Brickell Condos Distress Grows
Written by Marilyn Bowden on March 27, 2008
By Marilyn Bowden
The Brickell Avenue condo market continues to struggle, and experts say it’s not likely to turn a corner before all the buildings under construction are completed.
Brickell Avenue condo units account for 86 of the 223 distressed properties east of I-95 in Miami-Dade County listed in the Vultures Database maintained by CondoVultures.com. That’s the largest number of any one market in the county.
CondoVultures defines as "distressed" any property in the foreclosure process, permitted by the lender to be sold for a price that is short of the amount owed by the borrower or owner, or owned by a lender after failing to sell at a court-ordered foreclosure auction.
After being on the market an average of 344 days, according to this database, the distressed Brickell condos have dropped a mean 34% in price. That’s comparable to mean figures in other areas.
Biscayne Boulevard’s distressed properties show a mean drop of 35%, and Coral Way a 33% mean drop.
"These numbers are mind-boggling," said Peter Zalewski, CondoVultures’ founder. "I think one of the reasons Brickell is suffering from so many distressed property sales is that it’s a place where speculators thought prices would only go up."
Because Brickell is an established market as opposed to pioneering markets like Biscayne Boulevard, he said, speculators who wanted to hedge their bets thought their chances of renting out a Brickell unit would be much greater — but that has turned out not necessarily to be the case.
CPA Monte Kane, managing director of Kane & Co., said the amounts of the mortgages foreclosed on that he has seen in the market are high.
"When they exceed fair market value, it should be no surprise that this trend is going to continue," he said, "and with prices dropping, it will only get worse.
"The biggest issue is what it means for the financial health of the associations that have to operate these buildings."
In addition to people opting out of closing on units that have dropped in value, Mr. Kane said, banks are enforcing tougher rules on lending and private mortgage insurers are using tougher guidelines. "In some parts of the country they are blacklisting buildings that they will not offer mortgages on, though I haven’t seen that in Miami yet.
"I think we will see bankruptcies and receiverships. That will not be a pleasant thing. It takes years to go through that process. Developer, owners and lenders all have different desires, so receivers need to really follow the book."
Mr. Zalewski projected that realistically, the Brickell condo market won’t turn around until all units under construction are completed, which won’t happen for six to nine months.
"Then investor groups need to come on and buy large blocks of units," he said. "They will begin with rentals, with the idea that since they will be able to supply a superior product at a subsidized rate, so they will be able to steal away tenants from South Beach, Kendall and Aventura.
"That will be their marketing strategy as they buy available bulk product, so we will see tremendous rental opportunities advertised."
Mr. Zalewski estimated it will be three to five years "before Brickell begins to hum again, as opposed to four to seven years downtown and seven to 15 in the Biscayne corridor."
Although new buildings don’t appear to have very high occupancy as they open up, Mr. Kane said he doubts they will face the same high foreclosure rates as their predecessors.
"What we are seeing now," he said, "are the effects of the early stages of the boom. It’s those who bought at inflated prices who are foregoing their deposits."