‘Sink Or Swim Time’ For Condo Projects
A trio of reports on the condo bubble. “It’s sink or swim time for many condo developers throughout South Florida. Big, grand condo plans are hard to keep when the market appears to be positively FLEEING from real estate.”
“Some projects are probably dead in the water. Reports are some West Palm Beach condo developers are stirring around the few sales on their plate like so many unwanted peas at dinner, pretending things are fine while looking for an exit strategy from the closing table.”
“And then there’s Cliff Preminger. He’s the developer of the nautical-theme upscale condo planned for North Flagler Drive in West Palm Beach. Like everywhere else in South Florida, condo sales have slowed there, too. But Preminger has decided to stay onboard and wait.”
“He still believes Eighty Points’ waterfront location will insulate the project from failure, even though condos remaining for sale in the 173-unit complex start at at a pricey $700,000. (He would not say how many have sold so far.)”
“Veteran real estate lawyer Steven Siegfried thinks most condo projects will be built, eventually. ‘The market is going to be like this for some time,’ said Siegfried.”
The Herald Tribune. “Construction and development of condo projects have slowed because of lender concerns about the number of units sold to speculators. ‘Lenders want to know who the buyers are and whether they will be able to close when construction has been completed,’ said N.J. Olivieri, president of Sarasota-based Horizon Mortgage.”
“As to the condo conversion trend, Olivieri said that’s over.”
“‘One of our clients is a major New England pension fund,’ Olivieri said. ‘These guys feel that people who did recent conversions are not going to be successful. So they are trying to buy units that haven’t sold and operate them as apartments.’”
“Olivieri said the pension funds will be able to buy the units at deep discounts because converters are already desperate to get out from under their heavy debts.”
And from the LA Downtown News. “Mere months before their expected move-in date, about 40 expectant buyers were FedExed offers last week to pull out of the new condominium development Axis at Union Station.”
“The company’s parent corporation, Standard Pacific Corp., had suffered a rough start to the second quarter of 2006. According to a June 2 company press release, net new home orders dropped 41% in April and May from the same period last year, due in large part to a jump in the company’s cancellation rate and softening in the company’s larger markets, the release said.”
“But the buyout offer was not related to market issues, the company insisted last week. ‘It has nothing to do with softening,’ said Alison Banks, for Standard Pacific Homes. Instead, she pointed to ‘great uncertainty’ surrounding the project.”
“David Coplen had an appointment to view the complex the weekend before the FedExes went out. He arrived expecting a tour, and instead found the sales office closed. ‘I assume this is as a result of slow sales, but have no real information,’ Coplen wrote.”
“The refund offer marks an abrupt turnaround for the development. As late as May, Standard Pacific had touted that half the residences in Axis’ first phase had sold in their first day on the market in March. Sales in Downtown were still relatively strong that same month, said Delores Conway, of the USC’s Lusk Center for Real Estate.”
“But interest rates have risen since then, and the real estate community, Conway included, will be watching closely as the Federal Open Market Committee weighs a possible 17th straight rate change at its meeting later this month. ‘Just look at the stock market,’ Conway said. ‘There’s a lot of uncertainty out there right now.’”
Thanks to the readers who sent in these links. Some more detail from the HT article:
‘Owners see prices being reduced relative to where interest rates are going,’ Olivieri said. ‘That’s why a lot of people are selling.’ The result is that there is now a lot of property on the market.’
‘Wwe’re finding that more owners are wanting to sell.’ What happens to interest rates is key to the market, Olivieri said, and he thinks they will keep rising this year.’
‘When rates reach 8 percent, Olivieri said, commercial sales will stop.’
‘Meanwhile, Olivieri says he is seeing other dramatic changes in the mortgage side of his business. ‘Over the past five years, 90 percent of our loan volume came from construction and development loans,’ Olivieri said. ‘But over the past nine months, we’ve decided to stop doing development loans.’
‘That’s because developers are finding that the cost of their proposed projects is outweighing potential profits. ‘We were involved in a project in Panama City that the developer estimated would cost $63 million. But the final bid came in at $89 million and he couldn’t do it. There was no profit in it,’ Olivieri said.’
And then there’s Cliff Preminger.
Cliff Preminger, meet Canyon Postminger.
‘We were involved in a project in Panama City that the developer estimated would cost $63 million. But the final bid came in at $89 million and he couldn’t do it. There was no profit in it,’ Olivieri said.’
Ben, inflation is raging in the construction industry right now. You can make money if you don’t use any kind of copper, concrete, drywall, steel, or plastic in your project, and you don’t rely on financing.
Refrigerator boxes for everyone!
“South Florida,” he said, ”is working off of a totally new economic model than any of us have ever experienced in the past” according to a realtor who predicted that a land shortage will support higher prices indefinitely.”
- New York Times, Trading Places: Real Estate Instead of Dot-Coms, 3/25/05
lol
I remember that one !!!
no land in south florida, lol’
i work for pbc govt. there is so much land in pbc, they dont know what to do. since scripps is not moving north of the acreage, a new town will be developed there and, there is development proposed from wellington to belle glade on southern.
here is the kicker, land north of tamaimi trail and west of the turnpike and east of krome (miami dade) is the most sought after land in south florida. the land is not part of the everglades but protected against development. this year the developers almost gain access and now the dolphin is extending out west towards the indian reservation and casino on krome. west kendall isnt even completely built out near krome. the goal is to a) build a community west of doral or rebuild MIA in between the turnpike and krome. it will happen in the next 5 years. check out google maps and look at how much undeveloped land there is in south florida. only broward is facing land issues and now everything is building up. build out will never occur, especially if riveria beach, fort lauderdale and miami truly redevelops and take out the poor areas like overtown, coconut grove, wynwood, little haiti, hollywood, nw fort lauderdale, n west palm beach and riveria beach.
“But interest rates have risen since then, and the real estate community, Conway included, will be watching closely as the Federal Open Market Committee weighs a possible 17th straight rate change at its meeting later this month. ‘Just look at the stock market,’ Conway said. ‘There’s a lot of uncertainty out there right now.’”
____________________________________________________
BULLSHIT!!!! These clowns at USC were so f’n bullshit on RE last year. They were firing down all ideas of a bubble. Also, LT rates are barely up - SO QUIT blaming interest rates; yes short term rates are way up but only the most foolish of speculators was using these short term based rates (primarly LIBOR - which is now up 420bps from 2 years ago). USC is a total joke!
Don’t knock USC; as long as we can beat Fresno State and Notre Dame they’re ok by me. Remember that Laffer is also there and the curve is working!!! hehehehehehe
“…the curve is working!!!”
Only if you’re on drugs.
The laffer curve is pretty much the conclusion of a very basic economic law (that demand is upward sloping).
http://www.investopedia.com/terms/l/laffercurve.asp
It’s not a constantly climbing curve my guess is that due to cultural/legal resons Federal T* is probably somewhere in the 30% range. I know I’d take a long hard look at muni-bonds if I were in that tax bracket.
“The laffer curve is pretty much the conclusion of a very basic economic law”
Except there is zero evidence that it actually works. We now have over 20 years of data, and there is just no objective evidence it is true. I’m not an economist, but I know enough that real economists still do not agree about the Laffer curve.
http://willzhead.typepad.com/willzhead/2006/06/the_end_of_the_.html
U.S. home-builder sentiment sank to its lowest in more than 11 years in June as rising interest rates made houses less affordable and sent speculators fleeing, an industry group said on Monday.
The National Association of Home Builders/Wells Fargo Housing Market Index of sentiment fell 4 points to 42 in June from an upwardly revised 46 in May, the NAHB said. The median forecast of analysts polled by Reuters was for a level of 45.
The index at its lowest since April 1995 suggests new home sales will drop by 13 percent in 2006 from a record last year, said David Seiders, chief economist of the NAHB.
“The index at its lowest since April 1995 suggests new home sales will drop by 13 percent in 2006 from a record last year, said David Seiders, chief economist of the NAHB…”
and then level off to a permanently high plateau.
This guys is seriously upside down, and looking for greater fool to get out.
http://seattle.craigslist.org/est/rfs/172666171.html
What a joke..
this stood out in the guy’s ad:
2nd Loan: $110,000. PRIME+0.5%
ouch! everytime Ben B raises rates, up goes the prime rate and up goes the payment on this loan
a great illustration of how real estate is getting killed by the rising Fed Funds rate, even if long term interest rates haven’t risen all that much
Vanguard Prime Money Market Fund now yields 4.80%.
Keep it going Ben, I sure could use the extra income to buy more wine.
Refills anyone……
im doing scotch and soda and i have to go the lobsters r done
Sounds like it’s bank owned…
The real estate market is still pretty hot up here in the Puget Sound region so this guy must be totally out of cash and cannot even afford the monthlies and is looking for a quick quick sale.
‘One of our clients is a major New England pension fund,’ Olivieri said. ‘These guys feel that people who did recent conversions are not going to be successful. So they are trying to buy units that haven’t sold and operate them as apartments.’
Oooh, sounds like a sure-fire moneymaker. Glad it’s not my pension they’re gambling away.
Other money-making ideas pension funds are looking at, besides running apartment complexes:
- Set up an Amway distributorship
- Run porn websites
- Compete in No-Limit Texas Hold ‘Em tournaments
- Invest large sums of cash in companies that plan to sell pet supplies over the Internet and deliver them to people’s homes (oops — they already did that)
- Sell cigarettes to kids
OR:
“Olivieri said the pension funds will be able to buy the units at deep discounts because converters are already desperate to get out from under their heavy debts.”
The porn web site sounds like a winner. I believe the sector which makes the most money is the porn industry…
‘The refund offer marks an abrupt turnaround for the development. As late as May, Standard Pacific had touted that half the residences in Axis’ first phase had sold in their first day on the market in March. Sales in Downtown were still relatively strong that same month, said Delores Conway, of the USC’s Lusk Center for Real Estate.’
Half sold and they refund 40 people? Any locals know about this project?
I still think SPF and or HOV will go down when this is all over.
I am very curious about this project also. There are doing several other condo projects downtown - I wonder how those are doing?
Some of the projects on the eastern side of downtown Los Angeles appear to be troubled (as opposed to the developments on the south and west side of downtown LA by the Staples Center and near the in-construction LA Live Entertainment Complex). The Axis, directly against the sidewalk at the corner of two of the busiest streets in Los Angeles (Alameda and Ceasar Chavez), appears to be a glorified apartment complex sold as condos. It directly abuts Los Angeles’ Union Station. While there have been some successful developments at subway and rail stops outside of downtown LA - handy for those commuting downtown, the logic of placing a large development at the destination location seemed flawed from the get go. My guess is that the first day sales in May on Axis were just interest sheets or small, token deposits - but that’s only a guess. South of the Axis a few blocks, the Savoy condo complex (originally intended as apartments I believe) has been selling for some time now. The Biscuit Company Lofts (in a 1920 brick building) south and east of Axis opened sales to the public this weekend after a series of “private sales events”, and the salespersons said the complex is only 40% sold. Little Tokyo Lofts on Skid Row, also south of Axis, has been selling for quite some time and rumour has it salepersons there say it is only about 40% sold.
I’ve been admiring the cutting edge websites of these overpriced downtown lofts for months now, and have been watching the Axis go up for about a year. My understanding is that financing for these projects is generally contingent on a certain number of units being pre-sold — if this is true, could that be the reason behind this project’s apparent cancellation?
While I can see your point about the undesireable locations of these projects — Union Station (actually one of my favorite places in town) and Skid Row (!) — I do think there’s absolutely a demand for apartments in this area, just not in this ($400K for a studio, likely about 600 square feet) price range.
Finally, what the hell kind of buyout offer/condo cancellation plan wouldn’t be related to “market issues”?
One more thing — speaking of those faboo “new urbanist” websites, here’s the one for Axis:
http://www.standardpacifichomes.com/findhome/NeighborhoodIntro.aspx?NID=1357
Going to Dallas this week - Does anyone know of any good places to see the bubble in Dallas?
You might want to try the ‘West End’ area. It’s been a while since I’ve been there, but it’s just north of Reunion Arena, and just off Woody Rogers frwy. It was hyped as a trendy dining area where there is actually something to do in Dallas after 5:00pm. I would guess that it or ‘Deep Ellum’ is ground zero for downtown condo developments. Txchick could probably confirm or deny.
Oh, and bring some sunscreen if you plan on being outside during the day. Dallas in late June can be pretty warm and sunny.
Thanks!
OT - Sorry if this was already posted:
Consumer group goes after real estate industry
Consumer Federation of America says home buyers pay higher prices because ‘cartel’ stifles competition.
By Les Christie, CNNMoney.com staff writer
June 19, 2006: 2:59 PM EDT
NEW YORK (CNNMoney.com) - A leading consumer rights group, the Consumer Federation of America (CFA), on Monday issued a report charging that real estate industry members act as a cartel to stifle competition, resulting in higher prices and poorer service for homebuyers.
http://money.cnn.com/2006/06/19/real_estate/real_estate_cartel/index.htm
Serious buyers who can afford the down payment and monthly payments only.
In other words, somebody not like me who borrowed $550,000 to buy a home only to later realize I couldn’t afford the payments. Talk about pot, kettle, black. Now this clown wants $25k for his troubles. You can’t assume someone elses conventional mortgage loan anymore (unless your a blood relative, and even then you need a 5% downpayment and have to re-qualify for the mortgage payment). I’m sure his mortgage servicer will be none too pleased when they find out someone else is living in the home and making the payments. In fact, when they do find out, they will probably call in the loan and the occupant will have to take out a new mortgage loan to keep the property.
And what about using his “preferred” loan officer? I like how the financing is already picked for you. 6.75% for a 5/1 ARM, I’m pretty sure I can get that for a 30 year fixed, especially with a 5% downpayment.
I say, you borrowed $550k, you can pay it back, enjoy the home.
So large pension funds will be buying deep discount blocks of converted condos? Anyone else interested in creating a bear fund to purchase blocks of conversions at rock bottom prices when you they can actually return a positive cashflow?
Price - $550,000
Existing loan - $525,000
Down payment required - $25,000
1st Loan details: $440,000. 5-yr ARM @6.75% Interest
2nd Loan: $110,000. PRIME+0.5%
Property taxes and insurance about $500 per month
Total monthly payment (called PITI, loan, taxes, insurance): $4000 per month”
He’s selling a half mil house, obviously desperate, and he doesn’t even include any pictures of it. What a lamebrain. Technology at your fingertips and they don’t bother. If I was in his position, I’d have a website up with about 30 photos of it.
maybe it looks like shiit.
can someone send them an email and ask for pics?
Maybe he should send some photos to the pension fund manager. I bet he’d be interested.
If you were in his position, maybe you wouldn’t be in his position.
Builder bought half of them back :).. They juusstt couldnt let em go for that cheap ahahah
New report:
“A study released last week by Global Insight and National City Corporation titled House Prices in America concludes that in 71 metropolitan areas representing 39 percent of the total value of single family homes in the country those homes were extremely overvalued in the first quarter of 2006. This is an increase from the fourth quarter of 2005 when 64 markets representing 36 percent of national home value earned this designation. It is even more striking to compare the most recent data to the first quarter of 2004 when this same study deemed that overvaluation was insignificant and only three metropolitan areas and only 1 percent of all single family home values were thought to be out of line with reality… The study lists 66 instances of price corrections of 10 percent or more over the last 20 years, most notably a 39 percent nose-dive in Lafayette, Louisiana starting in the first quarter of 1985. The median correction was 17 percent and half of those areas suffering these corrections were overvalued by 34 percent or more prior to the downturn. The median period of the correction was 14 quarters. The more severe the overvaluation, the shorter the duration of the correction tended to be but the larger the decline in price.
Full article: http://www.mortgagenewsdaily.com/6192006_House_Price_Study.asp
Note: MEDIAN correction = 17%. That’s about a fifth, or $100,000.00 off of every $500,000.00.
South Florida,’’ he said, ‘’is working off of a totally new economic model than any of us have ever experienced in the past” according to a realtor who predicted that a land shortage will support higher prices indefinitely.”
This was Suzanne’s summary for FL after she completed her indepth analysis. GO FOR IT, SUZANNE.
I have friends that are realtors in S. FL and won’t even take condo listings anymore. They laugh at sellers that want to list their condos. That’s pretty bad when a realtor won’t take your listing. I’d liken it to a prostitute turning your business away. Not that I have any experience with that. I’m just sayin’
“Some projects are probably dead in the water.”
Storm surges tend to have that effect…
Suzanne missed that part of the research
The S. Fla. conversion craze may be over, but those which are converting are moving forward due to inertia. We’ll see how this plays out I guess.
Construction and development of condo projects have slowed because of lender concerns about the number of units sold to speculators.”
Well, well, well. This is a subject that I brought up a few months ago which was commented on by Housing Wizard. From the late 1970s and 1999, I’ve bought and sold 4 properties. One was in a condo community (1991 purchase, 1031 exchange). At that time, I found out that one of the concerns (restrictions) that the lender had was the percentage of owners to renters in the community…whatever that percentage turned out to be helped determine whether we got the loan. The fewer the renters the better.
Fast forward to the last 5 years…..It has completely blown my mind that this kind of concern/rule/condition of the loan has been either overlooked or just thrown out of the window. THAT is a huge reason why so many communities, whether they are SFH or high-rise condo, are completely dark once the sun goes down. The owner-to-renter ratio was obviously not part of the review points of the lender. Add THAT to the loose lending practices.
So now, all of a sudden, the lender is concerned about the number of units sold to speculators. Give me a break! What happened to that “concern” when all of those loans were doled out like playing cards at a poker game? Answer…easy money. The lenders knew that their lax lending was not a good thing, but they did it anyway. They knew that people would get in trouble, but they did it anyway. Any of them who have been around for a long while knew that the market cycles, but they kept underwriting all those loans. And they HAD to have known that a lot of these condo conversions were gonna fail…but they backed the builders/developers anyway.
We have a lot of savvy current and former RE professionals on this blog…can anyone address why the rental restrictions were ignored?
I don’t live in VA but this is a link that I found that explains very well (for those who are not up-to-date on this) what I am talking about.
http://www.vahoalaw.com/leasing-restrictions-12-rental-restrictions.html
BayQT~
it simply money and lack of restrictions that creats a debtor society. it is an economic goal for those in power. create a slave state. too many people became middle class too fast. after 1980 and regeanomics, the govt. started creating the class society. fewer wealthy people and more people. it lasted until the middle 1990’s when technology reopen doors and wealth to many people again. the money and idea of wealth got to the head of many people (enron) and the good turned bad. deregulation of energy and techology killled the stock market. those who got out alive had alot money and no where to go. they brought real estate and the potential gain of killing two birds with one stone was too hard to resist. make people buy in glorious places and deregulate the whole housing market by putting people into 30+ year debts. once someone goes bankrupt now, lose their home and force to work hard to pay back the money they owe, they are a slave to the society. the wealthy people are stuck in cosmetic homes with no concrete foundation. they buy every new toy and keep a failed economy going. some people estimate 35 to 50% of the economy is housing related. look at the metro areas with the most foreclosures. it is areas where it basically poor to middle class people who should have never been given a loan for a home. who in their right mind buy a home that over 50% of their income is going to the mortgage. the coastal areas are facing a greater challenge. no one can afford to move there and buy thousands of new properties. when south florida school districts are facing (lower) student enrollments this year and next, you are losing families that buy homes in the future. this housing crash is in full swing and if you want to save yourself gain 100,000 by selling now, than wishing for 250,000 that is never coming. read the print version of the palm beach post and sun sentinel on saturdays. thousands of properties on sell, no one to buy and why. every increase of interest rates limits the buyer pool . 80%+ of the population in south florida cant buy a home over 200,000 with a traditional 30 year home loan. the ones who got home with an exotic or a couple of exotic loans are in housing now. with condo conversions, people are leaving the area, because the rents were too high to live in south florida. i was 2 months away from leaving, then i was asked if wanted to stay 6 months in a apartment that my rent will not increase. only 10% of the apts. / condos were sold and now condos are being rented out by flip floppers and losing money big time. taxes, insurance and cost of living is the end of the bubble in south florida and i am watching the circus go by .
My guess is that many… if not a majority… of those units were also listed as owner occupied that were… not so much.
I commented on similar greater fool activity in Portland’s downtown Pearl District:
http://www.siliconinvestor.com/readmsg.aspx?msgid=22557597
I was amazed at the time (2002) at the lending practicing that were coming into being. The only thing that made sense to me was loan originator job security, because it sure as hell didn’t seem like a good idea in the long run. Well, they got to keep their jobs for another 3 years. Oh well.
Thanks for all of the replies. Who, in fact, regulates the loan originator? And, why hadn’t they been looked at more closely? I guess the answer to that last question is again, money.
There are SO many things that have turned out badly in this market. The absolute worse has come out in a lot of areas.
BayQT~
Building permits & housing starts out tomorrow:
http://biz.yahoo.com/c/e.html
Any predictions???
(winner gets 40% off a San Diego condo (redeemable in 2008))
When developers, facing such a headwind, are not worried, it’s time for central bankers to be worried — about systemic risk to the banking system. In the classic scam, a bank official approves the loan to the developer for a kick-back, then defends his decision to the bank’s board. Given that it could take several years to realize the development has gone south, the developer has ample time to off-shored a chunk of the money, take the original project company into insolvency, and even sell the development forward. If the development is successful, nobody is the wiser, and if not, well, nya-nya-nya-nya-nya. The perpetrators are long gone and sipping maitais. You can count on one hand the number of bank officials jailed in the S&L debacle, yet US taxpayers graciously coughed up $350 billion to cover the losses banks suffered. What would the price of a systemic failure be today? How many of us have been alive long enough, or lived elsewhere (say Russia 1998), to have experienced a total gridlock in the payments system?
No panic on housing slowdown
The conditions are much more favorable for a rebound than in the 1990s bust, experts say.
By Jim Wasserman — Bee Staff Writer
Published 12:01 am PDT Tuesday, June 20, 2006
Story appeared on Page A1 of The Bee
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In October 1990, local real estate leader Michael Lyon heard a sound he has never forgotten. It was the silence of phones that had abruptly stopped ringing.
Sacramento’s sizzling 1980s housing boom was over, and the 1990s bust had begun. When it finally ended, it set records for the number of homes for sale, and flattened prices in Sacramento and Yolo counties for eight years.
“It was ugly,” said Lyon, head of Lyon Real Estate.
The region’s housing market is stalling again.
After an even more remarkable seven-year housing boom, the slowdown is driving up resale inventory and triggering speculation about an uncertain future. But this sagging market isn’t much like the 1990s version. Some analysts say the reasons help explain why the present downturn may be shorter and less severe.
The differences between that market and this one?
“We are having job growth. We are having population growth. We’re still having in-migration from the Bay Area,” said John Schleimer, a Roseville-based consultant for the home-building industry.
But this sagging market isn’t much like the 1990s version. Some analysts say the reasons help explain why the present downturn may be shorter and less severe.
Absolute unsubstantiated Goebbels propaganda.
The coming collapse will be 10X worse than 1990 because of relaxed underwriting requirements which evolved; demographic changes in the age of the buying population; and the exhorbitant, unaffordable levels to which housing has been bit up.
Prices in ‘90 virtually pale in comparison to today’s level.
Case in point-Friend of mine in Burlington VT just had his reassessed this spring-He built it new in 2000 for $397k. New assessed value-$781k…and he did nothin’ to the house.
Voila-a doubling of the basic commodity of shelter in 6 years.
No mess-no fuss, didn’t even have to lift a finger.
And Greenspan peddles his 3% inflation…Bastard ought to be in the cell next to Skillings and Kenny Boy.
“We are having job growth. We are having population growth. We’re still having in-migration from the Bay Area,” said John Schleimer, a Roseville-based consultant for the home-building industry
How many new jobs???? What percentage population growth???? How much immigration??? It is so obvious this is just a crock of BS spin