News

Residential Mortgage Lending - What's Next?

As published in Scotsman's Guide; November, 2008

What Do I Do Now?

As Published in South Florida Business Leader Magazine; December, 2008

Bid Ask Narrowing?

It seems that banks are going to get more realistic in the near term. We are hearing about offers and negotiations but have not seen a large number of transactions …YET. The bid ask is narrowing and we expect that as the regulators continue their summer examinations and field meeting assets will begin to be marked to market and sold.

Our role is to facilitate the efficient completion of the market clearing process by being the market place where sellers and buyer meet. As the next few months unfold we will be here to discuss general and property specific issues with all of those involved in this marketplace and this unique time in the market cycle.

Did We Just Hit The Bottom Of The South Florida Condo Market?

Bottom of Market Found? Or is this Just a Key Liquidity Event?This week South Florida saw a significant transaction occur and there are more on the way. This transaction shows that there is liquidity in the market for opportunity oriented investors. Will it signal the bottom of the market? Probably not. However, it does give hope that we will see the bottom soon.Last week a large block of units at Devonaire at Winston sold to Equity Residential. There are other pending bulk trades waiting to be announced. These trades are occurring in the southwest Broward sub market in modern garden apartment communities. Why is this transaction important?1. This is the first institutional quality developer that has decided to meet the market in a big way. It appears that it required the sacrifice of significant equity by the seller, but the decision was made and the property sold. 2. The market clearing price has been found.3. A comparable sale is now available for the market to use in underwriting future transactions. 4. A formula to value properties has been created and institutional investors buy into it. 5. Like any other industry lenders, investors and developers are copy cats. Once something has worked for one, others assume it will work for them.6. No one wants to miss the boat when the market comes back.Why is all of this important?Devonaire at Winston is a bread and butter garden style project in suburban Ft. Lauderdale, FL. It would be considered a “core” asset if it were a traditional apartment project. Until now no one could come up with a model that would show a financeable economic return to the investors. The transactions that are occurring in the market indicate that buyers have come up with a model (perhaps a low current return and a sale as condos in the future when the market firms) that appears to work for valuing and closing transactions. This sets the table for other groups to do the same.By setting a value benchmark it also helps to create liquidity. Investors and lenders can now point to an institutional quality trade and use it as an indicator of value. Owners, buyers and lenders can understand property values better. With this knowledge they can make better decisions on purchase and sale offers and loan quotes. Lenders will cautiously return to the market and projects will begin to sell…or will they.After hearing about the Devonaire and other creative transactions beginning to take place across the country I began my Saturday reading…the stock market is in bear territory and banks are cutting back. Local banks are laying off loan officers and replacing them with “workout experts”. Banks recognizing the situation and raising capital thru stock sales and mergers. This is preparing the way for them to sell their REO’s and non-perfuming loans at market clearing prices. This will add to the velocity and excitement in the market. But who will buy the individual units? How will they get financed? When will that increase in demand occur? Condo.com sets a new activity record every day. The buyers are there. The buyer of these former condo conversions knows this. They are counting on it. How can condo.com add value to this process? We have a lead generation system to generate rental leads for a project’s buyer today and when they seek to sell their units into the market, condo.com can create a customized marketing program for them. We have current market statistics from markets across the US to assist in underwriting and our staff has over 75 years of experience managing the asset preservation and reo sales process.
We also have a proprietary list of qualified buyers seeking transations.

So while there is still a lot of concern and anxiety out there are also a lot of strong developers armed with a lot of cash chasing transactions. Liquidity is returning. Historic fundamentals are being followed. Will the market remain disciplined or will all the cash in the system come in and artificially inflate values again?Stay tuned.

Frequently Asked Questions at Condo.com

We get a number of calls every day from individuals and groups seeking to buy and sell individual and blocks of condos. Here are some of the frequently asked questions and answers:

Q: When will we hit bottom?

A: The market needs to begin to clear before we hit bottom. As lenders recognize the lost value of the properties they control by default they will begin to mark the properties down. Once the write downs get to the point when book values have declined to market value, trades will occur.

Q: When will we be able to buy condos at a deep discount?

A: The folks that control the property are in flux. At this time, many developers still have inventory they would like to sell. However, the market clearing price is typically below a number that the developer can accept. The bid-ask gap is narrowing but it is not completely closed yet. Some developers and lenders have made “creative” transactions to move properties but these are few and far between at this point.

Q. Will the discounts be as big as we have seen in past downturns?

A: There is a lot of capital out there "chasing deals". There are a lot out there. More every day. Simple supply and demand dictates that deep discounts will not be seen as these groups bid up the price properties that are made available.

Q: Are there any transactions closing yet?

A: Some buyers are out there willing to meet sellers prices. However, the structures usually include some form of seller participation in the sale price to the end buyer.

Q: Will all the markets “thaw” at the same time?

A: Markets with drastic oversupply will take longer to adjust than those that have smaller overhangs. It could be many years before South Florida’s urban high-rise overbuilding is absorbed.

Q: How can condo.com help me now?

A: For developers, condo.com can increase the number and velocity of potential buyers looking to buy units at the project. For mezzanine and senior lenders condo.com can help in all phases of the process…asset preservation, bulk brokerage, individual unit sales, market data, detailed financial reporting and other customized services.

Jim Fried is the Director of Institutional Services at Condo.com

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