News Reports are indicating Real Estate Investors “Vultures” sensing prime buying time along Miami Dade and Beaches. Deep discounts are the goal with Vulture funds ready to swoop in aggressively on strong buying opportunities in South Florida. Typically a Vulture fund will target & negotiate with condo developers and their lenders who can’t sell enough units to pay off the loans used to build them. They then purchase large blocks of unsold inventory at 40 to 60 cents (Cash purchase) on the dollar. Some believe that last weeks Wall Street meltdown may show us the arrival of such a moment.

Carthartes aura by D.Fletcher

A lot of people who were standing on the sidelines are now realizing this is their time to get in. When this occurs and the 100 plus Vulture funds begin acquiring South Florida’s unsold inventory, the word will quickly spread and the pent up demand will begin to flourish. This buying power available & ready will be a clear sign to show the world our market had bottomed, bringing us to a rapid recovery. The trend is and has been occurring along the beaches this year and Downtown will soon see a transition from depreciation. The majority will agree when the Vulture funds begin buying strong, others may start buying as well.

Who does it better than Jorge Perez of The Related Group? A recent article in Miami Today tells us Perez partnered with private equity firm Lubert Adler Pertners in a bulk purchase of 120 units at 50 Biscayne, a project Related codeveloped with Atlanta based Cousin Properties.

“The Cousins Related partnership will retain joint ownership of seven units in the 54-story, 528-unit project. Cousins estimated its share of the pre-tax profit on the project to date at about $18 million before minority interest.” -MiamiToday article

“Lucas Lechuga, a Realtor with Miami Condo Investments, said it’s hard to say if and when the vulture fund’s action will affect prices. “Right now it doesn’t do anything until we see what happens,” he said. “If the buyer puts them back on the market at a discount it will affect the price and make it very difficult for people trying to sell individual units. Most Realtors won’t take it into account because it won’t show up as closed sales in the MLS though more astute Realtors may eventually consider it. But it will take some time for them to realize that this sale was made.”

The problem that Vulture funds face is that the majority of developers see the Miami real estate market slowly improving and are deciding not to let their efforts go so cheaply. Their is enough clarity in the South Florida market for developers to realize there is an overstatement of the Miami crisis in the world media and fund industry and it’s not always necessary for such deep discounts. Other rookie desperate developers in a financial crisis with their lenders may view these large discounted condo purchases as a blessing. If the project is inferior and overpriced, these developers will have to cut and run from the headaches.

Their are a few outstanding new projects in South Beach with unsold inventory and major potential. Are any South Beach developers in financial trouble and needing to sell at 50 cents on the dollar? NO. I’m working with investor groups seeking to purchase low & mid rise “boutique condo buildings” at majority ownership along the beaches and the goal is 15 to 20% off list with a market SP/LP average at 10%. On a cash purchase the return is typically 2.5% to 3.5% with the planned potential for the next boom on a long term hold. The tax advantages for any savvy investor holding real estate also make great sense year after year. Supply decreasing & demand increasing with limited space along the beaches and an ever increasing amount of tourism with the weak US dollar. Time will tell but I am bullish on the beaches! Let the readers know your thoughts on this topic. The Miami Beach blog has now surpassed 20,000 viewers! If you’d like to receive new blog postings & updates once available, you can easily be notified by RSS feed (see upper left column) or by email every time a new posting occurs. Have a great week and call any time toll free 1.888.383.7326 or view new condos here.

Who is NAR’s Lawrence Yun?

Well USA Today rates the National Association of Realtors® (NAR) Chief Economist Mr. Yun as one of the top 10 economic forecasters. Yun is ranked 5th on the list and is responsible for NAR’s real estate statistics and economic forecasting. USA Today enlisted help of the Federal Reserve Bank of Atlanta in determining the most accurate forecasters among the economists surveyed in USA Today’s quarterly survey on the US economy.

“NAR is proud of USA Today’s recognition of Lawrence Yun and his economic forecast accuracy. He is a highly regarded economist, and the housing and real estate industry have come to rely heavily on his economic analyses,” said Dale Stinton, NAR executive vice president and chief executive officer. “This acknowledgement contributes greatly to NAR’s reputation as the leading innovator in housing related research.” Read full story at Realtor.org

Here is Lawrence Yun’s forecast on Miami Dade County by RAMB.

Miami has a glut of homes for sale. Skylines are dotted with cranes and construction of highrise condominiums just keeps continuing guaranteeing an even a bigger glut. In five years, do not be surprised if home prices in Miami are 20 to 30 percent higher than the current levels. Current homes priced at $200,000 could sell for $250,000 and a current million dollar home for $1.2 to $1.3 million, in five years. If a buyer is successful in price negotiation which can be done in the current buyer’s market the return on price purchase will be much higher. The median home price in Miami was $80,500 in 1985 and $105,800 in 1995 and $363,900 in 2005 at the peak of the market. Since then, prices have come down a bit. Prices fell by 5.7% for single family homes and 6.0% for condos (View MLS Live here) over a one year period to the 4th quarter of 2007 according to NAR data.

Even with recent price declines, home prices have grown much faster than income. Some, therefore, surmise that home prices will fall or perhaps even crash. I conjecture that this fear is the principal reason why there is excessively low sales activity in Miami. Soft sales makes months’ supply ridiculously high and therefore pressures home prices to fall. There are a few key factors not being accounted for in the simple analysis using home price in relation to income or rent. First, low interest rates, as any person with a mortgage calculator will be able to show, permit a lower monthly payment. In early 1980s, mortgage rates averaged in excess of 15%. In early 1990s, it was hovering at 10%. In 2000, the average rate was 8%. Today, a 30 year fixed rate can be locked at 5.5%.

If Miami was a sleepy southern city as it had been considered as recently as 1990s, then home prices in Miami could be considered as being “out of whack.” However, if Miami is transitioning itself into a major global cosmopolitan city, then a comparison should be made to markets like Honolulu and Los Angeles. Then, prices in Miami suddenly look attractive. In five years, Miami’s housing market will be doing quite fine. What are the factors that will drive the Miami market?

1. U.S. Baby Boomers. This massive group of people is just turning 60 and the more financially successful ones are on the verge of retirement. Over the next 20 years, a steady flow of wealthy retirees will be flowing into sunny warm weather destinations. Ocean views will be particularly sought after and people will be willing to pay high premiums for that privilege.
2. Foreign Baby Boomers. The Second World War finished at the same time for Japan and Europe as in America. Peace brought a spike in baby births. The financially successful baby boomers from abroad will demand a piece of the American Dream. It is a status symbol.
3. Nouveau Rich. There is no one who likes to show off more than the people who lived through equality in income and consumption. Former communist countries like Russia and Kazakhstan are creating newly minted oil barons. Entrepreneurs are springing up en masse in Eastern European countries. Business probability says a few of them will be wildly successful. A property in London and Miami is the ultimate conspicuous consumption.
4. Improving Insurance. Miami is artificially being harmed because of high property insurance rates. After the unprecedented number of destructive hurricanes (those with category 3 and higher wind speeds) in 2004 and 2005, the insurers jacked up insurance rates. I foresee some retreat in regards to insurance rates in upcoming years because insurance companies have been getting fat profits over the past two years. Profits draw new entry and competition will lower rates. Several legislative measures will further help on insurance rates. The high insurance premium, in my estimate, knocked about $30,000 off housing values in Miami. An improvement in insurance will mean a boost to home prices.
5. Improvement in Property Tax. The very high property tax on second homes that is placed on non residents of Florida has hurt this important housing segment. A good bet is that the populace will demand of legislators some measure to alleviate this tax, which appears to hurt non residents, and has also harmed home values of primary homeowners in the state.

As I’ve mentioned before, Warren Buffet’s investment philosophy is to be scared when everyone is greedy and be brave when everyone is scared. The current high inventory conditions may be that perfect window of opportunity for some astute homebuyers to take advantage. Though it is difficult to call the precise bottom because of so much interplay between confidence and fear factors in today’s housing market, one can be comfortable in predicting a measurably higher price prices in Miami five years from now. Read entire story here under the Miami Confidential

I’m always inspired when reading the positive side to our local market as in Mr. Yun’s analysis on Miami. This City known as the “Gateway to the Americas“ and “The Magic City” has so much to offer it’s residents. It’s only a matter of time until the pent up demand explodes and these excessive amounts of inventory are picked up on the cheap by intelligent investors and end users who listen to the experts and not the media who feed on negative hype. I’ll tell you what is true. In the media world, good news is no good news. People in the media operate under the presumption that the public isn’t interested in the good word. They think sensational stories sell papers and it’s probably true. Read Warren Buffet’s investment philosophy… “Be Scared When Everyone is Greedy and be Brave When Everyone is Scared.” If you’ve got any insights to the direction Miami’s real estate market is in or the above interpretation by Mr. Yun, please comment and let the reader’s have a bit of your knowledge!