetian Causeway and was compelled to pull over after paying the toll. The developments along Biscayne Bay looked so magnificent from this view that I wanted to share it with my readers. (Especially those who aren’t local to Miami.)
Above, you will see the following developments from left to right: Venetia Condo (completed in 1980), Marriott Hotel, The Grand (completed in 1986), Opera Tower (completion by the end of this year), Bay Parc Plaza (rental building), The 1800 Club (completion by the end of this year), Quantum on the Bay (completion by the first quarter of 2008), Cite on the Bay (completed in 2004) andParamount Bay (completion by the first half of 2009).
On the northern half of the Arts District we have the following new developments: New Wave (completed in 2006), Star Lofts on the Bay (completed within the last three months), Onyx on the Bay (completed within the last three months), Platinum Condominium (completed within the last five months) and Blue Condominium (completed at the end of 2005).
The following is a close-up of The 1800 Club, Quantum on the Bay, Cite on the Bay and Paramount Bay:
The pictures above make the Edgewater look like a million bucks. It’s amazing what perspective can do. The reality is that the Arts District is still an up-and-coming neighborhood. Three years ago you wouldn’t dream about walking the streets after dark. The neighborhood has cleaned up a lot within the past three years but it’ll be another three years until somebody actually wants to walk the streets at night. The long-term outlook for the Arts District, however, is bright. The views from these bayfront buildings are amazing. In time, the neighborhood will blossom and it will become an attractive place to live. In the meantime, however, newly constructed condos in high-quality buildings are available at prices that don’t make sense for the neighborhood. Prices will come down and opportunities will emerge as the new condo supply far outpaces demand in the Arts District.
Video of the Platinum Condominium Auction
Today, I finally had a chance to edit, render and upload the video that I shot of the Platinum Condominium auction last Thursday. I split it up into three separate video files which highlight key points of the auction. You can read my analysis of the Platinum Condominium auction.
An explanation of how the auction would work:
Kicking off the auction with the condos in Pool B:
Changing the rules and moving to Pool A:
Trouble Ahead for Ten Museum Park?
Those of you who have closely followed my blog know that I’m a big advocate of Ten Museum Park, for reasons that I have cited in the past. I’ve predicted that, of the condo developments that are scheduled to close within the next six months, Ten Museum Park would have the least amount of problems.
After reviewing the number of closings, as of late, at Ten Museum Park, I pray that my prediction pans out to be highly inaccurate. If, however, my prediction does prove to be true, then the Miami condo market is in for a world of pain. As I said, I pray that my prediction proves to be wrong.
Closings for units at Ten Museum Park began towards the middle of June 2007. As of last week, a total of 76 closings have been recorded since the middle of June. There are 200 total units at Ten Museum Park. Those 76 units represent 38 percent of the overall building. What has happened to the other 62 percent? A total of 6 closings occurred in the previous 4 weeks prior to last week. Closings are grinding to a halt.
Closings for units on the upper 15 floors only began within the past 3 weeks, so perhaps a significant percentage of units on those upper floors will ultimately close. That’s best-case scenario.
I know for a fact that many contract holders at Ten Museum Park have been dragging their feet to reach the closing table by asking for extension after extension. When push comes to shove, what percentage of the remaining units will close and what percentage will default? At this point, the bank must be calling the developer three times a day.
Let’s be optimistic for a minute and say that 30 percent of the contract holders at Ten Museum Park ultimately default. What does that mean for the rest of the Miami condo market? If a highly regarded development such as Ten Museum Park can have default rates that reach 30 percent, then what lies in store for the remaining developments that are scheduled to be completed within the next 6-12 months?
I expected high default rates to occur at Ten Museum Park in their 05 line, because of the lack of views, but a high amount of defaults have spread to the 05, 06 and 07 and 08 lines as well. After personally touring these floor plans, however, they all seemed to be smaller than the square footage that was represented at contract time, so I shouldn’t be surprised. Only the 01, 02, 03 and 04 lines seemed to deliver an interior space that was promised.
I’ve also predicted, in the past, that of the condo developments scheduled to close within the next 24 months, Opera Tower would have the most problems. Originally, closings at Opera Tower were scheduled for August. Then, they were pushed back to September. I don’t foresee closings to begin at Opera Tower until early November. I won’t be surprised if closings don’t begin until the beginning of next year. From what I’ve heard, the amenity deck at Opera Tower is at least one month away from being completed. I’ve spoken with several contract holders at Opera Tower who have no intention of closing on their contracts.
If the best-case scenario for Ten Museum Park is to have a 30 percent default rate, then what will that mean for developments such as Opera Tower? 50 percent defaults? 60 percent defaults? Opera Tower has 635 total units. That’s a bitch-ass high number of condos that will remain unsold at Opera Tower if those estimates prove to be true.
Let’s pretend to be ultra-conservative in our estimated default rates. Let’s say that the condo developments that are scheduled to close within the next 24 months have an average default rate of 10 percent. I’ve previously cited that 16,070 new condo units would be delivered within the next 19 months. Using our ultra-conservative default estimate of 10 percent, this would mean that 1,607 units will not close. How long will it take to fill this void? Your guess is as good as mine.
Miami is a market that will once again see double-digit growth within the next 10 years. How long will it be until we reach that point? The land that I walk on each day is paradise. There’s no doubt about that. Even Tony Montana said it himself, “This is paradise,” and we all know that all he has in this world are his word and his balls, and he don’t break them for nobody. But Miami was overbuilt. Right now Miami is in an adjustment period. Once the inventory in the condo market is absorbed then paradise lost will once again be regained. But how long will that take?
I’d love to see your comments. How long will it take to fill this large supply of Miami condos?
Star Lofts on the Bay – The Next Condo Development up for Auction?
Star Lofts on the Bay looks to me to be a prime candidate to have a developer closeout sale in the near future. Closings for units at Star Lofts on the Bay began towards the beginning of July. As of today, there have been a total of 18 recorded closings with the last one being recorded on August 14, 2007. Not one other unit has been recorded in over a month. I think it is safe to say that closings have slowed to a halt.
Star Lofts on the Bay is a boutique building with only 48 units in the entire building. The 18 recorded closings, however, indicates that 62.5 percent of the building has not closed. That is incredibly shocking!
There are currently a total of 14 units at Star Lofts on the Bay listed for sale in the MLS. Six of the units listed in the MLS, however, do not correspond with the units numbers of the ones that have closed. This means that either the units have closed but the records have not been updated to reflect this fact or these units were listed on the MLS without actually having closed on them. It is not uncommon to see condos listed on the MLS for sale prior to the contract holder closing on them. It’s not supposed to happen but it does. It can take up to three weeks for closings to be recorded so perhaps a few of these units closed within the past three weeks.
Below you will see the 18 units that have closed at Star Lofts on the Bay. Next to each unit number you will see the number of bedrooms for that unit, the purchase price and the current list price of the unit on the MLS.
As you can see, the preconstruction prices for units at Star Lofts on the Bay were very high and the price of units currently listed for sale are even higher. The average price per square foot of condos currently listed is over $540. Good luck getting that! If these units were to be auctioned, I don’t think anyone would pay more than $270 per square foot. The studio units might go for around $300 per square foot but that’s the only exception, in my opinion. The 2 bedrooms aren’t true two bedrooms. Because it is a loft building, the units are open without any walls to separate the bedrooms.
Star Lofts on the Bay is a waterfront building situated along Biscayne Bay at 700 NE 25 Street. It is located exactly five blocks south of Platinum Condominium. As is the case with Platinum Condominium, the neighborhood is the biggest deterrent for Star Lofts on the Bay. Most of the buildings in the area are old and run-down. You never want to build a mansion on a street full of average-sized single family homes. That is basically what happened here. Onyx on the Bay, which is the building next to Star Lofts on the Bay in the picture below, will also have this problem.
The picture slideshow below will show you some images that I found on the MLS of various units and the common areas of the building.
