Boca Raton Real Estate Sales Pondered
A developer is considering a sale of unsold units at three South Florida real estate projects, in a proposed deal that shows how builders are grappling with the ongoing slowdown in the housing market.
If completed, the deal may also indicate that investors are becoming more interested in placing bets now on the beleaguered South Florida housing market in hopes of riding the market up when it recovers.
The The Miami Herald reports that Cabot Investment Properties has signed a letter of intent to pay $168 million for 236 units at Marina Grande in Riviera Beach, Peninsula II in Aventura and Oaks I at Biscayne Landing in North Miami.
Boca Developers CEO, Brian Street, said the deal is in preliminary stages, with details still being worked out.
He said the Deerfield Beach company is considering all options to sell its inventory.
“These are the worst of times for condo development,” said Street, whose company is among the biggest condo builders in South Florida.
“Everybody is trying to get inventory lower and debt threshold diminished. Everyone is trying to get some sort of deal done, us included. But we simply aren’t there yet.”
Under the proposal, many of the units would be rented following the bulk sale with the idea of later trying to sell them when the residential real estate market improves. The Boca Raton developers could retain a financial stake in the apartments and play a role in renting and later selling units.
Cabot would purchase the units at a rate of $342 a square foot, which is much less than it would cost to build the same buildings at current prices, according to the documents outlining the proposal. A July 15 closing date is targeted.
Cohen Financial, a real estate investment banking firm with an office in Miami, has been retained by Cabot to obtain financing for the deal.
Since the housing boom ended in 2005, residential developers have struggled to unload inventory as South Florida mortgage applicants disappeared.
Some have sought to lower prices to move inventory now. Others employed a range of incentives - from covering buyers’ closing costs and furnishing a new home to offering commissions to Florida mortgage brokers.
Meanwhile, other builders like Boca Developers are trying to sell existing inventory in one fell swoop by striking a deal with bulk buyers, who aim to purchase chunks of units at a discount and hold to sell at a later date.
Rather than seeking individual Florida mortgage seekers, these so-called “vulture fund” buyers have been scouring South Florida for deals for some time.
“This is a sign of the times,” said real estate analyst Michael Cannon. “We see this in every real estate cycle. When a project in not marketable the capital investor wants to either get out of the project or minimize his investment. In this case they are trying to get a vulture fund to buy and hold.”
Unlike many condo developers, Street said his strategy was never to sell out a building with preconstruction buyers before starting to build.
Instead, he met their Florida mortgage lender’s presale requirements and then kept remaining units to sell when the structure was complete.
Yet that strategy has now left him with excess inventory in a down market.
By contrast, many other condo owners quickly sold out before even putting a shovel in the ground. As a result, those builders don’t have excess units to sell, though there are questions if all the buyers - which includes many investors and speculators - will close.
Street’s efforts to unload inventory come a year after he made a major bet in South Florida residential real estate by buying out his partner, Coconut Grove developer Michael Swerdlow, in the Biscayne Landing project.
The massive development in North Miami is ultimately supposed to have some 6,000 residential units.
“I don’t regret buying Swerdlow out,” Street said.
“It was the right decision. Do I like our timing? Of course not. Yet, it makes sense. Our horizons have been pushed out but not fundamentally changed. We have faith in Miami and the South Florida condo market.”
SOURCE: Miami Herald
