Every real estate investor knows the old saying: "Buy when there's blood in the streets."

Well that's what's going on right now in the Miami-Dade county condominium market, according to Jack McCabe, one of South Florida's most active consultants to hedge funds, "vulture funds" and other investors looking to pick up properties at 35 to 50 percent discounts off previous asking prices. It's no secret that Miami-Dade has the country's most crushing glut of unsold, unoccupied condo projects, with 25,000 sitting for sale -- a five year supply at current purchase rates -- plus another 19,000 units at some stage of approval or construction.

But McCabe, who is CEO of McCabe Research in Deerfield Beach, warns that getting great deals is not as easy as you might imagine. Many condominium projects are tied up in litigation, which can complicate the ability of unit owners or developers to close deals. Plus financing is getting very tough. Most banks have lists of local projects where they won't lend under any circumstances, and private mortgage insurers have bailed out of Miami-Dade like it's a toxic wasteland. So "cash is king," says McCabe. High leverage is out, because you can't find high-leverage loans. If you want to pick up units at half the previous price, he says, be prepared to belly up to the bar with 40 or 50 percent equity.

Better yet: Buy in bulk. Join forces with other investors to pool funds to pick up packages of distressed units from developers and banks who want to unload REO holdings quickly. "Due diligence" in all this is crucial. You've got to know the project, the developer, the unit owners and condo association situations in depth -- and the competition on the market -- to avoid costly mistakes. For example, McCabe has seen bargain-hunting investors pay $400,000 apiece for units and think they got a steal. Then a few weeks later they discover that the developer sold a big package of comparable units in the project for $250,000 apiece, putting the $400,000 buyers deep in a hole they never saw.

Buying real estate is not the only opportunity in hard-hit Miami, by the way. Some smart investors are focusing solely on what they call "distressed debt" -- they buy the underlying mortgages of condo units at deep discounts from banks. Then they try to work with unit owners to recast the loans into more affordable terms that keep the payments flowing, keep the owners in their units, and turn "nonperforming" mortgages into outstanding long-term investments.

It's all about seeing the opportunities, says McCabe. And playing the condo game with your eyes wide open.

Published: May 2, 2008

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Related Group sues realty firms

Condo builder Related Group has filed at least 15 lawsuits against realty companies to recoup more than $460,000 in commissions on deals where buyers defaulted.
 
With numerous condo buyers walking away from sales contracts, developer Related Group has begun suing real estate brokerages to get back commissions on those busted deals. Related has filed at least 15 lawsuits in Miami-Dade Circuit Court since last month to recover more than $460,000 in commissions on at least 19 sales contracts in the 389-unit Hallandale Beach Club Tower III property at 1800 Ocean Dr.

In suing, Related risks alienating realty firms that bring prospective buyers to its developments, some brokers said. ''If somebody is suing you, do you do business with them?'' asked Edward Roberts, owner of Beachfront Realty in Miami Beach, which is being sued for the return of about $53,000 in commissions. ``We're furious that they are doing this. We have made them billions of dollars in the last five or six years.''

Related has sued the brokerages for breach of contract, demanding they return commissions -- typically 3 percent of the purchase price -- because buyers failed to close on contracts. The lawsuits mark the latest legal spats in the fallout from the overheated real estate market. Up until now, most of the litigation has been spawned by dozens of buyers trying to escape contracts with their deposits.

Matthew Allen, a Related vice president, referred inquiries to a company attorney who couldn't be reached. Calls to the law firm representing Related in the suits weren't returned.

It's Related's practice to pay commissions after buyers put down deposits, rather than when sales close. By law, the commission is paid to the broker, who then pays the agent. An agent's share of the commission can range from 70 percent to 90 percent.

Broker registration agreements Related filed with the lawsuits state that a commission is ''to be earned only upon the close of title for the unit.'' But Miami lawyer Alex Kurkin, who represents Beachfront Realty, said there is nothing in the agreement that says a commission must be refunded if the buyer fails to close.

WHAT ABOUT DEPOSITS?

''Buyers put up 20 percent deposits. Where did that money go?'' said Roderick Coleman, a Boca Raton lawyer representing three brokerages being sued by Related. The developer ``didn't give it back to the buyer. It shows Related must have some business difficulties if they are trying to get back commissions on deposits they have kept.''

Coleman said it's customary in the real estate business not to refund commissions even if a closing doesn't happen.

''They are now shooting themselves in the foot by telling brokers and Realtors you can longer trust us to do business with'' you, Coleman added.

Miami's BAP Realty, which Related is suing for the return of a $16,200 commission, responded by filing a claim against the sales agent on the deal in an attempt to recoup most of the money Related wants, said Alfred Andreu, a lawyer for the brokerage.

Jami Agins, a broker for Re/Max Ultra Realty Group in Aventura, which is being sued for a $23,250 commission, said she can't bar agents from bringing buyers to Related's properties. But she said she's considering having any commissions held in escrow until closing to ensure she's not sued again.

`BEST INTEREST?'

``I question if [the lawsuit is] in the best interest of the developer, because if they're trying to induce agents to sell their product by advancing the money [before closing] and the broker won't advance the money, where is the inducement?''

Kurkin said Related deserves the blame for the busted sales because they encouraged buyers to become real estate speculators and flip units at higher prices.

''They created this feeding frenzy,'' Kurkin said.

Posted on Thu, Jan. 31, 2008
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BY PATRICK DANNER

Miami condos search

Posted on Thu, Jan. 24, 2008
Miami developer bets on condos' future
BY MATTHEW HAGGMAN
 
The condominium developer who led South Florida's high-rise building boom is making a $1 billion bet that the region's real estate market is a bargain.

Amid a slumping condo market, developer Jorge Perez is joining with a Wall Street firm to create an investor fund that will buy troubled mortgages and distressed property that ranges from raw land to finished condominium units in the southeastern United States. He will look at properties built by other developers as well as by his own Miami-based Related Group.

For months, investors have been pooling money and waiting to pounce on bargains prompted by overdevelopment, a tight credit market and overzealous investing in housing. This year is expected to be the time when opportunities arise, in part, because so many condo projects will start closings -- and many jittery buyers are expected to walk away rather than close.

With $1 billion, Perez and his investors will rank among the most well-capitalized funds trolling for deals in the region, said real estate analyst Lew Goodkin, who is advising bargain hunters, though not Perez.
The moves of Perez, the biggest high-rise condo builder in Florida and among the biggest in the country, are closely watched in the industry because he has demonstrated a knack for spotting trends and quickly taking advantage of them. While his projects span from Argentina to Atlanta, he has built -- or is building -- 12 towers in Miami's downtown and Brickell areas and several in Broward County, including Trump Hollywood in Hollywood and ICON Las Olas in Fort Lauderdale.

He said his decision to launch a vulture fund -- or an ''opportunity fund'' as he calls it -- should be interpreted as a sign of confidence in South Florida's condo market, not a reason for worry.
''I strongly believe that Miami real estate is undervalued,'' Perez said. ``Three years from now, people will look back and be amazed. Nevertheless, right now there are some people stuck in the middle of a loan who don't have any cash and need to get rid of some inventory.

''We are going to try and take advantage of that situation,'' Perez said.
He said the money is in place and contract details for the investor fund are being finalized this week. He declined to name his partner until the deal closes.

Perez, chairman and CEO of privately held Related Group, said his plan is premised on the long-term growth and success of the region's real estate market: He's buying when the market dips, using his financial strength to carry him through the downturn, and then riding it back up.
The plan, he said, is to focus primarily on properties in the Southeast, from Atlanta and Jacksonville to Miami, though he said there may be opportunities elsewhere in the country. Big chunks of unsold condos will be targeted.

Perez said the investor group intends to hold units for two to five years at a loss and then sell at a profit when, he bets, the market will have improved.
That means Perez would become a much bigger renter of apartments across the region, at least in the short-term. Perez, who was an apartment developer before building luxury condo units, said his company currently leases and manages 7,000 rental units and could handle renting many more.
The builder said the fund could also buy raw land or mortgages. ''Anything we think has value,'' he said.
Creation of the fund also positions Perez with a ready source of capital to be used in purchasing his own units, if he chooses to do so, Goodkin said.

A big challenge for many builders is what to do with excess property in the down market. Typically, builders want to avoid hasty or high-profile sell-offs that undercut previous buyers or give the appearance of a fire sale. A highly capitalized fund with a joint venture partner can be an inviting alternative.
In November, Lennar, the Miami-based home builder that's among the country's biggest, announced it was joint-venturing with Morgan Stanley to buy, develop and sell real estate. Its first deal: buying Lennar-owned properties valued at $1.3 billion for $525 million.

Perez said he has not decided to use the investor fund to buy units that his company built -- though he said he anticipates as many as 20 percent of his buyers may default on some of his projects. Perez has a host of large condo projects that will close in the next 12 months, including Brickell Avenue projects in Miami such as The Plaza and 500 Brickell.

The developer said he plans to rent unsold units in those projects himself, without the investor fund.
Still, ''[the fund] gives him a lot of flexibility in addressing inventory issues that he may have, as well as picking up distressed properties on the cheap,'' Goodkin said.

Since the downturn, Perez has responded by launching more than 10 projects in Latin America in an attempt to diversify geographically. He also has been careful about starting new projects in South Florida; he recently canceled the proposed Loft 4 condo high-rise in downtown Miami and is still deciding whether to build another downtown project, Loft 3.

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