News reports indicate Real Estate Investors “Vultures” sensing prime buying time along Miami Dade and Beaches. Deep discounts are the goal with Vulture funds ready to swoop in aggressively on strong buying opportunities in South Florida. Typically a Vulture fund will target & negotiate with condo developers and their lenders who can’t sell enough units to pay off the loans used to build them. They then purchase large blocks of unsold inventory at 40 to 60 cents (Cash purchase) on the dollar. Some believe that last week’s Wall Street meltdown may show us the arrival of such a moment.
Many people standing on the sidelines are now realizing this is their time to get in. When this occurs, and the 100-plus Vulture funds begin acquiring South Florida’s unsold inventory, the word will quickly spread, and the pent-up demand will begin to flourish. This buying power available & ready will be a clear sign to show the world our market has bottomed, bringing us to a rapid recovery. The trend is occurring along the beaches this year, and Downtown will soon see a transition from depreciation. The majority will agree when the Vulture funds begin buying strong. Others may start buying as well.
Who does it better than Jorge Perez of The Related Group? A recent article in Miami Today tells us Perez partnered with private equity firm Lubert Adler Partners in a bulk purchase of 120 units at 50 Biscayne, a project Related codeveloped with Atlanta-based Cousin Properties.
“The Cousins Related partnership will retain joint ownership of seven units in the 54-story, 528-unit project. Cousins estimated its share of the pre-tax profit on the project to date at about $18 million before minority interest.” –MiamiToday article
“Lucas Lechuga, a Realtor with Miami Condo Investments, said it’s hard to say if and when the vulture fund’s action will affect prices. “Right now it doesn’t do anything until we see what happens,” he said. “If the buyer puts them back on the market at a discount it will affect the price and make it very difficult for people trying to sell individual units. Most Realtors won’t take it into account because it won’t show up as closed sales in the MLS though more astute Realtors may eventually consider it. But it will take some time for them to realize that this sale was made.”
The problem that Vulture funds face is that most developers see the Miami real estate market slowly improving and decide not to let their efforts go so cheaply. There is enough clarity in the South Florida market for developers to realize there is an overstatement of the Miami crisis in the world media and fund industry, and it’s not always necessary for such deep discounts. Other rookie desperate developers in a financial crisis with their lenders may view these large discounted condo purchases as a blessing. If the project is inferior and overpriced, these developers will have to cut and run from the headaches.
There are a few outstanding new condo projects in South Beach with unsold inventory and major potential. Are any South Beach developers in financial trouble and need to sell at 50 cents on the dollar? NO. I’m working with investor groups seeking to purchase low & mid-rise “boutique condo buildings” at majority ownership along the beaches, and the goal is 15 to 20% off the list with a market SP/LP average of 10%. On a cash purchase, the return is typically 2.5% to 3.5%, with the planned potential for the next boom on a long-term hold. The tax advantages for any savvy investor holding real estate also make great sense year after year. Supply decreasing & demand increasing with limited space along the beaches and an ever-increasing amount of tourism with the weak US dollar. Time will tell, but I am bullish on the beaches! Let the readers know your thoughts on this topic. The Miami Beach blog has now surpassed 20,000 viewers! If you’d like to receive new blog postings & updates once available, you can easily be notified by RSS feed (see upper left column) or by email every time a new posting occurs. Have a great week, and call any time toll-free 1.888.383.7326 or view new Miami Beach condos for sale.