The competition to buy large blocks of South Florida condominium units at a discount could get more intense as the city of Miami considers entering the fray of Vulture buyers.
With a lack of affordable housing available in South Florida, Miami City Commissioner Marc Sarnoff is looking at using government funds to buy some of the tens of thousands of new condominium units coming to market at steep discounts.
Under Sarnoff’s plan, the city-owned units would potentially be resold using government assistance programs to qualified buyers such as teachers, police officers, and firefighters who earn between $28,000 and $65,000 annually. It is unclear if the city would charge any premium on the resale, or flip, to the end user.
It is also unclear if the city would buy foreclosures, short sales, or units from individual buyers who speculated and are now desperate to get out of their contracts with some portion of their deposit returned.
Sarnoff’s strategy, which was previously outlined in a recent edition of the South Florida Business Journal and referenced again in the Miami Herald, concentrates on buying condo units at prices below the replacement costs of about $350 per square foot.
Sarnoff tells the Miami Herald that his strike price to purchase units at a discount would be about $175 per square foot, or half the replacement cost. Pricing today stands at about $250 per square foot on average.
''If the marketplace presents an opportunity -- the city, the county, the state should react to that opportunity,'' Sarnoff tells the Miami Herald.
Miami administrators have begun to study the feasibility of Sarnoff's initiative, and a final commission vote on the subject could happen early next year, according to the article.
Local governments looking to buy condos on the cheap are sure to face some stiff competition for product. For example, more than 70 private equity funds and hedge funds have approached Condo Vultures® Realty LLC alone in the last six months looking for product.
These opportunity funds range from private groups with as little as $10 million to overseas funds with more than $10 billion. All are focused on buying new product cheap from distressed sellers, whether it be developers or banks.
The larger funds are focused on buying entire condominium buildings, or a minimum of 60 percent of the total building as long as there are at least 100 units. The smaller funds are focused on developer closeouts where as little as 10 units can be purchased at a steep discount.
The extensive number of buyers in the market is having an adverse effect on pricing. Many funds looking for a 50 percent discount are realizing that expectation may not be possible given the influx of foreign funds with rich currencies that are in the market.
Given the weakness of the U.S. Dollar, foreign buyers are well aware of what added discount their Euro or Pound means and are willing to pay more than their domestic counterparts in order to secure quality properties.
A critical issue that all bulk buyers, whether it be the city of Miami or a foreign investment fund, must deal with is the necessary unit buildout after a purchase. Most of the new condominium units coming to market are delivered designer ready, or raw, with cement floors and primer on the walls.
Conservative estimates are that it will cost at least an additional $25 per square foot and 45 days of construction to build the units out to be liveable. For a typical 800-square-foot unit with one bedroom, that is an additional expense of $20,000 before furniture or decorations.
“Commissioner Sarnoff’s idea of bulk buying could work in helping the working class individual own a piece of the South Florida dream,” said Peter Zalewski, a principal with Condo Vultures® LLC. “I would recommend that instead of focusing strictly on new units where the average price per unit will be more than $200,000 even with a Vulture discount, the commissioner should look at including some of the failed condo conversions where the typical bulk price is $120,000 per door or less.
"Plus, the converted units – assuming they are newer - are ready to be move-in with no additional investment necessary.”
Peter Zalewski is a principal with the consulting company Condo Vultures® LLC and a licensed real estate broker with Condo Vultures® Realty LLC. Peter can be reached at 305-865-5629 or by email at peter@condovultures.com.This e-mail address is being protected from spam bots, you need JavaScript enabled to view it Be sure to check out Peter’s blog at CondoDump.com.
Copyright © 2007, Condo Condo Vultures® LLC
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