Even in this market, highly motivated sellers can move inventory if they’re willing to go low enough in price.
And so it is in Miami (home of the bubble, and now the 94% off condo) where a ridiculous glut unsold units is starting to thin, thanks to severe price cuts.
NYT: Despite a vast oversupply of new condos in downtown Miami, sales have been brisk lately at 1060 Brickell Avenue, a twin-tower development with 570 units in the heart of the upscale Brickell neighbourhood. The reason? Prices have been cut in half, to about $200 a square foot.
“We reset the prices at a sharp discount, and the units are flying off the shelves,” said Gary Barnett, the president of the Extell Development Company, the New York-based developer of 1060 Brickell, which was completed last year. More than 200 units have closed since the discount program began in April, he said.
What’s interesting is not just that price cuts = more sales, which is Economics 101, but rather the reason sellers have finally adjusted to the market.
The fact of the matter is that theyv’e been forced to.
Mr. Barnett, who has developed several new condominium projects in Manhattan, including 535 West End Avenue and the Rushmore, acknowledged that he and his backers lost their entire investment in 1060 Brickell, which is situated at Southeast First Avenue. He said some, but not all, of the mezzanine financing was also wiped out. But because more than 40 per cent of the units sold at full price, Mr. Barnett was able to repay his $153 million first mortgage from TD Bank and iStar, a troubled finance company that bet heavily on the South Florida condo market.
So you get wiped out, your investors get wiped out and most of your mezzanine financers get wiped out. By that point, there really isn’t any party left to fight and hope. Since TD Bank and iStar had no interest in taking on a bunch of unsold units at 1060 Brickell — and since their only priority is getting paid back themselves — they can slash prices to whatever they want. (The fact that they’re getting paid back in full may also be a good sign for banks, which, despite commercial real estate carnage, have still managed to get paid out on a lot of debt, by dint of holding paper that’s high up in the capital structure).
One other interesting thing the article notes is what hasn’t happened in Miami: Few investors have come in and bought condos in bulk as an investment. That kind of thing has been expected, but really hasn’t materialised yet.
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