Following The Herd In Florida
The Sun Sentinel reports from Florida. “In Fort Lauderdale, Miles and Laura Brannan are raffling their six-bedroom waterfront estate in Coral Ridge Country Club. The plan is to draw the winning name after 300,000 tickets are sold, at $10 apiece. Part of the proceeds will benefit St. Simeon Church in Miami, which is conducting the raffle. The couple bought the home for $2.35 million in 2005. ‘My income’s been cut in half,’ Miles Brannan, a real estate investor, said Friday. ‘We need to sell the house. It’s a means to an end.’”
The Palm Beach Post. “Jimmy Diamond says he was flying high back in 2005. He and his wife had good jobs. They had just purchased a two-story, $600,000 home in an upscale Boynton Beach neighborhood. The Diamonds, who had lined up a buyer for their home, discovered that the development they live in, Cobblestone Creek, has houses with tainted Chinese drywall.”
“‘We had to tell the buyer,’ Diamond said. ‘They backed out the next day. We have no plan. All I know is I’m screwed because I can’t sell my house.’”
“Thursday night, a group of about 150 Boynton Beach homeowners gathered outside the Cobblestone Creek community’s clubhouse to hear a presentation from a group of lawyers. ‘We put our life savings in this house,’ said Tonya Radi, a resident in Cobblestone Creek who moved in about eight months ago. ‘This is the house we thought we’d live in for the next 20 years. What if it’s not healthy? I’m pregnant right now. Or what if people move out, what will that do to my (homeowners association) fees?’”
The News Press. “The expensive tile on the walkways outside the abandoned Paradise Preserve sales center is littered with leaves and balled-up newspapers. So, too, is Lee County littered with the victims of yesterday’s ambitious construction projects that now sit silently.”
“The big foreclosures that are coming fast and furious these days are leaving in their wake a host of people who lost money or quality of life as the developers’ visions were scuttled by an unforgiving market after the housing boom collapsed three years ago. Among those who lost out is Barbara Foster, who’s lived for seven years next to Paradise Preserve — a residential development that will be auctioned off on the Lee County Courthouse steps on April 14 for more than $91 million in debt.”
“‘You can see for yourself, it’s not pretty,’ said Foster, whose home now fronts not on the lush Lochmoor Country Club golf course but the overgrown scrub wasteland that replaced it when Paradise Cove’s developers bought the property but failed to develop it as planned in 2005. ‘This was one of the beautiful courses in North Fort Myers,’ she said. ‘It was a shame what they did.’”
The East Orlando Sun. “Ron Randolph first got wind of Stoneybrook’s financial troubles last fall when he was the only one of 2,600 non-boardmember residents in attendance at an HOA budget workshop. It was there that he heard of an impending shortfall in revenue due to the rapidly increasing number of foreclosures in his community. As a real estate agent, Randolph already was well aware of the housing plague that is sweeping across East Orlando, and the entire country.”
“‘The forecast is that by the middle of March, [the HOA board] would run out of money. Some people were extremely upset, but running an HOA is almost a no-win situation,’ he said.”
“Although these vacant properties are still bank-owned, the HOA is investigating if it can rent the homes to tenants and use the money to pay the lender. ‘This is kind of an experiment,’ said Hobie Fisher, former HOA president.. ‘We’re not trying to take over people’s houses, but we’ve got to protect the rest of the people in the community.’”
The Orlando Sentinel. “The image is surreal, oddly compelling and a spot-on barometer of how badly Florida’s construction industry is struggling: more than 2,000 green, molded plastic portable toilets lined up like boxy soldiers on a storage lot in south Orlando. That they are standing here and not on a job site — providing relief and revenue — is enough to elicit a scrap of dark humor from John Sharp Jr., whose company owns the porta-potties.”
“‘Right now,’ says Sharp, vice president of Comfort House Inc., ‘business is stinky. We were having builders just walk off [their job sites]. That gave us an idea of how crazy things were getting.’”
“The company moved here from Winter Park in 2001 to give itself more room. Sharp said that at the height of the building boom — 2004 to 2005 — it grew its operation by 100 percent in 11 months. Back then, units were in such demand, the company would call contractors asking when they would be done with a job so it could retrieve a toilet and move it to a new site. No more. ‘It’s like a ghost town out there,’ Sharp said. ‘Just tumbleweeds blowing around.’”
The Miami Herald. “Here at the epicenter of the nation’s housing crisis, an ebullient Marc Joseph bounces off a pontoon boat onto a dock behind a lovely waterfront home — it was recently vacated when its former inhabitants couldn’t pay the mortgage. ”The tiki hut comes with the house, guys!’ the slim 41-year-old real estate agent says as a dozen or so potential buyers disembark from two boats and start poking around the 2,600-square-foot house. It’s being offered by a bank for $574,000.”
“Considering this particular home — situated on a wide canal leading to the Gulf of Mexico — sold for $776,000 in 2005, it’s going to be steal for someone.”
“Pedro and Karin Weber are Germans who recently moved to Florida from Venezuela and hope to set up some sort of retail business so they can stay. They did their homework and deliberately chose to relocate to Cape Coral. They hopped onto the boat hoping to find a place in the $350,000 range. ‘It’s tough at the moment in the whole world, so why not go to the States?’ says Karin Weber, a 53-year-old blonde wearing a pink Hard Rock Cafe T-shirt and big Dior sunglasses.”
”’We’re not rich. We have money [put] back for buying a house,’ she says. ‘So maybe we can buy a house for $300,000 what’s worth $500,000 or $600,000. Maybe we can make a good deal.’”
“Jay Martin came to Cape Coral do a little speculating of his own. He got on the boat looking for good buys for the international clients of his San Diego-based investment house. ‘This is going to be kind of our Ground Zero,’ Martin says. ‘The inventory levels are starting to level out, so it’s pretty much go-time.”’
The Daily Business Review. “When the remaining 93 condos at Heron Pond in Pembroke Pines finally sell — almost certainly to a single buyer — should the investor also get a break on taxes? Yes, say investors, brokers and developers. They note the units will probably be rented out and that tax assessments will reduce cash flow and income if they are calculated as if the condos were individually owned.”
“No, according to county tax assessors, who say bulk buyers shouldn’t get tax breaks not available to individual buyers who paid a market rate for their units. ‘Why should an individual buyer be penalized if they bought one unit but a bulk-sale buyer be rewarded with a lower tax assessment?’ asked Joe Zdanowicz, residential property director in the Broward County property appraiser’s office.”
“Tax consultant Christopher Bates of Christopher Bates Inc. won a 20 percent tax reduction in late 2007 for the buyer of 123 units in the Villas of Emerald Dunes in Palm Beach Gardens by documenting developer-paid incentives and perks for county tax assessors. The buyer paid $18.2 million, or about $147,000 per unit, according to Palm Beach County public records. The county’s original tax assessment was $26.64 million, or almost $217,000 per unit.”
“Bates pointed out concessions and incentives are paid by the developer but not recorded, said Pam Lamb, manager of the condo department for the Palm Beach County property appraiser’s office. ‘So the developers are paying more on these units than we know,’ she said. ‘We’re finding they may give away free association fees for three years, or free garages and carports. That was the basis of his evidence.’”
From Reuters. “In the financial world’s version of night of the living dead, Corus Bankshares Inc. zombie-walks near the front of the pack. According to the bank’s 2008 results, Corus has over $400 million in foreclosed property, most of which occurred in the fourth quarter of last year. An additional $1.5 billion of loans, or some 36% of its loan portfolio, is non-accrual, with little chance of performing again.”
“So, while Corus continues to operate, only the terminally optimistic believe it can survive. ‘The consent order is a death order,’ says a workout specialist with detailed knowledge of Corus. ‘It’s a precursor to the inevitable.’”
“Corus built its $4 billion loan book on the back of condominium construction. Not only did management bet the bank on this most speculative and cyclical of activities, it focused on condo projects primarily in southern Florida, as well as in Arizona, Nevada and southern California. According to Brad Hunter, director for housing market research firm Metrostudy, the inventory in South Florida of finished and vacant or under-construction condos totals 28,464, of which Miami-Dade County has 22,652.”
“They’re not exactly flying off the shelves. Lucas Lechuga, a Miami realtor, says of four newly completed projects, none have topped 5%. The most ambitious is the 1,640-unit Icon Brickell, part of a $1 billion residential, hotel and retail complex. Its closing rate stands at 0.84%. ‘This is indicative of what’s going on,’ he says. ‘Nobody’s able to close. It pretty much has to be cash buyers.’”
“Joseph Altschul, a Fort Lauderdale attorney, represents purchasers of preconstruction condo units trying to get their 20% deposit back. A looming issue, Altschul says, is ongoing maintenance, which Florida law limits to six months for developers. He cites Tao Sawgrass, a 396-unit project, in which exactly five units have closed.”
“Holding a $126 million construction loan and a $20 million mezzanine note, the lender foreclosed on the Sunrise, Fla., development and took over in November, promising to market the condos itself. The lender: Corus.”
“The once-booming real estate market that made Jorge Perez a billionaire is crumbling around Miami’s ‘condo king’ in what may be the biggest U.S. condo glut. The chief executive of the privately held Related Group is South Florida’s most prolific developer, a driving force behind a string of high-rises and mixed-use developments from Miami to West Palm Beach who championed the frenetic construction well after the market peaked in late 2005.”
“Today, Perez is trying to ride out a huge inventory buildup and falloff in property values across Florida. ‘I think he just kind of went overboard,’ said Lucas Lechuga, a Miami realtor.”
“Two other Perez condo projects, including one just across the street from Icon Brickell, were already struggling with poor sales before the newer development opened. Only 18 of Icon’s pricey condo units had closed as of March 12, according to Peter Zalewski, whose Florida-based firm represents investors. The first closing on residential units in the complex, where condos have gone for an average of $760,317 or $566 per square foot, occurred on Dec. 5.”
“That glacial sales pace could spell disaster for Perez, who faces what some experts say is the biggest supply and demand imbalance in a condo market anywhere in the United States. ‘Not only is this market unprofitable, but at the same time it’s money losing,’ Zalewski said.”
The News Herald. “The real estate market crash that has ravaged the national economy also has pummeled banks in Northwest Florida. Just one of the six community banks headquartered in Panama City turned a profit, a News Herald analysis found. The losses, according to bank officials, are largely…all tied to the real estate downturn.”
“‘This is unprecedented,” said C. Daniel DeLawder, chairman of Park National Corporation, an Ohio-based bank holding company that bought locally chartered Vision Bank of Panama City in 2007. Vision Bank, with more than $900 million in assets, posted a net loss of $81 million in 2008.”
“‘We have never seen a market adjustment like we’ve seen in the past year-and-a-half,’ said DeLawder. ‘We can be critical of ourselves, but we really didn’t anticipate Armageddon.’”
“Bay County’s real estate market was blazing in 2004 and 2005, particularly on the Beach. The average price for Beach-area property increased more than 200 percent between 2002 and 2006, from $107,874 in 2002 to $333,999 in 2006, county property records show.”
“Experts say that with so much money to be made, many banks loosened their purse strings. ‘While they were aware of the potential risks of the housing bubble, (banks) pretty much ignored it,’ said Jeffrey Clark, a professor of finance at Florida State University. ‘They saw potentially strong returns from construction, commercial and residential real estate lending. They pursued, maybe overly aggressively, lending in this area.’”
“In an e-mail, Bay County Property Appraiser Dan Sowell listed several reasons for the real estate boom, including: an increase in the number of baby boomers reaching retirement; the discovery of underdeveloped sections of the Panhandle; low interest rates; and liberal lending practices. The bust, Sowell wrote, occurred because of ‘the inability of the beneficiaries of liberal lending policies to pay their notes’ and ‘the general downturn in the economy.’”
“‘There was tremendous liquidity everywhere, and this was part of the fuel for the housing bubble,’ said Philip van Doorn, senior banking analyst for the financial Web site TheStreet.com. Subprime lending wasn’t the only practice contributing to the boom. Van Doorn said local banks aren’t entirely blameless for their struggles. ‘Banks didn’t want to get left behind. Everybody lowered their underwriting standards, no matter who they are,’ he said. ‘As bankers that’s who we are; we follow the herd.’”
“‘In the short run, it has been a miserable financial decision,’ Park Chairman DeLawder said of the Vision purchase.”
