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Vultures smell drop in hot Florida condo market By Jim Loney
Thu May 12,10:38 AM ET

The vultures are circling the construction cranes and unfinished concrete-and-glass towers of Miami's white-hot condo craze.

A handful of real estate entrepreneurs are forming "vulture capital" funds to pounce on what they call an inevitable downturn in an exploding south Florida real estate market fueled by foreign buyers searching for safe havens and aging baby boomers looking to downsize and move closer to the coast.

Analysts have long predicted a slowdown in the blazing U.S. real estate market, where stock investors scorched by the Internet bubble of 2000 poured money into rental properties and second homes.

Owners in New York, Washington and California cities have seen double-digit annual growth in property values for years. Nowhere is the champagne fizz of the real estate mania more evident than Miami.

In the city of Miami, more than 60,000 high-rise condo units are in some stage of planning or construction, officials say. The city has fewer than 400,000 people, a fraction of greater Miami's 2.3 million population.

Jack McCabe, chief executive of McCabe Research and Consulting of Deerfield Beach, Florida, said he has formed an "opportunity fund" that is nearly "eight figures" to take advantage of a swoon he sees coming next year as a result of a bulge in the south Florida condo pipeline.

"We're seeing people taking equity loans, people emptying their savings accounts. The really giddy are maxing out their credit cards to get in on this gold rush," he said. "We think a lot of people are not going to be able to close."

The median price of an existing U.S. home climbed from $156,000 to $185,000 from 2002 to 2004, according to the National Association of Realtors. The price of a greater Miami home shot from $190,000 to $277,000 in the same period.

Price rises in Fort Lauderdale and West Palm Beach were even higher, and Florida cities like Bradenton, Melbourne and Sarasota were red-hot as well. Buyers who failed to act quickly tell tales of desired properties rising $10,000 or $20,000 from month to month.

FLOOD OF MONEY

A flood of money from Latin America and Europe has financed 30- and 40-story tower projects in Miami's Brickell banking district, downtown's Biscayne Boulevard and on flashy South Beach, as developers sell urban lifestyle and boomers seek water view homes.

"We're getting, easily, between Latin America and Europe, easily 40 to 50 percent of our buyers in this downtown area," said Pedro Martin, chief executive of developer Terra Group.

Miami's condo boom has shown notable signs of excess. When the bayside Mirador rental building was converted to condos last fall, buyers pitched tents in its driveway for days to have a shot at a unit.

In South Beach, the beach/hip-hop/model mecca, developers throw wine-and-hors d'oeuvres parties to open sales offices with the aim of creating buzz for frothy unbuilt projects where $600,000 apartments will sit next to noisy roadway overpasses.

Last week, developer Leon Cohen revealed plans for the Empire World Towers, a 110-story downtown condo project that would be the world's tallest residential building, if it gets off the ground.

"I believe many of them won't get built," said David Dabby, president of Coral Gables-based Dabby Group and a longtime observer of the Miami market. "If all those projects go forward it seems pretty clear that there will be an oversupply."

Local real estate analysts say 80 percent of the units in some projects are bought by speculators. About 48,000 new condos are scheduled to hit the south Florida market -- Miami, Fort Lauderdale and West Palm Beach, by 2007, McCabe says.

He believes a market downturn beginning next year will leave some speculators unable to close, buyers in bankruptcy or foreclosure and developers out of business. That's when the vulture capitalists will swoop.

"Some of the greatest fortunes were made in down markets," he said. "A down market sorts out the really savvy from the naive. The savvy will understand what opportunities are out there and the naive will suffer the consequences."

The vultures may flock too early, Dabby said, recalling that the south Florida market took about six years to recover from a condo bubble in the early 1980s.

"That's a fool's game right now," he said.

But with an estimated 1,000 new residents moving to Florida every day and land available for development running dry, particularly in south Florida, some analysts say any downturn will be less a crash than a period of flat or moderately lower prices.

"South Florida will always be an excellent real estate market in the long term," McCabe said. "We have a scarcity of land and we have constant population growth."
 

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Just out of curiosity, does anyone know how 'vulture capitalists' will profit from a bust in the real estate market? Are they planning to buy foreclosed properties and hold them until the market recovers?
 

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Again...these articles are a great way to sell newspapers.
Here is my favorite quote:
The vultures may flock too early, Dabby said, recalling that the south Florida market took about six years to recover from a condo bubble in the early 1980s.
BUBBLE ???????
See that other thread..."Miami's Boom: How long will it last" I think.
There was no "BUBBLE" that term appeared after Internet stock market "bubble". I highly doubt that Daby used the term bubble to refer to the down cycle in the '80's, it was probably sloppy journalism...but if he did, his credibility is out the window.

Please....I'm taking bets. Pull out a piece of paper and write down the median price of a condo in Miami's CBD/Brickell Area/Miami Beach. I'm betting you will have to wait a very long time for the median price today, May 13, 2005 to go down.

And why do every one of these articles site the number of condos coming on the market in the next two years and forget about the number that came on the market in the last 15 years?
And why don't they investigate what happens when a "speculator" doesn't close.
In case a "journalist" is researching the skyscraper market in a skyscraper forum (they ususally don't...the journalists research over a couple of beers with the public relations firm that represents the pundit d'jour, then the pundit supports the journalists preconceived idea for the story and voila, a story to place underneath the headline that has already been written)
Here is food for thought:
If you walk away from a deposit on a $500,000 condo, then you lose $100,000....WHO THE HELL IS GOING TO DO THAT!?!!?!? Assuming that crazy world scenario, the developer now has $100k in his pocket and now can have the exact same profit margin by selling the exact same condo for $400,000.
Out of 500 condo's in a building, how many do you think will walk away from a 6 figure deposit? If that number is 3% I'd be amazed.
So the developer now has 15 units that he can discount at 20% if he wants and still make the full profit.
Now do you think that a "vulture fund" will get first access to a 20% off condo? Real fat chance.
Please...send the journalist to cover shark bites, road rage, Michael Jackson, Martha Stewart, but whatever you do...don't send a Rueters guy to cover a local real estate market.
 

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Roark said:
BUBBLE ???????
See that other thread..."Miami's Boom: How long will it last" I think.
There was no "BUBBLE" that term appeared after Internet stock market "bubble". I highly doubt that Daby used the term bubble to refer to the down cycle in the '80's, it was probably sloppy journalism...but if he did, his credibility is out the window.
The term Bubble has actually been used to describe the drastic downturn of Hong Kong (1998) and Japan's (late 80s-90s) real estate market & economy prior to the American IT bust.
 

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rt_0891 said:
The term Bubble has actually been used to describe the drastic downturn of Hong Kong (1998) and Japan's (late 80s-90s) real estate market & economy prior to the American IT bust.
Is that a fact....
No doubt, the term bubble was used to describe the Tulip Bulb market in 17th century Holland, but I've never heard it applied to real estate until very recently.
As for the Japanese real estate "bubble" I never heard that...I was studying in Japan in the late 1980's but must have missed it.
Boy if you could actually produce one article with the term "real estate bubble" in it prior to March 2000, my friend Neil might share the beer that I owe him for every article that he can produce, and if you could find twelve articles with that phrase...that's a 6 pack and nice time on the town for you.
 

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Japan has been economically stagnant and on a steady downturn for over a decade now...
I believe the "bubble" burst there when in the mid 1990's a probe uncovered a 1.1 billion dollar accounting scandal with one of their major banks, and that the Jusen (the 7 main loan companies in Japan) could be covering up over a trillion dollars in bad loans.
Alot of these debts were bad housing and business loans, making the dot com bubble look like a joke in comparison.
Read this paper for more info
http://www.term-papers.us/ts/cb/euz7.shtml
Yea, you can call it a bubble, recession, or whatever you want... but they are in serious need of reform. I know the same thing won't happen in Miami any time soon, but when markets become oversaturated (ie Tokyo or Hong Kong), prices can level off and create an extremely unstable market. Real estate value is very much tied into the economic stability of mature markets. Luckily, we all know Miami is nowhere near as mature and overbuilt as a Tokyo or Hong Kong.
 

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Video Link: http://cf.nbc6.net/ami/sh/videoplayer/video.cfm?id=4485303&owner=ami

Is The Real Estate Bubble About To Burst?
Some Analysts Say Prices Could Fall

POSTED: 3:52 pm EDT May 12, 2005
UPDATED: 9:41 am EDT May 13, 2005

MIAMI -- All over South Florida you hear stories about people making money on real estate. It seems easy to do in a place where housing prices can double in less than a year.

FeedRoom

Real Estate Price Bubble?




But are prices out of control? Has it created a real estate bubble that will hurt the whole housing market?

NBC's Bob Mayer looked at the signs.

A few years ago, Phil McKinstry and his partner decided to put everything they had into real estate.

"Three years ago, we paid in the 400s for our house," McKinstry said.

They spent a ton remodeling their Miami Shores home -- new kitchen, new floors, new bathrooms. Now it's time to cash in.

"It's going to be over $1 million," McKinstry said.

These days, real estate seems like easy money. The more prices go up, the more people want to buy and the more developers want to build because everyone's expecting to make money.

Those are the conditions that make us all wonder -- is South Florida in a real estate bubble and will it pop?

"I don't believe in the word 'bubble' because a bubble is something that happens instantly," said Michael Y. Cannon, a real estate analyst for Integra Realty Resources.

Cannon says housing prices tend to rise and fall in a cycle.

"Every 10 years. Now, we are 13 years out," Cannon said. "We may be at the peak of a cycle. (At the end of a cycle) it goes south."

Cannon has followed our real estate market for decades.

NBC 6 interviewed him in the 1980s. Back then Miami had a high-flying market with lots of glossy condo conversions.

Then, the bottom dropped out.

"Mortgage interest rates of 16 percent and higher have just about shut the door on new condominium conversions in South Florida," one reporter said in 1980.

In some areas, prices fell 40 percent or more. All that demand?

"It was artificial," Cannon said. "It's happening now too."

Cannon showed NBC 6 a report he wrote during the 1980 boom and checked off the trends that applied then and now -- cheap money, lots of foreign investment, flipping, speculation.

"It seems like everyone is looking for a short return rather than a long return, and that's where there's a lot of speculation and contract flipping going on, which gives rise to this problem," Cannon said.

Cannon is concerned that some of our new condo buildings are not selling out. He says Miami-Dade County normally has between 6,000 and 8,000 unsold condos.

At the bottom of the 1980s recession, there were 16,000 unsold condos. Right now, Miami-Dade has 10,000 unsold condos and climbing.

"If people don't buy it, we have overbuilt," Cannon said.

Cannon isn't the only one raising a red flag about our red-hot market.

National City Mortgage wrote a report saying in many large cities, including South Florida, housing is over valued.

Economist Richard Dekaser said that we are in a potential bubble.

Dekaser studied other housing bubbles over 25 years and found that South Florida real estate right now costs much more than our incomes and population should dictate. That's a risky spot.

"The risk of continued price gains as we have seen is very unlikely. The risk of a price correction is significant," Dekaser said.

Still, at the Broward Real Estate Investors Association real estate agents sell the dream.

"We've seen certain areas increase 100 percent in eight months," real estate agent Jennifer Salkey said.

And people buy.

"We closed on it in December and sold it not even two months ago and made over $100,000," investor Ixel Fernandez said.

"I already buy three properties and I have three pre-constructions going on," investor Prophet Esaie said.

Do these investors fear a bubble?

"I think that the market does scare me a little bit," Fernandez said.

"I think it will eventually level off, but I don't think it's going to plummet at all," Salkey said.

"I think the easy money days are over," Cannon said. "People are going to have to work smarter and harder and know their product, know what they're doing. If not, they're going to lose."

Cannon says there's still money to be made in real estate but you need to watch out for a market slowdown.

"Eventually it's going to happen," he said.

Experts say we simply have to wait to see if our high prices will stick. The good news is that unlike the stock market, real estate prices don't just collapse. The fall would be much more gradual, if it happens at all.
 

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anyone ever hear of self fulfilling prophecies? Keep talking about a bubble bursting and then everyone gets scared and thats just what happens. People are sheep in general and many will believe whatever they are told (i.e. Iraq is a threat with WMD)
 

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Roark you know the market, where are these 10,000 unites located, are they spread out or are certain areas really overbuilt?
 

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The thing is compared to NY, LA, SF, DC....

Real Estate in Miami is still pretty cheap. People who have built up enormous amounts of equity in these high-priced markets don't even blink about paying some of these prices. They are bargains to them.

The people who are getting royally fucked are residents of Dade who currently rent and can't afford to buy a home. Wages in Dade County are increasing at nowhere near the pace of home prices. Also, the people getting screwed are young professonials just starting famalies and looking for a house to buy.

The higher housing costs go the more likely Dade will change the urban development boundary and let westward sprawl march on.
 

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50 story luxury condos that start at $300k for a studio/1br aren't going to solve the housing crunch. The MEDIAN yearly household income in miami-dade county is like $36,000. That means half the population makes less than $36,000.
 

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I see Miami turning into the type of Market I left to come to Miami. A renters market. Very few people in Manhattan or Boston own their apartments. The wealthy own the condos, rent them out to people for a while then sell them for obscene profits in a few years since prices never stop going up.
Currently I am in that group of young professionals who are just starting out and would normally be buying a home but with the prices they are, that is just not an option if I do not want to live in Liberty City or Hialeah. Oh and I make more than 85% of Miami-Dade's residents.
 

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the units are being bought. if the people that can afford such things weren't buying 300k luxury condos they'd be buying 300k single family houses and driving up prices even futher.

affordable housing is needed in miami, no doubt about it, but complaining about luxury condos isn't going to make it so.
 

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Sure, they are being bought. The question is whether the speculators who are buying them will be able to sell them to end-users.

Nobody knows whether the end-users will exist for 60,000 units that will be hitting the market in 2-4 years.

And if they don't, some of the lesser desirable properties without water views will take hard hits. Waterfront properts on biscayne or anything in Miami Beach should do fine even in an entire real estate collapse. As they always say, you can't ever go wrong with oceanfront property. They simply aren't making more ocean!
 

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rider_of_rohan said:
Roark you know the market, where are these 10,000 unites located, are they spread out or are certain areas really overbuilt?
Thank you for that vote of confidence...The answer is no, and no. Over 75% of all new building permits in Miami-Dade County occur for properties outside of the City of Miami. For whatever reason....City of Miami seems to get the attention.
But, one 500 unit tower is one building permit. And there happen to be lots of those in the Urban cores.
Everyone should understand...it doesn't make sense to hate luxury towers or the people that live in them.
When you read assinine comments like
The people who are getting royally fucked are residents of Dade who currently rent and can't afford to buy a home.
What? No one is getting fucked....let alone royally fucked. If they are renting than fine...the people that are buying luxury condos are paying about $10k in property taxes and improving the quality of life for everyone. Embrace that!
Some renters may be concrete block layers...those guys are making a lot of money and won't be renters for long.
Think about how money flows...and don't believe the negativity....when the economy is booming...there aren't too many people that are suffering.
Get involved...the people that don't...that's their choice, but don't be bitter about the people that do get involved.
 
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