Boom of condo crash loudest in Miami

[Guest JMT]

Boom of condo crash loudest in Miami

Orlando Sentinel

August 27, 2007

MIAMI - The champagne-popping days are over for Natalie and David Luongo, who banked enough money flipping a South Florida condo three years ago to stage a $100,000 wedding.

Now the couple are spending restless nights wrestling with the question that looms like a guillotine: Should they walk away from the $117,000 deposit they plunked down on another investment condo in the ritzy Miami-Dade enclave of Bal Harbour?

Or should they close on the one-bedroom unit, which is similar to others now on the market for less than the $585,000 they agreed to pay?

"It's painful and scary," Natalie Luongo, 31, said. "We saw the frenzy, and we bought in. Now we're paying the consequences."

Just how many other speculators face the same dilemma in the nation's most glutted condo market will become clear during the next two years. That is when 25,000 new condo units, most of them rising in or near Miami's downtown, will flood an area already saturated with 23,000 condos listed for sale. An additional 40,000 units have been approved, but analysts doubt the majority will break ground.

Orlando and other Florida cities -- Naples, Fort Myers, Tampa and Sarasota among them -- also have huge condo gluts. With 4,440 condos listed for sale, Orlando has an unprecedented 29-month supply, and last month sales plummeted 64 percent lower than a year ago.

But Miami, with its unmatched volume and untold number of speculative buyers, is ripe for the hardest fall in the U.S.

"Miami is the poster child for the condo bust," said Jack McCabe, CEO of McCabe Research & Consulting, a real-estate market-analysis firm located in Deerfield Beach. "There are probably only two cities in the world with more construction: Shanghai and Dubai. Unfortunately, there is going to be a lot of foreclosures . . ., and developers, lenders, title companies and real-estate companies will go under."

Many analysts, McCabe among them, predict the area's condo collapse will drag the rest of the state into recession. Other experts scoff at that notion. But nearly all agree grim times lie ahead.

Usually joyous milestones, closings in Miami are about to become somber days of reckoning for electricians, waiters, retirees and other amateur speculators who counted on making a quick killing in a market they thought would rise forever.

No one knows how many units speculators bought. But as early as 2004, McCabe and Lew Goodkin of Miami-based Goodkin Consulting warned that up to 70 percent of the condos rising in Miami were being snapped up by people who didn't plan to hold on to them, much less live in them.

That was evident from the hordes who camped overnight, fought over lottery numbers, even paid homeless men $20 and a pack of cigarettes to hold their places in long lines, all for the chance to put 20 percent deposits on condos that existed only in brochures. The frenzy for some projects was so fevered that some developers raised their prices hourly.

"It was a nightmare. Lines around the corner. People screaming into phones. I would look at them, and think, 'You don't know what you're doing,' " said Mark Zilbert, president of Zilbert Realty Group.

Many told a similar story: They had a friend who made $100,000 flipping a new condo, and they planned to ride the same wave of escalating prices. All they had to do was put down $60,000 on a $300,000 pre-construction unit and resell it when the value climbed to $400,000 -- before the building opened, and before closing and mortgage payments, maintenance fees, insurance and taxes kicked in.

That meant anyone could risk $60,000 and pocket $100,000 without actually buying anything.

Some investors were experienced players like Barry Beschel of Aventura. After the dot-com stock-market crash in 2000, he said he had no trouble persuading his buddies to park their money in Miami's sizzling condo market.

"All my guys in New York were like, 'Yeah, flipping condos in Miami.' It was a sexy commodity, and it was fun to make money," Beschel said.

It was also easy. Beschel, 50, said his group followed well-known developers such as The Related Group's Jorge Perez to their next project. The king of Florida's condo market, Perez has built or manages more than 55,000 units in the state and is building at least nine new towers in Miami as well as a 441-unit, luxury condo hotel in Celebration.

From 2001 to 2005, Beschel said his group bought about 50 pre-construction condos, sometimes 10 or 12 at a time. They would pay about $300 a square foot and, once the building sold out, return the condos to the developer, who would resell them at $350 a square foot. The difference between the original contract price and the new one -- $100,000 on a 2,000-square-foot unit -- would go to Beschel's group, minus a commission.

"The developer would take his commission, and we'd take our profit and everybody was happy. When the market was cranking, it was a brilliant business model," Beschel said.... (cont'd)

FULL ARTICLE HERE

[V. Barbarino]

Saw this a few days ago. Here is the key to this disaster, back when they happened the 1st time, the condos were cheap, thus people rented them out, now you can't rent million dollar condos and come even close to breaking even..

I have no sympathy for these idiots. I'm hoping the housing market crashes here in Broward so when I buy a house I save some coin.

[Guest LeVeL]

I have been a witness of this so many times, my girl was a Event Coordinator for a Condo Developer a couple of months but she left the company due to the market.

She would organize grand openings of Condo's and Grand Opening or Apartment Complexes who had been switched from rental to owning and renovated and then sold as condo's.

My girl used to see people and real estate agents in line on a wednesday morning when the grand opening would be @ 9am Saturday. People would get into fights, would skip each other in line it was a total disaster. This was during the condo boom, I used to go to the Grand Opening event and see all these people buy these condo's and their only motivation was to buy them just to flip it and make a quick buck.

A lot of those people eventually went bankrupt or their condo was put on foreclosure due to the market going bad recently because you just couldn't sell these condo's and this is happening everywhere from Miami to Boynton Beach even. I remember thinking to myself wow, you probably made money now but sooner or later it will catch up with u.

[Guest pod]

Also, you get a lot of amateurs who don't know real estate hoping to cash in, blowing all their money, then the end result is what is in the article above.

[Guest endymion]

Historical precedent: The South Florida land boom of the 1920s

Major factors that led to the very first Miami real estate crash:

1) Inadequate transportation infrastructure to support the growing population.

2) Hurricanes, and fear of more hurricanes.

3) Nation-wide financing market downturn. (caused by the Great Depression)

All three factors combined, yet again, to cause another real estate bust. The crash happening now wasn't the first and it won't be the last.

I moved here in 2002 just after the Dot-Com crash and I've known where this was headed the whole time. The only thing I wasn't sure about was how fast the crash would happen. The Dot-Com crash happened in a month, this one is happening in slow motion like I expected.

[Guest pod]

Stop generating hits to your Wiki articles ;D

[Guest coach]

The wildest part is that the crash came without any help from hurricanes. Last year was relatively quiet and this year has been an absolute snoozer. Can you imagine how bad it would have been if we had had a nice cat 3 or 4 come through? Or a season like the one we had 2 years ago when MB had mandatory evacs like 5 times.

[Guest LeVeL]

The wildest part is that the crash came without any help from hurricanes. Last year was relatively quiet and this year has been an absolute snoozer. Can you imagine how bad it would have been if we had had a nice cat 3 or 4 come through? Or a season like the one we had 2 years ago when MB had mandatory evacs like 5 times.

Actually I think the affects started to happen after Wilma..

[Oni1414777741]

I've been saying this for the past 3 years. Being in the title insurance industry i would see all the purchase prices going back in some cases to the early 1900s. In 5 years some properties have doubled and tripled. Everyone would ridicule me for never buying into the frenzy not realizing that i actually knew what the hell i was doing. *lol* Its ok, i might come back and buy me a little condo on the water so i can come back from time to time and chill out on my balcony in the winter. Then go snowboarding in the mountains the next week.

Snowbird status here i come!

[BobbyTrendy]

just glad i bought my place 5 years ago..

[absolut_v]

just glad i bought my place 5 years ago..

I am patiently waiting

[Guest dre4]

are there areas that are faring better than others, such as south beach?

[Guest endymion]

are there areas that are faring better than others, such as south beach?

Yes. The market is "frothy". There are neighborhoods that are still appreciating for totally local reasons.

My condo unit is in a building that's about to start a renovation, and it's next to a park that Miami Beach is spending millions of dollars to renovate. My unit has appreciated a lot in the last couple of years and I expect it to appreciate more a year or two from now when the park and the renovations are done, no matter what happens to the overall market. By then finding a buyer will be easier. I would still be screwed if I had bought a place that I couldn't afford and I needed desperately to sell it soon, because the buyers won't be back in volume for years.

[Guest klubveteran]

this is good news for me. crash baby crash. ill swoop something up on the way down. ;D

[Guest addictedtospace]

All non speculators or non greedy flippers have been hurting for a while. This bust is going to hurt the speculators and the idiots that have been driving up property values too quickly, thus increasing taxes, quicker than the cost of living can support. So screw them. let them hurt now. The market will correct itself somewhat and it will benefit people who live here. >

[Guest pod]

It always corrects. I don't pretend to know about economics, but this was inevitable. Just like any other boom. It's too easy to get caught up in the frenzy and then fall hard afterwards.

[Guest RzO]

All non speculators or non greedy flippers have been hurting for a while. This bust is going to hurt the speculators and the idiots that have been driving up property values too quickly, thus increasing taxes, quicker than the cost of living can support. So screw them. let them hurt now. The market will correct itself somewhat and it will benefit people who live here. >

elio, you have it exactly like i see it. I know that i can sell my palm beach condo in a year or so and take the profits to get a steal on a condo in miami. For people who love to live down here this works out well. I must say though i do feel bad for some of the not loaded investors who saw it as quick money and are pretty fucked now.

[Guest endymion]

I must say though i do feel bad for some of the not loaded investors who saw it as quick money and are pretty fucked now.

It's their turn to feel some pain, they'll recover. I lost a lot of money in the Dot-Com crash, I'm still alive. Idiot investors have only themselves to blame.

[Guest pod]

I've noticed that I only get 300 realtor/mortgage cards when I go out to shoot at a club rather than 32079347547 realtor/mortgage cards.

[Guest Adam Singer]

i feel better and better about renting for the next year every day 8)

[Guest pod]

Renting's not the cardinal sin a lot of people make it out to be. Some people are like "Oh, but you're paying someone else's mortgage..."

My take is, so? You still got a decent roof over your head. The only downside is that the owner of the place can evict you, and stuff like that. But there's restrictions on that. It's not much different than if you fail to pay a mortgage and the bank forecloses in some ways.

At the end of the day, unless you've paid for it outright, lock, stock, and barrel, you're still dishing money out for a place to live.

Renting isn't so bad if you know how to work it.

[Guest RzO]

renting is great in certain circumstances. If you rent something cheap then that makes perfect sense, its the renter's whom are like look at what i spend 2k a month with on rent, but they have no assets to show for it. Again if in an area where you can't afford to buy and don't plan on living there for a while, it's what you must do.

Your shit is logical, being where you are, since its ridiculous what the prices are there. In the next year or two it will be great to buy in that area if its where one wants to live for at least 3 years. By end of 08, we may go to miami since both Kelly and I can make more there...and we just love it there.

[Guest pod]

I love this area, but with the condos and homes (look around the corner from me, there's some insane houses) averaging $400,000 and up for something decent, I'm not gonna buy right now. However, I love the area, my rent is reasonable, so I rent. I'd buy tomorrow in this area if I could.

[Guest RzO]

thats what i mean, for u in that spot is perfect at this point, but if in a year or 2 u decide its where u want to live, u can get in on some shit that today would cost u double. Im gonna start checking out the deals at the beginning of 08, if its worth it and i can transfer at a higher salary i may do it. Although i love palm beach, i may even keep this as a rental sicne i can make over my mortgage with rent in this area.

We will see what really happens to the correction in the next year-2.

[Guest raindjrain]

I am a realtor by day a top producer in my office for three of the last five years. I saw a huge diference in my phone activity and sales numbers right after the batch of hurricanes including Wilma.

The media has frightened the out of town investor out of the Miami is cool frame of mind. That and the insurance increases as a result of the hurricanes. The media who can not tell you accurately if its going to rain today says that we are in a new cycle that will last about 10 years. This has already seems to be false, but the damage has been done.

My insurance on my home went from 800. a year for the previous owner to 1200 for me to about 5000 as a supposed result of the hurricanes. Mind you I have never made a claim.