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For bulk condo deals, buyers look west, way west

Seems like we are pretty much done with bulk condo deals in Miami / Miami Beach, which is just another sign of a stabilizing Miami Beach real estatet market.



Editor’s note: Today is the first of a new monthly column exploring emerging real estate trends by Peter Zalewski, a principal of CondoVultures, a Miami-Dade-based real estate consultancy.

The out-of-town visitors traveling South Florida’s western suburbs in rental cars are not actually lost tourists looking for South Beach but rather fund managers searching for distressed condo projects to purchase in blocks of at least 10 units — the typical qualifier for bulk-deal pricing.

Since the beginning of January, fund managers from private equity groups and institutional funds from New York City to London, Buenos Aires to Montreal have focused on identifying failed condo projects west of Interstate 95 in the tricounty South Florida region for potential purchase.

For fund managers who want to invest in South Florida, the year 2011 is all about areas such as Kendall, Miramar, and Coral Springs, and no longer about South Beach, Fort Lauderdale, or downtown West Palm Beach.

It is not that the fund managers prefer — or even like — the western suburbs of South Florida. But now that nearly all of the distressed condo bulk deals near the water have been completed or are under contract, the fund managers who want to focus on South Florida are being forced to learn to maneuver the Don Shula, Sawgrass and Palmetto expressways.

Enduring rush hour traffic on Interstate 595 or Florida’s Turnpike is a new aspect to buying bulk condos in South Florida in 2011 that wasn’t necessary in years past.

Since July 2008, bulk buyers have completed more than 80 deals for a combined 8,300 units with more than 10.3 million square feet of space near the water for a price tag of nearly $2.3 billion, according to property records in Miami-Dade, Broward and Palm Beach counties.

At the end of 2010, bulk buyers had successfully resold 24 percent of their inventory on a retail basis for an average premium of $51 per square foot. Some bulk buyers have done much better than that average, achieving spreads for oceanfront project s of as much as $300 per square foot.

It is these anecdotal success stories — coupled with the weak dollar and signs that the South Florida housing market is starting to stabilize — that has bulk buyers eager to purchase even if it is the western suburbs.

Every bulk buyer — and there are hundreds of them — is searching for distressed condo projects that can be acquired for deep discounts of at least 50 percent off of the current retail price being achieved in the market.

If successful in acquiring a project under such terms, most of the bulk buying groups have plans to shore up the association coffers and make minor improvements with landscaping, painting, and security before renting out the condos — or even better yet, selling off each unit for a profit.

Every fund manager has a different formula for determining the purchase price for a fractured condo project. But most share the common goal of reselling the units for at least double of the acquisition amount.

Unlike the condo product that was primarily newly constructed near the coast, many of the units in the western suburbs were built originally as rental communities and then converted into condominium complexes during the boom.

At the height of the market, condo converters paid upwards of $100,000 per apartment with plans to resell the units at more than $200,000 per unit. After the real estate market imploded, these same units are now trading for less than $100,000 each on an individual basis — or about $50,000 on a bulk basis.

During the real estate boom, there were 185,000 condominium units created in the tri-county South Florida region of Miami-Dade, Broward and Palm Beach counties. About 85,000 of the condos created since 2003 were new, purpose-built construction. The other 100,000 units created during the boom are condominium conversions.

It is fallout from the 100,000 condo conversion units situated from Homestead to Palm Beach Gardens that is drawing fund managers west.

Once the out-of-town fund managers can eventually figure out their coordinance, they may even end up buying some of the troubled condo projects that are scattered throughout South Florida’s western suburbs.

Peter Zalewski is a principal with the Bal Harbour.-based real estate consultancy Condo Vultures. Zalewski, who has had a Florida real estate license since 1995, works as a consultant for private equity groups and institutional investors from around the world.

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