Article Courtesy of The Miami Herald

BY MONICA HATCHER

Published December 20, 2009 

Miami's skyline at dusk tells the story of the condo crisis in stark relief: Some of the luminous towers beam with life, others flicker half-full, and still others are completely dark, mired in legal disputes over past-due loans and stalled sales.

South Florida's condo market is still caught up in the violent landslide of the region's housing downturn -- with developers in bankruptcy, entire projects in foreclosure and homeowner associations struggling to stay afloat. But as the year draws to a close, at least a few signs point toward a fledgling recovery.

"It's horrific and getting better,'' said Adam Greenberg, managing director of BayBridge Real Estate in Miami. "In May, we were all at bars drinking at two in the afternoon. Now I'm just getting home after a full day of showings, after a full day of showings yesterday.''

Among the harbingers of change: The impasse between buyers and sellers that marked 2008 ended when lenders finally let developers sell for less than the cost to repay their construction loans. The subsequent price cuts continue to dramatically boost sales for new units, unleashing a mini-boom in condo sales in the downtown Miami area.

The trend let developers fend off many of the vulture funds that were circling downtown high-rises, ready to scoop up properties for cents on the dollar.

Tired of waiting on state lawmakers to pass legislation, condo associations facing near collapse have turned to courts for help to collect maintenance fees from deadbeat investors that were needed to pay water bills, fill pools and keep the lights on.

Perhaps most important in wringing badly needed cash from empty units have been so-called blanket receiverships that allow a court-appointed custodian to collect rents from tenants in every unit behind on fees. Before, a single receiver had to be appointed for each unit individually, a process too costly for cash-strapped communities.

"We've already collected well over $100,000 in rent under receiverships for our clients,'' said Ben Solomon, a partner with Association Law Group, credited with the legal innovation. "It's resuscitating some of these associations.''

These receiverships, still being stretched and tested, have pulled scores of condo communities from the brink, allowing homeowners to keep vital services running in buildings riddled with foreclosures.

"Things really got ugly at some points during the year, but that pure desperation is what has spawned so many of the new legal remedies,'' said John Porter, community association manager for The Continental Group, one of the state's largest property management companies.

A SUDDEN RELIEF

Investors, who had avoided buying the remains of half-sold buildings out of fears of having to fund near-bankrupt associations, are feeling more confident and moving ahead.

In many cases, the frequent bad news of bankruptcies, foreclosures and further price drops came with a silver lining that prompted turnarounds.

At the 628-unit Residences at the Falls condos, for instance, Mamie Attar, a condo board member, said the best thing to happen to the struggling community was the bankruptcy of the developer. Before that, the company had stopped funding its share of the budget, leading to disruptions in the water and other services. The gym had been vandalized, the pools were unusable and the laundry facilities were out of order.

A trustee took over and quickly turned around the property, at 14036 SW 90th Ave. in south Miami-Dade, making repairs and paying the bills with rents collected directly from tenants living in units still owned by the developer.

Still, Attar worries that her relief will be short-lived. She recently learned that the bank holding the loan on the Residences at the Falls, Cleveland-based AmTrust, had itself succumbed to the housing crisis undertow and was seized by the FDIC two weeks ago.

Now her anxiety has returned.

"I don't have any idea what is going to happen now. The [new owner] can decide to keep the property . . . or they can say to hell with it and let's sell it at whatever price and get rid of it,'' Attar said.

As far as the value of her unit goes: "I'd rather not know, to tell you the truth.''

PRICE DROPS FUEL FRENZY

Price was the big story of 2009, and it remains significant; the lesson being that if condo units are priced right -- generally far lower than owners and developers would prefer -- they will sell.

"People love their real estate. They don't want to admit failure and don't want to take less, but the market never lies,'' said Michael Bedzow, president and CEO of Groupe Pacific. "We had a capital structure that allowed us to price the units to market, and evidence it was the right strategy is that between January and June we sold between 25 to 35 units a month in one of the most difficult times.''

Market watchers credit Aventura-based Groupe Pacific, developer of Brickell on the River South, for being the first to bite the bullet.

Just after the New Year, the firm slashed prices twice, bringing down the per-square-foot cost by 43 percent to an average of $220. It quickly sold more than 120 condos.

Developers and lenders stuck with mothballed units followed suit, touching off a boomlet almost reminiscent of the go-go years. The magic number for new units: between $200 and $230 a square foot. For resales in the downtown area, too-good-to-pass-up prices seem to start at about $180 per square foot.

"Buyers are in charge now,'' Greenberg said.

During the year, developers marked down prices 30 percent or more in the darkened condo towers, and the market responded. Closings on developer-held condos in greater downtown Miami reached about 300 a month in the third quarter, compared with just 82 a month the previous quarter, according to sales data from Condo Vultures.

Even though the developer losses were heavy, the sudden movement prompted a collective sigh of relief that a market had been reestablished. By the end of September, developer-held inventory had dropped to 8,486 units compared with 10,126 at the start of the year.

"There was a moment in Miami where you thought you weren't going to be able to sell,'' said Inigo Ardid, vice president of Key International, who in June similarly cut prices at his condominium, The Ivy, 82 SW Third St.

For the most part, condo prices have continued their headlong plunge, with units in both Miami-Dade and Broward counties now worth less than half on average what they were at the peak in late 2006.

That meant plummeting from $294,400 to $138,400 last month in Miami-Dade and from an all-time high of $210,000 in 2006 to $83,200 in Broward. Since the start of the year, declines have slowed and appear to be bumping along a plateau.

In troubled condo conversions such as the Residences at the Falls, which was converted from apartments to condos during the boom, the price declines are often far steeper.

The lower prices have lured buyers for both existing and new condos. Across South Florida, sales throughout the year grew at a steady clip and the number of properties for sale dropped.

In November, sales of existing condos in Miami-Dade were up 48 percent from the prior year, while the number of listings was down by 30 percent. That still means there are 16,665 condos in Miami-Dade for resale, a two-year supply and almost twice the number of single-family homes.

In Broward, sales soared 86 percent, while listings fell 34 percent, according to preliminary statistics from the Multiple Listings Service. There are still 11,741 condos to burn off, compared with 6,635 houses.

INVESTORS WITH CASH WIN

The difficulties in getting condo loans means cash buyers were -- and are -- calling the shots.

Stung by huge losses on condo loans, lenders are still reluctant to make loans, and both buildings and borrowers who once easily qualified now find mortgages elusive. Lending giant Fannie Mae singled out Florida among the 50 states for special underwriting treatment, locking out many otherwise-qualified local buyers.

As a result, foreign investors, whose currency was strong against the dollar, were welcomed with open arms.

In some buildings, including 1060 Brickell, as many as 80 percent of the buyers have been foreign investors -- and 98 percent of all buyers closed with cash.

Anna Tedeschi and Odette Zora, on vacation from Italy last week, were waiting for their real-estate agent in the lobby of the Wind by Neo condominium, 350 S. Miami Ave.

Tedeschi was hopeful that in the topsy-turvy world of South Florida real estate she would once again become a winner. Facing mounting losses on a Miami Beach condo she bought at the peak of the market, Tedeschi said she was now interested in buying at the bottom to hopefully balance her losses.

Like thousands of other new condo buyers, Tedeschi said she planned to rent the unit until prices rebounded.

"When [buyers] see something come on the market at these prices, people are anxious to jump,'' said Andres Asion, vice president of sales for Fortune Development Sales.

Asion said that after the lender-controlled project slashed prices to about $220 a square foot two weeks ago, 80 of 90 available units had gone under contract.

By dropping prices low enough to attract retail buyers with cash, developers were able to stave off the large-scale advance of investors who had been expected to pounce en masse on large blocks of condos, if not entire towers, paying bargain-basement prices.

"I don't believe it panned out anywhere near what everybody originally anticipated a year ago or 18 months ago, when every New York investor, hedge fund and opportunity fund thought they were going to come in and swoop up all these condos at unbelievable bargain prices,'' said Jack Winston, an analyst with Goodkin Consulting.

Still, bulk investors with names like UH-SI, LLC and from places like Halifax, Nova Scotia, took title to 2,228 units in buildings throughout South Florida. Other investors purchased the balances on delinquent loans for at least 1,342 more, according to Condo Vultures research.

The total price paid for some 3.5 million square feet of space was $866 million, an average of about $250 a square foot.

Investors, for the most part, will hold the units until the market rebounds, renting them out meantime.

"What 2010 is going to be all about is plummeting rental rates,'' said Peter Zalewski, an analyst and broker with Condo Vultures.

MORE PRICE DROPS IN 2010

Next year, analysts expect fits and starts in the market -- and more pain, as well, amid more developer bankruptcies and bulk deals.

There are still empty buildings such as MINT, 92 SW Third St., and Paramount Bay, 2020 North Bayshore Dr., projects that have been on ice since the original lender, Corus Bank, was seized by the FDIC in October and a new owner took over its portfolio.

It will all lead to more price declines in the new year, experts say.

"We are going to see price drops of 15 to 20 percent on the median price,'' said Jack McCabe, a Deerfield Beach-based analyst and a self-described pessimist. "We are going to see more bulk buys, a huge wave of additional foreclosures, lenders doing far more short sales. The combo is going to be the driver that determines pricing [downward],'' McCabe said.

The pain, in other words, continues.

"We've all adapted to it, and whatever comes, it's at least not going to feel as bad next year,'' Zalewski said. "It's not like we've built up a tolerance to it, but we know what it is and how to deal with it the best we can.''