Condo Meltdown - Investors buy condos in bulk |
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By Paola Iuspa-Abbott - September 24, 2008
Ig investors eager to cash in on South Florida’s depressed condo market are starting to see their patience pay off. Developers of such far-flung projects as Ten Museum Park in downtown Miami and Keys Gate in Homestead are cutting their losses and selling blocks of empty condominiums and townhouses at significant discounts. Most of the buyers are newly formed investment funds that plan to rent their cut-rate acquisitions until values rebound, according to real estate consultant Peter Zalewski, founder of Condo Vultures Realty in Miami. Some real estate analysts say the uptick in bulk sales is a sign lenders are finally allowing developers to unload inventory for less than the release prices set by loan documents. Development loans often bar borrowers from selling the condos for less than the amount, or release price, stipulated in a loan agreement. |
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Many buyers are well-financed investment funds, including RLA Marquesa, a partnership between the
Related Group of Miami and Lubert-Adler Partners of Philadelphia.
Developments where investors have found significant discounts are Shoma Development’s Keys Gate in Homestead,
Ten Museum Park in downtown Miami, Residences at Riverwalk on the Miami River and Moon Bay north of downtown.
Here are some of the most significant bulk deals:
• Doral-based Shoma recently unloaded 724 condos, townhouses and undeveloped lots in an unfinished
subdivision in Keys Gate, southwest of 328th Street and west of 152nd Avenue.
Shoma sold the portfolio to Palm Breeze Executive Townhomes and Lakefront Luxury Homes for nearly $28 million.
The buyers bought the propertiesfor almost one-third of what Shoma had sold similar
units on the open market over the last three years.
For example, Palm Breeze paid $81,149, or $43.81 per square foot, for a four-bedroom, two-story townhouse assessed
at $230,000, or $124 per square foot. The purchase price was the average Palm Breeze paid when it acquired
186 townhouses at Keys Garden for $15.09 million, according to Miami-Dade County property records.
Shoma Homes also sold Palm Breeze 161 vacant lots at Keys Garden for $981,109, or $6,093 each.
With the lots averaging 1,440 square feet, Palm Breeze paid $4.20 a square foot.
Lakefront bought 168 condos for $10.9 million, for an average price of $64,918, or
$49.89 per square foot. The condos are at Shoma Homes Keys Gate, across the street from Keys Garden.
Typical three-bedroom condos purchased by Lakefront are assessed at $186,000, or $143 per square foot.
Lakefront also paid Shoma $1.02 million for land slated for 210 condos at Keys Gate.
The price averages $4,857 per unbuilt condo.
Although it is not clear who is behind Palm Breeze and Lakefront, public documents show Steven Carter
is chief executive officer of the two companies. Both companies used the law firm Becker & Poliakoff
as their registered agent, according to the Florida Department of State’s Division of Corporations.
“They are strong investors who can close a deal,” said Becker & Poliakoff attorney Jennifer Drake in Fort Lauderdale.
She represented the investment groups but declined to discuss the principals.
Palm Breeze and Lakefront will soon start renting the condos and townhouses while and marketing them for sale, she said.
• In downtown Miami, bulk sales are of a smaller scale and involve high-rise condos built or planned during
the residential construction boom that peaked in mid-2005. Overly optimistic developers built thousands of condos in the
Miami’s downtown and Brickell area. But by mid-2007, speculators and other buyers had abandoned the market,
leaving developers holding hundreds of unsold units.
Miami developer Gregg Covin sold the majority of the 200 condos at Ten Museum Park,
which was completed last year at Biscayne Boulevard and Northeast 11th Street.
Yet, he was left with about 20 units in the 50-story building, most orphaned by
buyers who walked away from their purchase contract, Covin said.
In early August, he sold 12 condos for less than $400 per square foot, down from the up to $700
per square foot that he asked for during the condo craze. Covin paid off the project’s construction
loan last year, so he had more flexibility to sell below market value, he said. Covin said he kept
deposits from default contracts and that helped compensate for the discount.
Miami Magna, led by investor Avra Jain, paid $4.5 million for the Ten Museum Park condos, according to property records.
Miami Magna obtained two loans totaling $3.1 million from a trust managed by
Fort Lauderdale attorney Eric Schwartz, who declined comment.
Jain, who was traveling outside the country, did not respond to an e-mail seeking comment.
• In another Miami deal, Coral Gables developer Jose Luis Gonzalez sold six of the unsold condos
in the 16-unit Residences at Riverwalk at Northwest North River Drive and 11th Avenue.
Lake Worth investment group Mirage Riverwalk paid $4.6 million, or about $226 per square foot, in July.
The units have an assessed value of $341 per square foot. Mirage Riverwalk Michelle Lancianese,
who is in the landscaping supply industry, declined to comment.
Gonzalez did not return a message seeking comment.
• Early last month the developer of Moon Bay on Biscayne Bay, at Northeast 29th Street and Fifth Avenue,
sold four units for $834,600, down from their total assessed value of $1.02 million.
Moon Bay is run by veteran Miami developers Augusto Gil of Gil Development and Carlos Martinez of Caribe Homes.
The buyer was Miami-based Perpetua Development, managed by Herve Barbera.
One of the most successful bulk buyers in South Florida is a $1 billion fund created this year by
Jorge Perez’s Related Group in Miami and Philadelphia-based real estate private equity firm Lubert-Adler.
The fund has purchased nearly $100 million worth of condos in four transactions in South Florida, according to Related.
Jordan Paul, senior managing director for the Related/Lubert-Adler Investment Fund, declined to identify
the four projects,citing confidentiality agreements. He also declined to comment on whether the
fund was buying condos or the mortgages on distressed prosperities.
Two of the fund’s four transactions can be found in Broward and Miami-Dade county property records.
In late June, the fund bought 239 units in Marquesa Pembroke Pines for $30.12 million
from condo converter Fairfield Pembroke. RLA Marquesa paid $126,058 per unit,
down from the condos’ assessed value ranging from $149,220 to $286,730.
RLA Marquesa received a $24.8 million mortgage from TD Bank in Fort Lauderdale.
Fairfield, an arm of Texas-based Fairfield Residential, had purchased the 468-apartment rental community
in Pembroke Pines for $95 million, or $202,991 per unit, in late 2005. Fairfield tried to resell the apartments
as condos, but the conversion was half completed when the housing bubble burst. Half of Marquesa,
south of Pines Boulevard and east of Southwest 118th Avenue, remains a rental community.
In Miami, the fund bought 146 condos from 50 Biscayne, a 54-story tower Related recently completed in
partnership with Atlanta-based Cousins Properties. The bulk buy helped Related buy out Cousins’ interest
in the 528-condo building at Biscayne Boulevard and East Flagler Street.
RLA 50 Biscayne paid $30.3 million for 120 units on July 8 and $6.14 million for 26 units on July 18.
Related paid off the construction loan on 50 Biscayne earlier this year,
so the lender had no interest in the sale of the units, which averaged $247,739 each.
The average price of condos on Biscayne Boulevard is $309,936, according to Condo Vultures’ Zalewski.
Paul said the fund would continue buying discounted assets for the next two years.
The bulk buying may be a growing trend, but that doesn't mean the housing market has reached bottom,
said Ken Thomas, a Miami bank consultant and economist. South Florida has one of the largest
number of foreclosures and falling values in the nation.
“The bottom won't happen until mid-2010, and we won't see price appreciation until 2011," he predicted.
