By JEFF D. OPDYKE
February 28, 2008; Page D1
Miami has a new vice: bottom-fishing for condo bargains.
Home buyers from around the U.S. and abroad are descending on Florida to buy condominiums that have suffered sharp price drops amid the housing glut, subprime-mortgage crisis and credit crunch. Some are searching for investment properties, confident home prices will eventually rebound. Others are hunting for vacation or retirement homes. Yet pitfalls abound, and experts warn that prices could dip even further.
In hard-hit Miami-Dade County, condos originally costing as much as $1.4 million at the peak of the market now sell in some cases for $840,000, a 40% drop. Farther north, a coming auction at Solaire at the Plaza, a new condo tower in downtown Orlando, has set a minimum selling price of $170,000 on 24 one-bedroom units once priced as high as $296,000.
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Such price drops have people like Bruce and Suzanne Bowen, of San Juan, Puerto Rico, stalking deals. The Bowens have visited Miami three times since November to scout for properties, and recently bought a two-bedroom, 1,200-square-foot unit on a high floor with water views in Miami’s fashionable Brickell district. Mr. Bowen made his move after prices in the building fell to $290 a square foot from nearly $400 in September. Now, the couple is looking for a second condo.
“We’ve been coming here for 10 or 12 years, and I know how much cheaper it is today,” says Mr. Bowen, a 46-year-old banker. “I may miss the bottom by 10% or so, but five years from now, that will be irrelevant. The underlying fundamentals are still very strong here.”
Florida is a microcosm of what’s happening across the country. As the price of condos — which tend to be popular among investors, retirees and second-home owners — take a dive in many once-hot markets, buyers are emerging to grab properties on the cheap. They’re finding plenty to choose from.
In Atlanta, unsold condos outnumber sales for the past 12 months by more than 4 to 1, according to Haddow & Co., an Atlanta real-estate consulting firm. Typically, supply is about 1.2 times demand. In Las Vegas, more than 16,000 condo units are under construction and nearly 18,000 more are proposed, according to SalesTraq, which tracks new-home construction. Those projects were launched during the boom but are coming to market during the bust, and investors who originally put down money to hold a unit “are now trying to get out from under those deals with the developer,” says John Restrepo, a Las Vegas real-estate consultant. “Many are walking away from their deposits.” San Diego, meanwhile, is attracting Arizonans buying condos for as much as 50% off the high prices set in 2004 and 2005.
Because of Florida’s perennial popularity among real-estate investors and vacation- and retirement-home buyers — and as young families have migrated there from other states — many areas were flooded with new projects in recent years. Now, amid the downturn, Florida condo sales are sharply down, off an average of 27% in 2007 from the year before, says Sean Snaith, an economist at Orlando’s University of Central Florida.
Perhaps nowhere is the carnage — as well as the opportunities and risks of condo bottom-fishing — more evident than in Miami-Dade County, where about 25,000 condos are currently for sale, according to Multiple Listing Service statistics. That number could well surge: Cranes needle the city’s skyline, and though several projects have been mothballed, new condo towers in various stages of completion rise everywhere. By most estimates, 12,000 to 15,000 more condo units will become available over the next 18 to 24 months. Given that about 10,000 condos are sold in a typical year in the area, the supply overhang means prices may fall further.
That doesn’t mean bargains litter the beach or that prices are as low as some buyers hope. Alicia Cervera Lamadrid, chief executive of Miami real-estate firm Related Cervera Realty Services, says too many buyers call nowadays “expecting to pay 50 cents on the dollar, and they’re not going to find that.” For the most part, prices are back to about 2003 levels, meaning they’re down 10% to 40%, depending on building and location.
Of course, buyers shouldn’t be seduced by big price drops alone. While buying in perennially popular areas can make sense, chasing deals in other areas may not be so wise. During the heyday, builders ventured well outside of Miami’s core into what are effectively frontier markets. Midtown Miami, for instance, a condo development located a few miles north of downtown in an industrial neighborhood with little scenic appeal, is lightly occupied. Such properties “will take a decade or longer to come back,” says Peter Zalewski, who runs Condo Vultures, a real-estate investment consulting firm in Bal Harbour, Fla. The developer of Midtown Miami didn’t return calls seeking comment.
Other condo towers, meanwhile, were built after several major hurricanes ripped through the region in recent years. That pushed construction costs sharply higher, as demand spiked for building materials and labor, and has resulted in gaping price disparities among different developments.
The result is apparent on Biscayne Boulevard, where four towers sidle against each other. Though the views, location and materials are all similar, two buildings — Marina Blue and Ten Museum Park — began construction prior to the hurricanes, and units there are priced today at roughly $400 a square foot. The other two — 900 Biscayne Bay and the Marquis — began going up after the hurricanes and are priced in the $600-per-square-foot range.
Another potential hazard for buyers: foreclosures. In some buildings, foreclosures represent as much as half the units, according to Florida’s Office of the Condominium Ombudsman. A high foreclosure rate means special assessments will likely be imposed on owners of remaining units at some point to help pay for common maintenance costs. That can unexpectedly raise your cost of ownership.
Moreover, foreclosed properties in South Florida tend to be priced near the mortgage amount. Given the run-up in prices before the shakeout, that means foreclosure buyers could pay inflated prices at the auction block. A better approach: Wait for banks to reclaim property that doesn’t sell at auction. Local real-estate agents say you’re more likely to be able to negotiate a better bargain then.
None of this is stopping buyers from flocking to the area. Mr. Zalewski and Jenny Huertas, the husband-and-wife team running Condo Vultures, are inundated these days with out-of-town buyers coming from as far away as California, Colombia and Germany. On a recent Friday, they showed seven units to Jeffrey and Deborah Boyer, a Harrisburg, Pa., couple who’ve made three trips to Miami in recent months to “cherry-pick the market,” Mr. Boyer says.
The Boyers, both 54, want a one- or two-bedroom unit with a boat slip priced between $300,000 and $500,000. “This place might sit here for a few years before we’re ready to really use it,” Mr. Boyer says. “But we’re ready to buy now, if we can find the right place, because prices have come down so much.”
Write to Jeff D. Opdyke at jeff.opdyke@wsj.com
