Brickell condo developers face facts, slash prices to unload inventory
By Yudislaidy Fernandez
On Brickell's condo rollercoaster ride, some developers are slashing original prices by more than half to sell units in the uncertain housing market.
Some developers had refused to cut, hoping for a market turnaround, but this year they decided they needed to cut prices to sell.
Newly-built residential towers hungry for buyers, such as 1060 Brickell and Brickell on the River, "came out with aggressive pricing that set the new market rate for new high-rise condominiums," says Patrick O'Connell, managing broker and senior vice president of development at Esslinger Wooten Maxwell Realtors in Brickell.
"When you look at the majority of the buildings here, the new price per foot has been determined, but these two buildings that came out with reduced pricing, got units sold and paid their debt," he said.
In 2008, prices didn't move much, Mr. O'Connell says, but as 2009 rolled around many developers realized the market wasn't going to appreciate.
Figures show that while sales have increased, prices have dropped.
For example, Brickell sales shot up 388.9% in September 2009 compared to September 2007, an Esslinger Wooten Maxwell Facts & Trends report shows. During that same period, price per square foot fell 36.5%, showing a clear price decline over the past two years.
That realization brought many banks and developers together to strategize "the right price per foot to get a significant number of sales," he says. "In the coming year, we'll see more of the same as developers and their lenders come to a mutual agreement to basically finish selling or liquidating remaining units in these buildings."
For example, Mr. O'Connell says, some buildings already recovering are 500 Brickell Towers and Jade Residences at Brickell Bay, luxury condominiums in desirable locations that have started their comebacks.
"The bottom line is that well-located buildings at the right price are going to do fine," he says.
Ultimately, developers must lease or sell at the price the market dictates, a critical step to fill up Brickell condos and strengthen condo associations, he said, leaving lenders with fewer real estate assets to manage and a bigger inclination to lend.
Next year is going to become more "the year of the workout," he says, adding "It's going to be a building-by-building recovery in 2010."
Oliver Ruiz, managing broker at Fortune International Realty, agrees many developers now realize they have to cut prices to sell.
A couple of years ago, condo prices ranged from $400 to $600 a square foot, while now units must be priced around $200 to sell, says Mr. Ruiz, incoming residential president of the Realtor Association of Greater Miami and the Beaches.
"The hottest inventory is just about gone," he says, because those developers and lenders have said, "Let me get some of my money back."
Many of those developers have had to cut prices to a level that's hard for buyers to pass by, he says, driving sales at many of condo towers built during the boom.
For example, Fortune succeeded in selling 340 remaining units at 1060 Brickell, a luxury twin-tower development with 570 condos, at reduced prices. Originally, units were priced at $400 a square foot, but market conditions forced them down to an average of $220 a square foot, fueling the sale of remaining condos within months.
These reductions have allowed many area condominiums to finalize sales.
"Buildings that were empty are pretty much full," Mr. Ruiz said, adding that most buyers are investors who bought units to rent them.
Developers sold more than 900 condos in greater Downtown Miami in the third quarter, up from fewer than 250 in the second quarter, according to a Condo Vultures report. Fewer than 8,500 developer units now remain in the area, with 36% controlled by The Related Group and 21% by the Starwood Capital Group, which recently acquired the condo construction loan portfolio of failed Corus Bank from the Federal Deposit Insurance Corp.
But the profile of today's buyer differs from boom buyers, says Peter Zalewski, a principal with consultancy Condo Vultures.
Priorities have changed, he said, as the focus has shifted from buyers seeking the perfect space with the right interior look to facing concerns about costs and contract commitments now that mortgage financing is hard to find and the economy is still hurting.
"Previously, it was all about emotion. Today it is all about the numbers," Mr. Zalewski said, adding that buyers are better informed and educated about their purchases.
Those savvier buyers are sticking to the lower-priced condos, he said, while higher-priced units struggle to sell.
Over the past year, sales pending in South Florida increased from 9,300 in November 2008 to 18,200 this October, according to research based on Florida Association of Realtors data. Most of those buyers are cash buyers, investors and some first-time homebuyers, Mr. Zalewski added.
About 85% of the pending contracts are for units priced in the $300,000s or less, he said, which is putting pressure on higher-priced inventory.
"People are being selective. The higher you go (in pricing), the more selective they are," he said.
Increasingly, those deals are not closing, he says, because higher-priced condos aren't catching the same attention.
But for some, buying isn't an option, which has spurred growth in Brickell's rental market.
Today, the rental and buyer markets have flipped. Leases now are exceeding sales, mostly because financing is hard to find and some fear buying property in this troubled economy.
"I see pricing on rental higher today than during boom," Mr. Zalewski said, because today there are more renters than buyers who can close. Years back, "more buyers were closing and no one wanted to waste money on rent."