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.