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| January 08, 2009 |
By: Paola Iuspa-Abbott |
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he Related Group of Florida has often been at the forefront of trends, including helping launch the glut of high-rise condo buildings in downtown Miami.
Now one of the nation’s largest condo developers is taking the lead in the selloff of excess units through discounted bulk deals.
In its most recent liquidation, Related’s TRG-Harbour House affiliate sold 101 units for $27 million in Bal Harbour’s New Harbour House.
The 457-condo, 16-story New Harbour House is at 10275 Collins Ave. Related still owns about 100 unsold units there.
“This was an end-of-year strategic sale to pay off remaining debt on our project and end-of-the-year tax planning,” according to a statement from Related chairman Jorge Perez and executive vice president and chief operating officer Matthew Allen. “We, along with our new buyer, are looking to hold on to the remaining inventory for the long term asset appreciation at Harbour House.”
The deal is Related’s second discounted bulk sale in the last six months in Miami-Dade, a market bloated with thousands of new condos that have not sold.
In July, Related sold 146 condos for $36.44 million in the 528-unit 50 Biscayne in downtown Miami.
The New Harbour House buyer is HH Condominium Investments, led by Thomas Daly and Christina Cuervo. Daly is an investor in the Related Group, and Cuervo is a former Miami Beach assistant city manager.
HH Condominium Investments paid prices ranging from about $285 to $260 per square foot, with some units discounted of up to 60 percent compared with sales to individual buyers that closed in the last two years.
In one example of the cut-rate prices, HH Condominium paid $297,073, or $281 per square foot, for Unit 1206, which has 1,056 square feet of air conditioned space, according to Miami-Dade County property records. An individual buyer paid $737,000, or $698 per square foot, for a similar unit one floor below in May 2007. In the bulk sale, the price dropped 60 percent.
In another sale, HH Condominium paid $239,057, or $267 per square foot, for Unit 528, which has 896 square feet. In September 2007, an individual buyer paid $476,900, or $532 per square foot, for Unit 428, a similar unit on the floor below. The discount was about 55 percent.
Related lent HH Condominium $7.27 million through a purchase money first mortgage, according to public records.
The oceanfront New Harbour House is one of Related’s latest condo conversion projects. Related gutted the old Harbour House apartment building and rebuilt it to include floor-to-ceiling windows. But by the time the project was completed in early 2007, the housing market had begun to cool and buyers were hard to find.
Related sold close to 250 units to individual buyers over the last two years but was left with more than 200 unsold units.
Like other condo developers who have been stuck with excess inventory, Related has been leasing the unsold units to generate income.
The bulk sale cuts the number of unsold units to about 100, according to the county property appraiser’s office.
HH Condominium is not new to New Harbour House. In 2007, Daly’s company bought six units through a $5 million revolving line of credit with City National Bank of Florida.
Some real estate brokers welcome Perez’s move. They say Related may help stabilize prices in the buildings by selling in bulk.
“Bulk sales will keep prices from continuing to fall,” said RE/MAX broker Hazel Goldman in Miami. “By buying in bulk, he is removing a whole bunch of condos from the market.”
However, Jeff Morr, founder and chief executive officer of Majestic Properties in Miami, said bulk sales are deflating property values as developers seek to strengthen their financial positions during the economic downturn.
“Everybody is doing what they have to do,” he said. “They have to pay taxes, insurance, maintenance fees and other things until they get rid of the properties. Bulk sales is a short-term issue. Prices won’t be this depressed forever. When financing comes back into the picture and buyers can get loans again, the market will start moving slowly, but it will take time for retail prices to catch up with where they were.”
The bulk buyer at 50 Biscayne was a company owned by Related and an equity partner, Lubert-Adler Partners of Philadelphia.
Related and Lubert-Adler bought out Atlanta-based Cousins Properties, which built the 54-story tower on Biscayne Boulevard in partnership with Related.
The price per unit in the 50 Biscayne purchase averaged $247,739 at a time when other condos on Biscayne Boulevard were selling for an average of about $309,936.
Related and Lubert-Adler are renting the units until buyers return to the market. Meanwhile, Related and Lubert-Adler, which paid cash in the July deal, are using 50 Biscayne condos as collateral for a loan.
Prudential Insurance Company of America lent them $20.87 million backed by 136 condos, including 110 acquired in the bulk sale.
Paying cash to buy dozens of units in bulk and later borrowing against them is becoming common among opportunity funds, also known as vulture funds, said investor Jay Massirman, president of Rivergate Residential.
Massirman teamed with 13th Floor Investments in November to pay about $7 million for 107 condos, single-family homes and townhouses in Homestead.
In December, the partnership obtained a $3.8 million loan from BBU Bank. The loan helped pay off a short-term loan Massirman obtained from a private investor to close the deal. By buying cash, he negotiated better terms, he said.
“It makes sense to buy with cash and finance later because there are fewer people who can buy all cash,” he said.
“Hedge funds have a lot of paper work and committees and red tape … to go through. Private groups tends to move very quickly on an all cash basis and perhaps get better prices.”
Paola Iuspa-Abbott can be reached at (305) 347-6657. |
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