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September 2, 2010 |
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| January 11, 2008 |
By: Paola Iuspa-Abbott |
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he sprawling Midtown Miami condo development north of downtown is trying a new strategy to sell units in a stagnant market — rent to own.
Months ago, the developer started renting units it couldn’t sell but has since added the new option.
Miami real estate agent Samir Patel was surprised when the rent-to-own option was offered on a recent visit with a client to see condos the developer was trying to rent.
The client, who Patel declined to identify, wasn’t sure rent-to-own was a good idea at a time when sale prices are dropping by the month. So he went with a traditional one-year lease, Patel said.
“A rent-to-own program is not necessarily a better deal,” he said. “It may be good in a year, if values begin to go up.”
Executives with Midtown Partners, the developer, did not return calls seeking comment.
Miami developer Michael Samuel and New York-based Midtown Equities’ Joe Cayre are behind the project at Northeast 36th Street and Miami Avenue in Miami’s Wynwood neighborhood.
The plan may help Midtown Partners generate some cash flow and market units during the housing slump that has hit South Florida especially hard, experts say.
Since the developer began closing on units in the project’s first tower, it has sold 208 out of 336 condos, according to Miami-Dade County property records. The condos range from 564 square feet to 3,472 square feet. Asking prices range from the $200,000s to more than a $1 million. A second tower is nearing completion.
The condos are part of a 50-acre mixed-use project with retail tenants that include Circuit City, Ross and Target.
The rent-to-own plan works like this: a tenant negotiates the sale price of a unit and after reaching an agreement signs a yearlong lease for that specific unit. The tenant, then, has nine months to decide whether to buy the unit at the negotiated price. During that period, the tenant pays rent, ranging from $1,500 to more than $2,800 a month, according to Midtown’s Web site.
If on the ninth month the tenant agrees to buy, the money paid in rent goes toward the purchase price, Patel said. Otherwise the person can keep renting the unit.
The rent-to-own program isn’t new, but rather a return to marketing tactics used in past housing downturns.
Veteran Miami real estate analyst Michael Y. Cannon still remembers when he and members of savings and loans got together in 1965 to figure out how to bring people into foreclosed single-family homes in the suburbs.
“If a home in the suburbs wasn’t occupied, it would be vandalized, so we needed to bring occupants to the homes,” he said. “What they are doing is not new.”
Cannon and the group in the brainstorm sessions came up with a solution: rent-to-own plus 40-year mortgages at a 6 percent interest rate. The “marketing edge” worked, he said.
Fast-forward four decades and developers are again scrambling to find buyers. Declining home values and tightened lending standards are keeping buyers away.
Many new buildings have large blocks of unsold inventory, and developers face mounting expenses and dwindling cash flow.
Cannon predicts the housing market will be in transition for the next 12 to 18 months. In the meantime, developers will continue offering concessions — such as rent-to-own — to help sell out their projects.
“We are seeing a lot of concessions rather than [sale price] discounts,” Cannon said.
Miami real estate analyst Jack A. Winston said he is getting a lot of inquiries from developers looking for ways to lessen the carrying costs of unsold condos. Some are opting to rent out the units until the market turns around and others are considering turning condos into office space, especially on lower floors, he said.
“They need cash flow to help service their debt and pay their portion of the maintenance to the condo association,” he said.
Paola Iuspa-Abbott can be reached at piuspa@alm.com or at (305) 347-6657.
Midtown photo by A.M. Holt
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