When you've covered the real-estate markets as long as I have, you begin to notice certain things. One thing I watch for in a down economy is what I like to call the "give up" phase. That's the point in an already-plunging marketplace where earlier buyers finally say "I give up" (or my likely "Get me out!!!"). And it's only after the "give up" phase that a market has truly bottomed.
Some think that "bottom" may now be in place for the nation's glutted condominium markets.
Many of the markets around the country all have one thing in common - a huge condo lender by the name of Corus Bank. Early in the decade, the Chicago bank plunged headlong into lending to condo developers and never looked back... until "the Boom" went "Ka-Boom." Corus became insolvent in September and was taken over by the FDIC. A bank named MB Financial got all the deposit accounts, while the FDIC figured out what to do with the portfolio of condo loans. Early this month, Barry Sternlicht's Starwood Capital Group won a 40-percent stake of that portfolio (the FDIC is keeping the rest), for the grand price of $550 million. The portfolio was once valued at up to $5.5 billion during the real estate boom.
Some people, including long-time South Florida real-estate analyst Jack McCabe, thinks the "give up" phase may have finally arrived. While condo developers have certainly dropped their prices over the past few years, he says they haven't dropped them enough. Sometimes, they fight the price drop because the developer thinks the units are still worth "more." Other times, the builder's lender may balk at discounting the condos any further. Then a deal like Starwood happens, and everyone is forced to redo their math. In this case, the math (according to McCabe, it's about 22 cents on the dollar for Corus' assets) says other developers need to mark down their units further in order to find a price that will bring in real buyers.
Furthermore, only days after the Starwood deal was announced, The Related Group, one of Miami's largest condo developers, elected to cut prices on the unsold condos at the firm's ICON Brickell condo complex by 30 percent. Peter Zalewski, owner of Condo Vultures.com, reports in his latest missive that the lender for an adjacent building to ICON Brickell is also looking to cut prices soon so it can sell out the rest of its project quickly.
Yup...the 'give up' phase has finally arrived.
Comments
The Banks , in general do not seem to have given up.CORUS failed and had to be dealt with........the Structured Transaction by and between the FDIC and Starwood seems to give them impetus to lower the prices on the remaining units in those buildings where people have closed on and are occupying units. There is no other end game in those cases. In empty buildings they may well try and sit on the inventory and wait for better times.......it may well be a long wait......and the "glut" will remain in the markets where these units are located. The banks in general do not seem to be recognizing the true loss in value on many of these projects and forbear on foreclosure in the hope that a miracle will occur......that seems doubtful. They are taking the same position on their land loans/reo.
Business should be taken good care... Good Strategies and outstanding management....