Miami & Miami Beach Condo Trends – May 2008
May 14, 2008
by: Lucas Lechuga
Earlier this afternoon, someone left a link in the comments area of a previous post to a Florida Association of Realtors article that reveals an improvement in real estate inventory levels for the state of Florida in the first quarter of 2008. I wanted to see how the Miami and Miami Beach condo markets fared in comparison, so I decided to provide new supply figures for May 2008. My last Miami & Miami Beach Condo Trends report was published in February 2008.
Below, you will find the Miami-Dade County condo inventory and months of supply figures for May 2008. The first box to the left reveals the total number of condos that are currently available for sale on the MLS throughout Miami-Dade County. The second box discloses the total number of closed sales that occurred in the month of April 2008. The third and fourth boxes show the months and years of condo supply in Miami-Dade County. As you can see, the figures are also subdivided into various price ranges to reveal which part of the condo market has been most affected.
(Note: If you’re over the age of 40, you may want to have someone younger read the numbers below aloud to you. Either that, or bust out a magnifying glass.)
I was shocked to see that the months and years of supply figure had gone down significantly since my February update. The number of available condos has fallen slightly since February but the number of sold condos in the previous month has gone up about 41 percent. That’s a huge increase in sales activity. I was puzzled that the number of condos on the market actually fell. We’ve seen a lot of new condo buildings begin closings since the beginning of the year. I would have expected the number of available condos on the market to be much higher than in February.
The following statistics encompass only those condos located throughout Miami (not other areas of Dade County such as Miami Beach, Aventura, Sunny Isles Beach, etc.):
The number of available condos on the market went up slightly since February but again the number of closed sales within the previous month showed a proportionately much larger increase. Miami condos experienced around a 44 percent increase in closed sales when compared to the figures presented in February. Miami now has a 5.32 year supply of condos. The $250,000-$499,000 price range has the highest supply at 8.16 years while the $1,000,000-$2,499,9999 is sitting on only 2 years worth of supply.
The following statistics encompass only those condos located throughout Miami Beach:
There’s been a decrease in the number of available condos in Miami Beach since February and about a 57 percent increase in closed condo sales. Miami Beach is now sitting on 3.03 years worth of condos. The $500,000-$999,999 price range has the highest supply of condos at 3.57 years while the $1,000,000-$2,499,999 price range is the healthiest at 2.32 years worth of condos.
What does everyone make of these figures? There’s definitely been an increase in the number of closed condo sales since February. I don’t think anyone can dispute that. However, what is happening to all the new condos that have hit the market since February? I expected sales activity to have picked up because of declining values and better opportunities than were available in February but I also expected to see a much higher number of available condos on the market. Are most of these condos being rented or is it too early to see an impact from the newly constructed condos because developers, for the most part, don’t list there unclosed condos on the MLS?
“Are most of these condos being rented or is it too early to see an impact from the newly constructed condos because developers, for the most part, don’t list there unclosed condos on the MLS?”
Yes many are being renting but my money is that the later is a bigger factor. My prediction has been and remains that the second half of the year, particularly toward the end of hurricane season, is when we will really see the blood in the streets and the full effect of the credit crisis and decline in prices. Check back with me in December to see if I am correct in my assessment (I usually am).
We’re now entering the slow season. If we continue to see a decline in the condo supply 3 months from now then we may have something here. I don’t expect that to happen but, then again, I expected the supply to have grown significantly since February and instead the opposite occurred. I guess time will tell.
I think I speak for everyone when I say how much it is appreciated that you do these calculations.
With that said, your numbers surprised me. Especially with so many headlines today about foreclosure number are through the roof in Nevada, California and Florida
My only thought is that the uptick is because of the new condo building closed sales…albeit a small percentage of units available in the buildings? But that the non-closed (returned) units are not yet listed on MLS?
JNadrowski,
The closings for new condos don’t appear in the MLS. There would be a much higher number of closed sales if those condos were taken into account as well. Only resales (those not closed through a developer) are included in the MLS numbers.
I agree the units are empty but just not showing up on th eMLS. Look at the Plaza Brickell just a few units show. Find it hard ot believe less than 5 units for a 1000 unit PLAZA.
Must be developer take backs or people just hanging on hoping for something that isnt goign to happen.
Thee blood will spill dont try to cover it up with a bandaid Same thing over and Wind. Not many on MLS but I find it hard to believe that everyone closed.
Foreclosures are skyrocketing and could reach 1 for every 25 households before all is said and done… Ouch. The worst of the foreclosures is yet to come.
Bankrate article today:
Miami/Fort Lauderdale
Miami’s party scene may be sought by celebrities, but Markstein says it’s ground zero for oversupply. The city also is one of Local Market Monitor’s most overpriced markets, and foreclosures are the eighth highest in the country. Single-family sales are improving, but forecasters are monitoring the glut in the condominium market to see how many units close this year, Porter says. Overall, the Southeast Florida housing market remains weak, and Miami will experience significant decreases in prices in the coming years.
Median price end of 2007: $345,900
Median price end of 2006: $366,800
% change: – 5.7%
Projected change through Q3 2008: – 21.6%
Affordability rating: 8.2
Foreclosures in 2007:
(1 for every 37 households)
25,296
Foreclosures in 2006:
(1 for every 76 households)
12,272
Change in foreclosures: + 106.1%
The Plaza sales office looks like a zoo with tons of people looking to buy and rent–amazing. Its interesting to note list price and closed sale prices of condo’s shows only normal differences–not the huge discounts one might expect from what you read of the market.
My guess is that foreclosures are responsible for taking most of these units off the MLS. Foreclosures filed last fall were going to auction in the last few months. Agents will stop listing a property as the auction approaches and it takes a couple months after auction before REO can be relisted on the MLS. This, plus a bargain sale spike could account for the flat inventory numbers.
They refuse to even auction off the properties because then they have to take the write down…
See here for a diagram:
http://patrick.net/wp/?p=601
The uptick in condo sales in recent months should not be surprising. Historically, winter is the selling season in Miami, sales increase when the snowbirds are here and drop when they fly home. This year in particular has seen an increase in sales to Europeans and Canadians due to an incredibly favorable exchange rate and bargains galore. In many articles last year, I predicted this, so no real surprise here.
Should this news be viewed as rosy/glass half full? Only if you are eagerly over-optimistic or a real estate salesperson. They have to and always will be happy at any good news, however brief or fleeting.
What should be expected the rest of 2008? Condo inventory will begin to increase….again. Substantially.
Foreclosures of individual condo units will triple over last year, which doubled from 2006. Project foreclosures are just beginning to accelerate. The bulk sales are beginning at 50% and below previous retail prices.
Rents will drop. Million dollar asking price condos will rent for $4,000 a month and lower.
Condo mortgage loans (if you can get one) will require 30-40% down payments. Have you got the cash?
There were 272 SFH sold last month in Miami Dade County.
Ft. Lauderdale, W. Palm Beach, Orlando, Jacksonville, Tampa, Sarasota, even Naples sold more. Puny Tallahassee and Pensacola sold nearly as many even though the areas population and housing stock are but a fraction of Dade.
If you really want to put things in perspective Lucas, compare the number of foreclosure sales to MLS sales. This will give you a much better read of the health of the market. Then consider the accelerating volume of bank held REO’s not listed yet , and skyrocketing non acrual loans yet to be dealt with.
That’s where you’ll find the market’s near future.
Regards.
Jack
Could the drop in resale listings come from people entering into litigation to get their deposit back. I would assume the unit would be tied up for a little while. Developer probably would not want to add more supply maybe trying inhouse sales/rentals… Related?
Still not convinced the bulk buyers are out there. Why buy avdepreciating asset when you have other choices!
The below isn’t meant for an A/B comparison. But it really puts in perspective what’s going on in the Miami condo market. People talk about how SoFi was built up “overnight”… If you look at the 5 major condos in SoFi on/near the Bay… Related built them all and they totaled out to about 1,300 units over 8 years and that felt like “overnight”.
There’s a reason why all the new construction look like big rectangles. Rectangles are the most efficient way to cram in as many units as possible. Icon Brickell is going to try to do in 1 closing what the 5 major SoFi condos did over 8 years… close 1,300 units. Related didn’t double down on their condo builds; it looks like they quadrupled down. Food for thought.
South Beach “SoFi” condos on/near the East side of the Bay
361 units Yacht Club 1999
270 units Murano Grande 2003
290 units Icon South Beach 2005
206 units Portofino 1997
189 units Murano 2002
Sampling of condos on/near the West Side of the Bay
1,276 units Icon Brickell 2008
1,000 units Plaza 2008
633 units 500 Brickell 2008
523 units 50 Biscayne 2007
870 units Everglades 2009
447 units Met 1 2008
360 units Epic 2009
A decline in inventory that is not supported by sales is definitely an indication of a surging rental market. I’m sure the effect is compounded when factoring foreclosures. According to Peter Zalewski of Condo Vultures, condominiums account for 3,538 foreclosure actions in Miami-Dade and Broward counties.
Regarding the rosey outlook for the 2nd half of ’08 reported by FAR, I’m not as confident. Miami will see 31 buildings with more than 10,000 units come online by the end of this year, so any gains on decreasing the amount of inventory is going to lost. This is yet another clear indication of why soo many condos are not offering rentals scenarios.
Jack McCabe said “Rents will drop. Million dollar asking price condos will rent for $4,000 a month and lower.” I know of one $1.85M (list price) condo, brand new, for lease at $4k/month…. and several $1M+ condos for $3.5k/month and $3.7k/month….. So, you can chance the “will” to “are”….. 🙂
Hi,
My wife and I are from NY (born and raised in France and Italy), and are looking to buy a pied-a-terre in Miami (south of Aventura to south Beach).
With the uncertainty of the market, and the load of new units that will flow the market in the next months and years, we are not sure how to go about it and mitigate the risk. This is an apt that we intend to keep for a while so that’s already one important factor.
My question to you, specialist of this area, is how to best take advantage of this market today?
We are looking to buy a 1 or 2 bedroom (800-1200 sq.ft), and we very much like the bay view (from Miami Beach).
I guess short sales and foreclosure would be ideal but we have no clue how to look for those.
Thank you all for your help.
BEst,
Michael and Zelda
I agree with Jack, somehow I always agree with Jack.
Bernanke is encouraging financial institutions to redouble their efforts to raise capital to improve their balance sheets… Why? Simple, as they have to revaluate their portfolio of real estate holdings (because of foreclosures now REO inventory) they will realize they are bankrupt.
See:
bubbletracking.blogspot.com/2008/05/dont-buy-into-hype.html
youtube.com/watch?v=LCW4A0ACDKM
The REO inventory is the shadow inventory that isn’t reported so these new numbers do not accurately reflect the reality of the situation. It is much much worse, not getting better.
Bernanke urged financial firms to raise more capital
By Greg Robb
Last update: 9:24 a.m. EDT May 15, 2008
WASHINGTON (MarketWatch) — Banks and securities firms should continue to raise capital to help them navigate the treacherous waters of the financial market turmoil, Federal Reserve Board Chairman Ben Bernanke said Thursday. “I strongly urge financial institutions to remain proactive in their capital-raising efforts,” Bernanke said in a speech to the Chicago Fed Bank’s annual banking conference. Bernanke couldn’t quite bring himself to criticize federal oversight of financial institutions, saying only that supervisors must redouble their efforts. Earlier this week, San Francisco Fed president Janet Yellen bluntly said that the Fed “missed” some of the risky developments as they were unfolding.
Yes but they are raising capital so they are not insolvent in 6 months when they get this massive amount of REO’s in their books, with the Lis Pendis and the 8 month foreclosure process the banks and lenders are very aware what is coming to them in the next months and they need to raise capital. I deal with many foreclosures every day and the banks need to get organized to sell this, their departments do not have the infrastructure or staff to handle this inventory. Its almost impossible to get a hold of an asset manager or a loss mitigator they have too many cases on their hands
Icon Brickell is 1800 Units not 1200 so add another 600 to the coming inventory on brickell
I would attribute most of the difference between the most recent figures and February’s numbers mostly to a seasonal change.
The “years supply” percentages you post are showing big changes, but if you look at the raw numbers, the differences aren’t that big. Dealing in small sales numbers leads to big percentage changes. And of course, that’s ignoring the seasonal adjustments.
For instance, Miami Beach’s sales volume went from 72 sales in Feb to 113 sales in May. That’s a 57% increase in sales volume. Sounds like a big improvement, right? But let’s put that in perspective – we’re talking about 41 additional sales out of 4,100 on the market. Is that significant? No – it isn’t. Especially when you consider the seasonal difference.
For all of Dade county, we had a 40% increase in sales (337 to 474), but that’s only 137 additional sales out of a total inventory of about 25,500. Significant? Hell no.
And again – you have to consider seasonal adjustments. In past years, sales are almost ALWAYS higher in May than Feb (the “spring selling season”). That’s just the normal pattern.
Considering all that, things actually look worse – despite the small improvements in supply which are mostly due to normal fluctuations.
Given that we still have a huge multi-year supply just reinforces my belief that we are nowhere near a bottom yet in prices. That is still at least 1-3 years away.
As prices come down, sales will pick up. But prices will not bottom until we are back to a normal supply level. Based on these recent numbers, we are nowhere near that point yet.
What is clear, and these numbers confirm it, the U.S. is in or near a serious and protracted residential real estate recession. Many areas are currently in a recession, others are near a depression and will cross the line in the next 12 months, a few have slight declines, and some that didn’t participate in the housing price bubble will see slight increases (albeit probably below the rate of inflation). Investing in residential real estate is pretty much dead right now…and with good reason. We’re back to housing as a place to live and enjoy…
Would love to see any data that actually captures overseas buyers as a percentage in Miami & MB .
Michael W
I would suggest looking at bay view units in the Yacht Club. They allow monthly rentals which can help with the cost basis & the area is considered prime. Real advice is to hook up with Lucas & get your hands dirty, a lot to look at within your paramiters.
There is only so much capital out there that can rescue banks. Given the huge backlog of Foreclosure filings, local banks are in deep trouble. Expect to see some small to mid size banks to fail in the coming year.
Foreign buyers would be smart if they separated their currency play from their real estate purchase. First, if you think the exchange rate is favorable and the dollar will weaken, then simply exchange currencies now…don’t let that be the reason to create a sense of urgency to actually buy real estate now. Second, once you’ve traded your Euros into US Dollars, put them in a safe 4%+ account and wait for the 20%-40% price decline in housing then buy. Keep the exchange rate and real estate purchase as two separate transactions.
And I agree, there will be a bunch of local banks in the housing bubble markets that will be going under… Check your FDIC limits in those banks.
Meant: :” First, if you think the exchange rate is favorable and YOUR CURRENCY will weaken”
RenterTom…you are right. There other easier ways of making money on currency than buying real estate in miami.
I think people have been brainwashed into believing that buying cheap real estate is a sure way of making money. Buying low is good..but when it is going to stay low for a while and will cost you money even if you find a renter…is a bad idea.
For the next year or two, US govt treasure bonds are the only guarentted way to make money. Everything else could up/down/sideways and has too many unknowns.
On a different note, a few weeks ago, I got out of the stock market completley. I dumped all the citibank shares I had for a small gain. I sleep better and havent checked any ticker for more than a week. I do have funds in my 401K, but retirement is more than 30 years away..so I dont even bother looking. I cant imagine buying a condo and sleeping well with all the possible nightmare scenarios.
Why are there so many units for sale at the Setai? Isn’t it supposed to be a great building and, in theory, shouldn’t it have a much better and realistic stream of rental income? Do the units have a lot of physical problems? Is occupany at the hotel very low? Thanks in advance for any knowledge or gossip.
Interesting article in the NY Times:
http://www.nytimes.com/2008/05/15/business/15condo.html?em&ex=1210996800&en=1ebc381fa67f7183&ei=5087
http://online.wsj.com/article/SB121003604494869449.html
Serious Lucas….yawn on that article. Read it three times already, it is old news and simply makes that case that the rate of decline can’t get more steep. Well, it recently did in the March to April price declines. Moreover, recent housing reports over the last week show that the troubles have accelerated downward, not leveling off or simply decelerating… Obviously, the only thing worse would be an utter free fall with prices plunging below 2001. Might happen, who knows, has happened for some units. I guess it really depends on how you define a bottom. I define a bottom as a price floor….but that is in nominal dollars, I think the prices will hold steady in nominal dollars for sometime once the “bottom” is reached which mean in real dollar terms that the bottom hasn’t been reached. It really is going to get ugly as this unwinds and the reality of people paying 6x’s, 10x’s, or more than their annual incomes.
Being from the midwest, I have found this housing bubble fascinating and …like tech stocks in 2000, have to ask “what were they thinking?”.
TK, W South Beach is opening up right next door. Also, I heard the Beach frontage for the Setai has not been kept up well. I haven’t been there in ages so no first-hand knowledge about that.
Renter Tom said “Being from the midwest, I have found this housing bubble fascinating and …have to ask “what were they thinking?”.”
Easy answer, people don’t think down in Miami. They follow. Easiest place to run a scam. Just tell some people you’re making a killing doing XYZ, slap a Daytona on your wrist and lease a car you cant’ afford, walk around with a stripper (or 2) on your arm and you got a great business model. Did Related do so well in the GoGo years because they made amazing buildings? Nope, they did so well because they cultivated a system where people that bought first were able to flip to other people lower down on the food chain.
It wasn’t about thinking or investing, it was about… what’s the scam of the moment? -Flipping condos is the scam of the moment-. Is it working still? -Yehp-. OK, I want in and I want Related cause they’re the best to work with on Flips. But now the game is over and you got a lot of overpriced units in the pipeline based on this phantom demand that was cultivated by the very developers that are now stuck.
From the WSJ link, I couldn’t agree more with the author -Mr. Moulle-Berteaux- about his point that “a great majority of Americans buy their houses with mortgages. And if one buys a house with a mortgage, the most important factor in deciding what to pay for the house is how much of one’s income is required to be able to make the mortgage payments on the house.”
It wasn’t his intention I’m sure… but he spells out clearly why the Miami market is in for a lot more pain. With the investment ponzi game gone and the Liar loans gone and with stricter lending requirements in force, people are coming to the realization that paying 200% of their yearly pretax income for a condo + taxes + HOA isn’t a very good option.
Mr. Moulle-Berteaux is correct in suggesting that when affordability reaches historically normal levels, a bottom will be in place… Looking at Miami wages and the discretionary income of traditional snowbirds… There’s still a lot more room on the downside before affordability gets back to normal for this area. Can anybody say 2001?
Lots of good clear facts and figures
Plenty of good info clearly presented
thanks
Miami-Dade Foreclosure filings statistices are in. It just keeps getting worse, and does not bode well for future prices:
January 3,544
February 3,984
March 4,240
April 4,478
At this rate this years foreclosures will exceed the totals from the last 3 years, combined!
Pending Active Foreclosures by Zip Code
Zip County Foreclosures
33010 Miami-Dade 155
33011 Miami-Dade 0
33012 Miami-Dade 410
33013 Miami-Dade 217
33014 Miami-Dade 250
33015 Miami-Dade 596
33016 Miami-Dade 337
33018 Miami-Dade 388
33054 Miami-Dade 414
33055 Miami-Dade 535
33056 Miami-Dade 591
33125 Miami-Dade 243
33126 Miami-Dade 308
33127 Miami-Dade 334
33128 Miami-Dade 18
33131 Miami-Dade 526
33132 Miami-Dade 123
33129 Miami-Dade 159
33130 Miami-Dade 152
33133 Miami-Dade 320
33134 Miami-Dade 263
33135 Miami-Dade 126
33137 Miami-Dade 206
33136 Miami-Dade 50
33138 Miami-Dade 324
33139 Miami-Dade 669
33140 Miami-Dade 291
33141 Miami-Dade 408
33142 Miami-Dade 552
33143 Miami-Dade 242
33144 Miami-Dade 145
33145 Miami-Dade 214
33146 Miami-Dade 69
33147 Miami-Dade 632
33149 Miami-Dade 62
33150 Miami-Dade 394
33154 Miami-Dade 145
33155 Miami-Dade 371
33156 Miami-Dade 166
33157 Miami-Dade 725
33158 Miami-Dade 38
33160 Miami-Dade 670
33161 Miami-Dade 469
33162 Miami-Dade 462
33165 Miami-Dade 431
33166 Miami-Dade 166
33167 Miami-Dade 199
33168 Miami-Dade 333
33169 Miami-Dade 527
33170 Miami-Dade 192
33172 Miami-Dade 274
33173 Miami-Dade 277
33174 Miami-Dade 174
33175 Miami-Dade 519
33176 Miami-Dade 431
33177 Miami-Dade 743
33178 Miami-Dade 343
33179 Miami-Dade 610
33180 Miami-Dade 450
33181 Miami-Dade 291
33182 Miami-Dade 122
33183 Miami-Dade 388
33184 Miami-Dade 149
33185 Miami-Dade 298
33186 Miami-Dade 763
33188 Miami-Dade 5
33187 Miami-Dade 246
33189 Miami-Dade 335
33190 Miami-Dade 175
33193 Miami-Dade 536
33194 Miami-Dade 72
33195 Miami-Dade 1
33196 Miami-Dade 576
Total 23395
We have over 23,000 Pending Foreclosures in Miami Dade…….
Yes, but we have a bottom since the rate of foreclosure increases is not accelerating! Great time to buy, the bottom is here! LOL LOL LOL (obviously I am kidding here).
Amazing how many in 33139
669 in 33139.
BARGAINS COMING IN TWO YEARS AT THIS RATE!
Good post, JL.
I think the “Miami Business Model” you speak of applies not just here, but in Orange County, Phoenix … hell, even London. People are sheep, and they will follow anyone who appears to know more than them. That’s the byproduct of our consumerist, materialistic culture. It’s not intrinsic to Miami, unfortunately.
And by the way, “what were they thinking” is a lament that applies to every mania and bubble market (in any sector). Bubbles are by definition based on irrational behavior — not thinking.
Where’s the next one?
“Where’s the next one?”
Commodities, esp. metals. Also, see condo false bottom fishers in Miami area.
Great website! i read it frequently. Does anyone know of any recent sales at Murano at Portofino? stats?
thanks.
One Bedrooms at Murano at Portofino start at $875,000. What a steal! they might as well be giving them away
i don’t believe it is accurate since many people have taken their listing off the mkt, my family owns 3 condos in the area, and they have taken their listing off the mkt, not because they don’t want to sell because they don’t want a stale listing, so they just took it off and are waiting, this is not an accurate picture, i’m sure that my family isn’t the only one…..
commodities are most certainly not a bubble. Investors don’t want to keep their money in dollars so they put them in commodities. Gold and silver are up because of massive inflation and the Fed’s house of cards. Base metals demand is almost equal to supply thanks to global growth much in the same way as agriculture.
Where would you rather have your money dollars, real estate, or gold??
I’ve been searching the Miami and Chicago area for great condo investments for a while now so I appreciate your insight and statistics. It seems now is a great time to get into real estate in the Miami area due to the discounted prices. I found a Google Maps mashup that lists Miami condos along with views, etc. It’s been a great asset in searching and researching.
JL – Thanks for the responsive answer.
I guess my real q is: What is the true current rental income yield on these hotel condo-residences? I am referring to 2-3 BR residences (not hotel rooms) at higher end-hotels on the beach in SoBe (like Setai or Ritz)? I am looking at it strictly as an investment property with a focus on cash-on-cash yield. On that basis, these properties COULD be “okay” now (obviously not if you KNOW market will drop 20% more).
I am not a silly optimist in Miami RE. I just think these units MAY (that’s why I’m asking) be much better as an “investment” than any condo in any of those “ultra-luxury” bldgs ringing the south edge of Sobe. If the Continuum, Apogee, etc were stocks, I would short them without mercy until they were $0. I saw a few units in Continuum I and II this week. What a Piece of Sh*t (POS)!! Interior doors don’t have proper frames, just pieces of plastic glued on without proper finish on corners – nuff said. In 5 years, its going to feel old and sad (starting to already).
Units in both Setai and Continuum seem to asking $1,500 – $2,000 / sf. You can rent out a Setai unit freely at high rates and occupancy rates (I am guessing) . You can’t at Continuum. Therefore, I see a huge difference in value. What am I missing?
Again, I know and appreciate the many, many market negatives – foreclosures, mortgage challenges, etc. I am asking a much more specific q.
TK – Why would you want to buy ONE hotel room and be dependent on that one location with that one management. If you are looking for an investment in hotels, buy a hotel stock. Condo-hotels are generally a loser…you overpay for a hotel room. If was such a good investment why would Ritz or any company sell the rooms to others? After all hotels are their business… Take a step back and make sure you are not buying on emotion and the dream. A condo-hotel room is not a ready liquid investment, a hotel stock is.
I agree with Renter Tom.
The simple math, halve the gross income received, take of a further 10% for the fees the Hotel will charge you.
Then you still have to pay property tax on your con-hotel unit.
Also, you place your unit in the pool, but the hotel chooses where to place guests. At 100% occupancy they use yours, at 60-80% (the broad range in Miami Beach upscale hotels), you may not even get a look in. (I believe the Setai’s occupancy rates are lower, as you’d expect with those rates).
I know many people getting out of the Setai – check “for sale” versus “total units”.
Then add, management company. You own a unit in a building. It might be called the Setai today, and tomorrow, sold and called a Crowne Plaza. Go speak to the people who bought a Regent unit…
I think with realistic assumptions about costs, occupancy, you’d be lucky to get a 1-2% cash on cash yield if you left it in the pool 365 days a year.
That’s not risk adjusted for a management company change. Nor for illiquidity – there is almost no secondary market worldwide for condo hotel units because of the specifics of the contracts governing them with the hotel are case-by-case. You may well find you have an entirely illiquid asset at almost any price.
You’d have to be really silly to buy one of these, unless the absolute $ value of the purchase is so irrelevant to you – but if that’s the case, buy a condo, house etc instead.
Julian,
Being involved in the hospitality industry, let me congratulate you on your post……100% accurate. However, you may not have gone far enough with you skepticism.
In larger operations (ex. Four Seasons, Miami) a lot of “owners” seem to have forgotten to realize that the non-condo rooms are, as they agreed, rented out first. In other words, you need to have an excess in “benchmarked” demand before the F.S. reservation system dips into the condo-pool for rooms. Their telephone reservation people don’t know the difference between a condo room and a non-condo room.
In the boutique sector, which I will label “less than 75 rooms” (ex. Angler’s, SoBe), the room owners are inadvertantly at the mercy of the market: demand slips and rates drop. So, the operator has to constantly have the financial wherewithall to spnd lage sums to market the hotel around the world. Also, with boutiques they must exceed the traveler’s highest expectations…constantly. See the potential problem?
There have been some real disasters (ex. Robert Falor) who got control of the Royal Palm which had a few “problems” even before he came along. He thought he could sell over 400 condo rooms in a market flooded with condoized boutiques…..with a WELL FINANCED Loews next door. Potential “room investors” got lucky when Falor went banko because Loews has the financial wherewithall to moves rates up-and-down $100 a night to maintain occupancy levels. It is trailing 12 month occupancy levels that hospitality lenders are most interested in. The franchisor (hotel “flag”) makes its decisions based on these numbers as well.
How would 400 Royal Palm room owners fared if “their” already problematic operation had to compete in this economic environment?
The concept works well for a corporate buyer who can fill it with “bodies” on a regular basis and not have to rely on it for $0.10 worth of income from a rental pool. (ex. Sherry Nederland, NY).
Living in SoBe, I am amused with these “deals” and have toured a number of them for a foreign boutique operator. I have yet to see one which I feel would ever breakeven much less ever make a dollar for the room “investor”
Spring a bust for housing market
Shaky confidence and falling home prices combine to snuff key selling season
By John Spence, MarketWatch
Last update: 4:46 p.m. EDT May 16, 2008
BOSTON (MarketWatch) — The hoped-for rebound in home sales failed to blossom this spring, with the housing market caught in a downward spiral as falling prices continue to sap consumer sentiment and keep would-be buyers on the sidelines.
The all-important sales season that unofficially kicks off after the Super Bowl again failed to lift the residential market out of its doldrums. Although a surprising jump in April housing starts was reported Friday by the Commerce Department, enthusiasm was tempered by the fact that the gain reflected a jump in multifamily units. Starts of single-family homes lost nearly 2% to the lowest rate since 1991
———————
See marketwatch for the rest of the article….we have a long way to go………….
http://www.marketwatch.com/news/story/story.aspx?guid=%7B075BBF21%2D91A4%2D4BB3%2D84B8%2DB8BD6C481CFA%7D
recently have seen ads on craigslist for condos in Met1. does anybody have any news on this developement? is it soon to be occupied? seems like it has been finished but just sitting there. could be a nice development if the price is right on the units.
Guys, I just cant understand why anyone would ever invest/live in Brickell. I just started to understand the ramifications of being in Brickell.
The one and only arterial road connecting brickell to Downtown and the rest of the civilization has a very narrow bottlenect at the bridge on Miami River. Imagine 50,000 households using this road to get in and out! I was horrified to realize that the bridge is a drawbridge too. When it opens, the Brickell traffic will be brought to its knees.
Another interesting fact; I was in the Pace park the other day and it was delightful to watch 50 different kinds of Mutts and Mongrels to watch and play. I started talking to the dog owners and guess what! 3 in a row, all of them are from Brickell! I asked them what makes you load up your dog in a car, drive all the way here from Brickell? They say that they do not have a park or even a side walk like this in Brickell. They wistfully look at 1800, Q and wish they were living here. They told me that they are owners in Brickell. If they were just renters, they would move to pace park in a heartbeat.
I also saw that OMNI mall will be ready and open for business in Feb 09. Walmart and Lowes are coming to 2nd or 1st ave at 17-19st. Bayview market will be realized. Braman High end luxury car dealer is expanding in this area big time. Herald Plaza is being planned as a Times Sq. Clone, walk to the best Broadway shows in the new Opera Center, design District is expanding here, More restaurants are opening up, paramount bay will make the trasformation complete and sensational. People could not believe their eyes with the transformation that occured here since last two years. The same will happen in the next two years. Any last remnants of bums and undesirables will be almost eradicated in the next two years. I am extremely bullish about the pace park. In the next 2-3 years it will be the most desirable place to live in all of Miami (Pls dont argue with me about the prices per SF or any such thing).
So if anyone reading this blog who is wavering between sunny Isles, SOBE, Park west, Downtown, Brickell and OMNI/Pace Park, I urge you to seriously consider the Omni/Pace park area. 3-5 years from now, you will remember me from this blog in a thankful way.
This article is good for a glimpse into the condo market in Broward and Palm Beach counties…
http://www.sun-sentinel.com/business/realestate/sfl-flzcondos0518sbmay18,0,2844854.story
@ JB. Those condos are still WAY overpriced and these investors will still get some guillotine and a lot of sandpaper (as a previous poster pointed out). This foreign buyer thing is such a myth. How does anecdotal evidence prove anything? Even if it is true and they are increasing 30,40,50% yoy there are not enough greater foreign fools to fill this glut. How many of them are there in absolute terms? IMO, the banks are hanging on and the sellers are hanging on. They won’t hang on for long because the next round of huge issues are hitting the economy. This bottom calling is ridiculous!
But if you are confident in this market then buy right now. Maybe you can sell to me when they foreclose on you in two years.
Condos stink their worst in declining economies. The ignorant owners will stop paying their maintenance fees. Then the condo board starts taking out light bulbs from the hallways to save $99 a month on electrical bills.
Condominiums should be treated like hookers. Rent them by the day/week/month but never consider buying one permanently. Let someone else marry them.
Like foreign investors.
It’s funny – the rest of the world seems to live in relative harmony in flats yet in the US, living in a Condo is a no-no.
I think these generalisations about condos have to be qualified severely – financially insecure condo associations with financially insecure owners in secondary, second home locations are a losing combination. There is then a spectrum all the way to (I suspect), long established New York condos or co-ops.
It’s fascinating as an overseas observer because one of the principle tenets of US real estate ownership, condominium law – i.e. commonhold ownership – is being repeated around the world.
It makes me wonder whether getting rid of Freehold building ownership/leasehold flat ownership is actually a good thing. At the very least, if you don’t pay your fees, the courts can revert your lease back to the freeholder. It seems that with condos, you can pile up the liens, but is a court in the US going to throw you out of your home if you are UP TO DATE with mortgage payments but behind on your fees?
I’d love to know.
Wild Bill writes, “Condominiums should be treated like hookers. Rent them by the day/week/month ”
Anyone know a good hooker?
Are any condo owners here renting units by the day/weekend, eventhough condo docs only allow monthly or yearly rental?
I know I’d prefer to stay in a new condo than a hotel. Short term rentals could help many owners, and associations; are some relaxing their rules?
Hey Perez. Why are you wasting your time on a real estate blog and not out there flipping condos and making huge profits? You say that the market is turning around don’t you? I’m here annoying people because I have nothing better to do, but a smart businessman like yourself should be out there making some sweet sweet cash.
Perez,
Many condo owners are renting units for three day minimums against condo docs. Miami has always been a seedy place and many owners don’t care about condo docs and will do anything to make a buck. Memorial day weekend is a favorite for Miami condo owners.
Some buildings I’ve seen with weekly rentals—
Absolut Lofts $3,000 week
Cite on the Bay 1br $800 Week
2nd Street Sobe Loft $2000 per week
Neo Vertika Rates =Daily $150 weekly= $950 or monthly= $2495
Venetian Island condo 2/2 $595 night
Icon 2br $450 night 5 night min. Memorial week.
Waverly 2/2 $350 night Memorial weekend
Yacht Club at Portofino $425 night Memorial weekend
I’m sure most condo owners have no idea why their neighbors are noisy one weekend and quiet the next.
Wild Bill
Can you tell me where you saw these ads. Specifically foe the Waverly. thanks!
http://www.sunspotvacationrentals.com/Miami_Beach_Rentals.htm
Julian,
Apparently the laws in Florida are shifted towards the HOA vs the owner. If you haven’t heard of these case try searching under “HOA Foreclosures”. You will see cases of sherriffs giving 48hrs notice to owners to vacate their homes as the HOA auctions off the unit to pay for back maintenance fees/penalties/etc. While there are recent new laws proposed/inplace to avoid unjust HOA Foreclosures, it does happen. However, it will not likely happen if the mortgage is greater than the current property value as the mortgage gets paid first. Special assessments are more common avenue for the HOA to recover unpaid maintenance fees….just don’t purchase a unit in a building where there are alot of suspected foreclosures as you are likely to have an special assessment(ie:club at brickell bay). At some point well run HOAs will ask for an increase in the maintenance fee to set aside for other contingencies(like a rainy day fund). Read the HOA financials, newsletters and call the HOA directly. At least you won’t get surprized with a special assessment or cut in service/maintenance of the building.
CGVelez –
I think only 2 units closed this year at Murano Portofino: #307 sold for $875K ($629/sf) and #3401 sold for $$3.4M ($1,010/sf). FYI, #307 didn’t have much of a view and was on the market for 6 months. The asking price for #3401 was over $4M.
Regarding JB’s article link above…
I think the telling quote from that article is this one:
“The gossip in South America is that properties in the U.S. are selling for low prices and the market is good here,” said Gomez, 50. “They’re saying that people who want to buy should buy now.”
People buying condos based on “gossip” is exactly what caused all these American buyers to get burned. The foreign buyers, in my view, are simply the last wave of those same people who will lose a bunch of money in this market. Buying a condo because other people are talking about it as a “good deal” or because it is “50% off” is a recipe for disaster.
It is this “gossip”, not real investment analysis, that is driving any foreign buyers who are buying right now. Like I said, they are the final wave of the “flipper”-type mentality – regardless of whether they intend to flip or not.
It is debatable how big of a factor these foreign buyers are, but there certainly aren’t enough of them to cause another “bubble”. Prices are headed one way: down.
Just spoke to my landlord. He notified me that he might have to stop paying on his 750k mortgage soon. He suggested that I should contact the bank and give them an offer in a short sale transaction.
Well, since I am paying $2,600 in rent for the brand new 3/3 penthouse, I wonder what the property is really worth to me? Any thoughts?
$350,000 to $400,000. How’s that?
What building is this in?
Happened to my friend, but he found out his landlord hasn’t paid her mortage in the last 8 months or so when served with the foreclosure papers!
T.Enant
120X2,600 = 312,000
To me, the place will be worth 312K when all is said and done, its about 250% overvauled at 750K
If any readers of this website are interested in keeping up with my comments in the media, link below FYI.
I read articles and comments on Lucas website frequently. An earlier post on this article questioned the validity of anecdotal information. Truth is, during this downturn, the best way to analyze the present and predict the future was only possible research, investigation, legwork, and through a preponderance of circumstantial evidence, much of it anecdotal. Those seeking to quantify and formulize the dramatic, dynamic, rapid fire changes in the bubble markets have been left in the dust, behind the curve, and generally are quoted saying “who could have predicted this?”
Anyway, I enjoy reading the website and reader comments, and will add some color and analysis from time to time.
Jack
http://www.topix.net/search/article?q=%22Jack+McCabe%22
Great blog – thanks to all the contributors, lots of valuable information.
I am moving to the Miami area and will be working at Jackson Memorial. I am looking at condos downtown. Is it kosher at this stage to negotiate lower rents given the abundant oversupply of condos that are going to hit the miami market in 2008? How does one delicately approach private condo renters who are still in denial? Any advice would be appreciated.
One year lease and interested in larger 1 bdrm. (with additional half bath and/or den) or 2 bdrms.
shwin,
Their is alot of availability, check Craigslist. You are in control, offer people less than they are asking …
AJ,
The Omni area sounds great, as long as you don’t get shot or carjacked on the way to Pace park …. Good luck, it is so obvious you are stuck in that area and wished you would have bought elsewhere. It is a good thing you love that area so much because you’ll be their 10 to 15 years before you can make back whatever you paid for your condo ……….
You are an idiot.
Renter Tom – Sorry for the late reply, been traveling on biz. Thanks for sharing but your arguments are rather flawed. Let me give you some free advice.
Your Point #1. You can’t compare buying a # of nights in a hotel room to buying a condo-hotel unit. The former is consumption and based on travel needs; the latter may (or may not) be an attractive cash-yielding investment. I don’t care if I stay in my unit ever.
Your Point #2. A condo-hotel unit vs a hotel stock is a invalid comparison. Totally apples and oranges. One can (and should) invest in many different asset classes. Picking one and going 100% into it is just bad portfolio management. Saying a public stock of a certain type is always better than a related private asset is ridiculous.
At any rate, a hotel stock should be compared to the universe of all stocks. And I believe most hotel stocks have sucked even worse than Miami condos. Starwood stock has fallen from $75 in June 2007 to a low of $43 this Jan (now $54). There are many stocks I would rather own than “a hotel stock”.
Your Point #3. You can’t not buy anything ever just bc someone is willing to sell it. Did you know that someone is selling you that hotel stock you want to buy. Most hotel companies and stocks are “management” companies, not “asset” companies. As such, they seek to generate cash flow from providing services, not from holding assets. So holding assets is not part of their business model, so they do sale /leasebacks etc. But you are right insofar as if they are choosing to finance development in this way, it must be bc this market is paying them more than any other. But that doesn’t necessarily mean the market is overpaying.
Your Point #4. Liquidity is not an end itself. You pay a huge premium for the liquidity of a stock. You have to pay 15 times cashflow for most stocks. You can generally buy an illiquid private business for 3x. Of course, the delta is not just for liquidity but more liquid stocks always trade at higher multiples than less liquid ones. For many wealthy Americans, their main source of wealth is a privately-owned business. They illiquidity thereof is not killing them.
To sum it all up. Finally, by operation of the transitive property, are you saying your preferences would be to (1) buy a hotel stock, (2) buy nights in a hotel, and last of all, (3) buy a hotel-condo unit? Does that chain of reasoning make any sense at all? Is that a strategy for investments? Consumption?
Owning a unit at the Setai is not my dream. My dream is having one slice of my portfolio generate a steady 10%+ cash yield without active management.
Julian – Sorry for the late reply, been traveling on biz. Thank you for your views as your arguments are directly on point. I am aware of the huge # of listings at the Setai. That’s why I asked the q.
You say you know many people selling their units at the Setai. Can you give some specifics on why? Did they intend to max rental income and found it to be less than advertised? Occupancy rate of 20% or 50% (vs forecast 80%)?
Or did they buy with no intention to rent and are selling bc they can’t afford the note or carrying costs or are just interested since there is no chance for quick capital gain?
The condo units at the Setai are not straight “condo-hotels”. They are 2 and 3-BR apts that look like residential condos much more than “hotel rooms”. The tower they are in has a much better location than the main hotel (beach vs Collins). You can rent out the rooms either thru the mgmt co. or privately (agree the fees seem excessive either way, for now).
I agree a Setai unit may or may not make sense financially at current price levels.
Can you run me thru your calculations for expected gross income? That is the part I am most interested. The costs and fees are public and easy to calc, the top-line revenue is murky.
What’s really silly is anyone buying a unit at the Continuum I or II. A massive short.
TK,
What do you mean by
“What’s really silly is anyone buying a unit at the Continuum I or II. A massive short.” Can you elaborate?
AJ,
Its not polite to call people idiots. The more of your posts I read the more I think you are one.
Suit yourself IRR. If you are such a stand up guy, You can start by reavealing your identity. I use my real name here. I posted my real e-mail address on this site and as I said before, if there is a facility, I would post my thumbnail image too. I have been nothing but polite to everyone in this blog. I respect everyone on this blog. The intellect here is right up there. But every now and then there is a HIT AND RUN post with outlandish claims and lies by a coward anonymous posters whose name just appears out of nowhere and you never see that name again. It a just a name of convenience they assume for that one post. I do not have any respect for such hit and run con artists. I wish this blog has the feature to display the IP address of the bloggers so that even If they change names, their IP remains the same and is displayed for the world to see. No regrets for what I did.
With regards to the Setai, I was pointing out owner-occupier preferences for selling but there must be more to it given there are so many for sale.
People I know who own there (part-timers)
1. Don’t like the area – find it too noisy/not lively enough (I know!), not classy. Don’t consider the W/Gansevoort as sufficient to change their view.
2. Are re-considering the allure of South Beach itself. Perhaps it’s there age but Key Biscayne, Coral Gables, Porto Vita kept on coming up.
TK – People buy things for different reasons, some reasons certainly make no financial sense. There are tons of condo floplords who are stuck playing hotel manager for their units. What a pain. And they still loss money… Oh well, there are certainly many opportunities to join them if you wish. Good luck.
Hello when did you think is the best time to buy for a 1 Bed Room in Miami Beach , collins ave 60 th street and up ?
Can you say me something about this condos:
Bel Air on the Ocean
Akoya
Julian and Renter Tom – I’ll let you know when I get my hands on some solid rental data. I agree, the # of sales smells very bad. Maybe decent value when it hits 50% less per sf. I’d keep shorting hotel stocks in the meantime. The discretionary spending power of the US consumer is the one thing weaker than the Miami condo market.
AJ – If you look thru this thread, you’ll see my various posts comparing the Setai and the Continuum. I recently saw 2 BR units in both on a biz trip to Miami (I live in NYC). I have some interest in buying, if there is money to be made.
I don’t know if the Setai is value at $1500/sf (current asking), but one thing I know FOR SURE is that, at any point in time, the Continuum should be valued at way, way less than the Setai. The Setai at least has a meaningful rental income option (which still prob doesn’t justify current ask). And it seems to be a much nicer building (maybe to a NYer’s tastes only).
Only caveat is I may learn something negative about the Setai that pushes its value down. Also I am no expert on Miami RE and I’ve only seen units in those two buildings plus 1 other (no interest in anything w/o direct beach access), but I know money-losing crap when I see it.
Just trying to help ensure someone in this community doesn’t made a 100% sure mistake and buy a unit in Continuum at current asking levels.
Hi TK, Nothing in this town should justify $1500/sf. in NY you can find beautiful flats with view for $1000/sf. And that is a town to make money. This is a town that drains your money.
Having said that, I love Continuum II (NOT Continuum I). That is the only building in SOBE I look at wistfully. I personally think that there is no other such location on earth. If money is not an object, I would buy in line 7 or line 8 above 20th floor.
AJ – I looked at the Continuum II bc it looked great on the internet. In real life, it was quite disappointing. Guess you could redo the interior for $200k+, but is that going to make financial sense? I guess we agree one would be nuts to buy in Continuum II for $1500/sf. Out of curiousity, at what $/sf do you think it will bottom and would you be a buyer at that level?
WHAT CONDO IS BETTER ?
AKOYA OR BEL AIR ON THE OCEAN
Prices now going real @ bel air
but when going prices REAL @ akoya
460 .000 for 1 bed room is not real – 350-380 is more real
[…] Below, you will find the Miami-Dade County condo inventory and months of supply figures for October 2008. The first box to the left reveals the total number of condos that are currently available for sale on the MLS throughout Miami-Dade County. The second box discloses the total number of closed sales that occurred in the month of September 2008. The third and fourth boxes show the months and years of condo supply in Miami-Dade County. As you can see, the figures are also subdivided into various price ranges to reveal which part of the condo market has been most affected. The % change box will show you how the inventory levels have changed since my last update in May 2008. […]