Florida property tax owners recently received or will soon receive their notice of assessed value for property tax purposes.
Property values are depressed in the tri-county area and the property appraiser could be overvaluing your home, rental property or business real estate. If you believe your property is or may be overvalued, now is the time to take action and challenge the county's valuation.
You can contact the property appraisers office within the time limits described below, present information and discuss the assessment. The problem is, there is a limited time to do this and surely the appraisers office will be backed-up. It makes more sense to file an appeal with the Value Adjustment Board and present your case at a scheduled date in the coming months. The cost of filing a petition is nominal (only $15) and in the meantime, you can gather the information you wish to present. A petition can be obtained on the County Appraisers website. To learn more about this process, you can review a recent Miami Herald article at: http://www.miamiherald.com/business/real-estate/story/1188238.html
Each county has a separate deadline for the filing of a petition. Miami-Dade and Broward require petitions to be filed by September 18th. Property owners in Palm Beach County have only until September 14th.
If you choose to appeal your assessment, you may wish to contact a real estate attorney or a property tax consultant.
Miami Herald:
Property values, appeals explained
Similar stories:
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How to appeal your tax bill
How to appeal your tax bill
W hen you get your property tax notice this month, you may think the county property appraiser overvalued your home. And if you can provide compelling evidence the appraiser was wrong, you could get a reduction in market value and therefore a reduction in taxes.
The key to a successful challenge is providing proof and carefully following the complex rules.
Under Florida law, property is assessed at market value -- what a willing buyer would pay a willing seller. The property appraiser's office determines those values based on the sales of comparable properties nearby.
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Miami-Dade tax notices likely to spark appeals by homeowners
Miami-Dade tax notices likely to spark appeals by homeowners
If you think Miami-Dade County is overvaluing your home -- and overtaxing your property as a result -- get in line.
But be warned -- the line is long, and it's about to get a whole lot longer.
Tax notices should begin hitting mailboxes later this month, and some Miami-Dade homeowners may be disappointed that their properties aren't appraised for tax purposes in lockstep with the low, low, low values ballyhooed in news reports about the depressed real estate market.
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Property taxes
Property taxes
Q: When we bought our house last year, we were told that property tax wouldn't increase more than three percent each year with the homestead exemption. Last year, we paid close to $3,000, but, this year, we're facing $7,900!
A: Property taxes on a homesteaded property can't increase more than three percent a year. However, the $3,000 you paid was actually the previous owner's bill.
Upon sale, a property's value is reassessed and, as the new owner on the title -- and the new bearer of the homestead exemption on that house -- your bill is based on the home's current assessed value.
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Broward tax base off 10.6%
Broward tax base off 10.6%
Broward County's tax base fell 10.6 percent in the past year.
It's the second year in a row that property appraisals declined, and next year could be worse.
The downward trend affects everyone. It means less money for labor contracts, schools, police, fire protection, parks, libraries and social services unless planners working on 2009-10 budgets raise taxes.
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Cities should brace for property tax hikes
Cities should brace for property tax hikes
Nearly all South Miami-Dade cities are considering raising their property tax rate for the new budget year that starts Oct. 1.
Blame it on plunging real estate values.
The Preliminary Tax Roll released by the Miami-Dade County Property Appraiser's Office shows a substantial decline -- 13 percent -- in the countywide taxable value of existing properties in Miami-Dade County.
Q: When will I find out the assessed value of my property?
A: Broward residents can look online at http://www.bcpa.net/, and their TRIM (Truth in Millage) notices, which list estimated property values and tax bills, were mailed last week. Miami-Dade TRIM notices will be mailed the week of Aug. 24, and property values will go online later at http://www.miamidade.
gov/pa/.
Q: What is the assessed value and what is the market value?
A: The market value is the property appraiser's estimate of what your home would sell for. The assessed value is the value upon which your tax bill is based. It takes into account the Save Our Homes law, which prohibits the assessed value from rising more than 3 percent a year on homestead properties.
Q: What if I believe the property appraiser has set my value too high?
A: In Broward, you can call 954-357-6830 or visit the main office at 115 S. Andrews Ave., Room 111, Fort Lauderdale, from 7 a.m. to 6 p.m. weekdays. The office will be open until 7 p.m. Sept. 8-18. Both the main office and West Broward office, 1 N. University Drive, Room 111-A, Plantation, will be open 8:30 a.m. to 5 p.m. three Saturdays: Aug. 22, Aug. 29 and Sept. 12.
The number in Miami-Dade is 786-331-5321 but the property appraiser encourages those who have questions about their valuation to visit in person at the Stephen P. Clark Center, 111 NW First St., Suite 710, Miami, or South Dade Government Center, 10710 SW 211th St., Cutler Bay, from 8 a.m. to 5 p.m.
Q: What if the property appraiser refuses to adjust my valuation?
A: You can appeal to the Value Adjustment Board. Forms are available at the property appraisers' office in both counties and online at http://bcvab.broward.org/
org/axiaweb2009/for Broward.
Miami-Dade does not have the current form online, but you can see last year's form at http://www.miami-dadeclerk.
com/dadecoc/Web-Forms/
VAB/481-PETITION-2008.pdf.
Q: When must the appeal be filed?
A: You must file by Sept. 18.
Q: How much does it cost?
A: $15 per folio or $5 per condo unit for a group filing.
Q: When will I receive a hearing?
A: Hearings will begin in November and continue into the next year.
Q: What should I bring to the hearing?
A: Bring written evidence of comparable sales in your neighborhood in 2008, photos of your property and comparable property and any other written evidence you believe supports your case, including evidence that indicates some sales prices in your neighborhood may have been inflated by fraud.
Q: What if there were no comparable sales in my neighborhood?
A: Branch out to adjoining neighborhoods. Be sure to look at sales prices per square foot and lot sizes. If you live in a neighborhood where lot sizes are similar but home sizes vary, you can look at land values per square foot as comparable.
Q: Should our condo association appeal as a group or should we appeal individually?
A: It depends on the situation. You might want to meet with a tax agent for an opinion. In a building where many people aren't paying maintenance and aren't going to pay their taxes anyway, you might want to appeal as an individual. In a newer building where most owners believe their units were overvalued, it probably is better to appeal as a group.
Q: Who should use a tax agent for an appeal?
A: Anyone who doesn't know how to research comparable property sales should consider using an agent.
Q: How much does an agent charge?
A: Usually 25 to 50 percent of the amount of taxes saved.
Q: I don't speak English well. Is a translator provided in the hearings?
A: The hearings are conducted in English. If you need a translator, you should bring one with you.
Q: I forgot to file for homestead exemption. Is it too late?
A: If you were living in your home on Jan. 1, 2009, you can file a late homestead exemption until Sept. 18.
Q: How is my tax bill calculated?
A: Your tax rate is calculated by multiplying your assessed value (after exemptions) by the tax rate charged by your city, county, school board and other taxing entities.
Q: What if I believe my property valuation is accurate but I think taxes are too high?
A: Attend the budget hearings advertised in the TRIM notice and let your elected representatives know where you think they should cut their budgets in order to lower the millage rate.
Friday, August 28, 2009
Wednesday, August 26, 2009
Bulk buyers swarm Florida’s overbuilt condominiums
Investors are swooping into distressed condominium markets from New York to Las Vegas, with Miami considered ground zero for the trend. The city has more unsold condo units than anywhere else in the country – as many as 10,000 held by developers alone. The glut of unsold inventory is attracting speculators to the area, as is Miami’s growing popularity among the global set.
Since June, five major bulk transactions have closed in South Florida; a total of 10 – encompassing more than 600 units – have closed since July 2008; and several more deals are in the pipeline. Meanwhile, additional deals for multiple units have been carried out via foreclosure auctions.
Despite the draw, bulk investing has not emerged to the extent that analysts had predicted. In fact, more and more individual buyers are driving the transactions. The reason is that while bulk sales can yield discounts of as much as 25 percent off of already-reduced prices, developers and lenders are not lowering the prices enough to bring in all-cash buyers in high numbers.
The prices are low enough, however, to catch the interest of a growing pool of regular home buyers.
Source: Market Investor’s Business Daily (08/21/09) P. A5; Alva, Marilyn
© Copyright 2009 INFORMATION, INC. Bethesda, MD
Since June, five major bulk transactions have closed in South Florida; a total of 10 – encompassing more than 600 units – have closed since July 2008; and several more deals are in the pipeline. Meanwhile, additional deals for multiple units have been carried out via foreclosure auctions.
Despite the draw, bulk investing has not emerged to the extent that analysts had predicted. In fact, more and more individual buyers are driving the transactions. The reason is that while bulk sales can yield discounts of as much as 25 percent off of already-reduced prices, developers and lenders are not lowering the prices enough to bring in all-cash buyers in high numbers.
The prices are low enough, however, to catch the interest of a growing pool of regular home buyers.
Source: Market Investor’s Business Daily (08/21/09) P. A5; Alva, Marilyn
© Copyright 2009 INFORMATION, INC. Bethesda, MD
Thursday, August 20, 2009
New credit rating guidelines cut homeowners no slack
Facing one of the worst housing markets in memory, struggling homeowners now have another incentive to walk away from an investment gone bad.
It’s hard enough to modify terms of a home mortgage, despite the federal government’s efforts to ease those procedures for individuals desperate to hold onto their houses. Unfortunately, the “Big Three” credit bureaus – Equifax, Experian and TransUnion – have issued new guidelines that allow lenders to report new mortgage loan modifications as “partial payment status,” a designation that could lower an individual’s credit score by more than 50 points.
A loan modification doesn’t reduce the principal, but makes it easier for homeowners to repay what’s owed by reducing the interest rate and stretching the length of the original loan. Credit agencies are paid to assess credit risks, and that includes people who can’t pay their mortgages. But these are extraordinary times. Penalizing a homeowner for successfully re-negotiating a loan could have the unwanted consequence of inducing more foreclosures.
First American CoreLogic, a real estate analysis firm, says more than 15 million mortgage holders, or 32.2 percent, are “upside down” on their mortgages, meaning they’re paying more than their houses are worth. In Florida, the negative-equity picture is worse at 49 percent, and the figures are even higher in South Florida, hovering around 51.5 percent in the Miami-Fort Lauderdale area.
Now, thanks to the credit-rating agencies and an indifferent government bureaucracy of financial regulators, there will be homeowners who will unnecessarily become credit risks. While a loan modification provides a better outcome than a short sale, foreclosure or bankruptcy, punishing homeowners who work with their lenders is counterproductive.
Copyright © 2009 Sun Sentinel, Fort Lauderdale, Fla. Distributed by McClatchy-Tribune Information Services.
It’s hard enough to modify terms of a home mortgage, despite the federal government’s efforts to ease those procedures for individuals desperate to hold onto their houses. Unfortunately, the “Big Three” credit bureaus – Equifax, Experian and TransUnion – have issued new guidelines that allow lenders to report new mortgage loan modifications as “partial payment status,” a designation that could lower an individual’s credit score by more than 50 points.
A loan modification doesn’t reduce the principal, but makes it easier for homeowners to repay what’s owed by reducing the interest rate and stretching the length of the original loan. Credit agencies are paid to assess credit risks, and that includes people who can’t pay their mortgages. But these are extraordinary times. Penalizing a homeowner for successfully re-negotiating a loan could have the unwanted consequence of inducing more foreclosures.
First American CoreLogic, a real estate analysis firm, says more than 15 million mortgage holders, or 32.2 percent, are “upside down” on their mortgages, meaning they’re paying more than their houses are worth. In Florida, the negative-equity picture is worse at 49 percent, and the figures are even higher in South Florida, hovering around 51.5 percent in the Miami-Fort Lauderdale area.
Now, thanks to the credit-rating agencies and an indifferent government bureaucracy of financial regulators, there will be homeowners who will unnecessarily become credit risks. While a loan modification provides a better outcome than a short sale, foreclosure or bankruptcy, punishing homeowners who work with their lenders is counterproductive.
Copyright © 2009 Sun Sentinel, Fort Lauderdale, Fla. Distributed by McClatchy-Tribune Information Services.
CPSC opens drywall information center
A new website launched by the Consumer Product Safety Commission (CPSC) aims to update consumers, builders, drywall manufacturers, and others on its probe into imported Chinese drywall – which has generated complaints of foul odors, metal corrosion, and health problems from those occupying properties containing the defective wallboard.
The CPSC Drywall Information Center will provide details of the investigation – which involves air samples, import tracking and an analysis of the health effects of the Chinese drywall, among other things – and visitors can sign up for e-mail alerts.
The Environmental Protection Agency has determined that Chinese drywall contains 10 times more strontium than U.S. drywall, and it detected the presence of sulfur and two organic compounds in acrylic paint that are not used in U.S. drywall. Approximately 36,000 homes in Florida and many others in Alabama, California, Mississippi, Virginia, and areas of Louisiana hit hard by Hurricane Katrina have been affected.
The CPSC drywall website is located at: http://www.cpsc.gov/info/drywall
Source: Realty Times (08/20/09) Perkins, Broderick
© Copyright 2009 INFORMATION, INC.
The CPSC Drywall Information Center will provide details of the investigation – which involves air samples, import tracking and an analysis of the health effects of the Chinese drywall, among other things – and visitors can sign up for e-mail alerts.
The Environmental Protection Agency has determined that Chinese drywall contains 10 times more strontium than U.S. drywall, and it detected the presence of sulfur and two organic compounds in acrylic paint that are not used in U.S. drywall. Approximately 36,000 homes in Florida and many others in Alabama, California, Mississippi, Virginia, and areas of Louisiana hit hard by Hurricane Katrina have been affected.
The CPSC drywall website is located at: http://www.cpsc.gov/info/drywall
Source: Realty Times (08/20/09) Perkins, Broderick
© Copyright 2009 INFORMATION, INC.
Monday, August 10, 2009
FAR requests short sale legal interpretation
The Florida Office of Financial Regulation (OFR) confirmed licensees’ right to conduct short sales when compensation involves commission only. The Florida Association of Realtors® (FAR) requested an interpretation of section 494.00296 Florida Statutes, created by the Florida Legislature to protect homeowners from less-than-honest vendors offering help with a short sale, and OFR issued its informal interpretation in a letter.
FAR requested a similar interpretation from Florida Attorney General Bill McCollum in November 2008. OFR Chief Counsel Gregg Morton referred to McCollum’s original opinion, and generally agreed with the Attorney General’s interpretation.
The non-binding opinion is based on the following situation:
“A real estate licensee is asked by a client to list a house for sale. The licensee ascertains the fair market value of the house is less than the amount owed on the mortgage and lists it for that fair market amount. If a buyer is obtained who is willing to pay a price less that the amount owed, the real estate licensee would then enter into a dialogue with the lender to see if a short sale would be acceptable, thereby avoiding a possible foreclosure situation. The only remuneration sought by the licensee is the commission on the sale. No additional fee is sought by the real estate licensee for the negotiation or dialogue with the lender.”
OFR included the following specific assumptions in its answer:
• No upfront or other fees for the negotiating service.
• A real estate licensee’s commission must be “the standard commission for the area.”
• The commission cannot be set higher or be split more favorably with another real estate licensee based on the additional work involved.
• The OFR opinion is limited to the facts set out above.
Under those conditions, OFR agreed that a licensee’s negotiation with the lender is “ancillary to services provided by a real estate licensee in the sale of his or her client’s property.” Given that, it does not appear to break the law.
© 2009 FLORIDA ASSOCIATION OF REALTORS®
FAR requested a similar interpretation from Florida Attorney General Bill McCollum in November 2008. OFR Chief Counsel Gregg Morton referred to McCollum’s original opinion, and generally agreed with the Attorney General’s interpretation.
The non-binding opinion is based on the following situation:
“A real estate licensee is asked by a client to list a house for sale. The licensee ascertains the fair market value of the house is less than the amount owed on the mortgage and lists it for that fair market amount. If a buyer is obtained who is willing to pay a price less that the amount owed, the real estate licensee would then enter into a dialogue with the lender to see if a short sale would be acceptable, thereby avoiding a possible foreclosure situation. The only remuneration sought by the licensee is the commission on the sale. No additional fee is sought by the real estate licensee for the negotiation or dialogue with the lender.”
OFR included the following specific assumptions in its answer:
• No upfront or other fees for the negotiating service.
• A real estate licensee’s commission must be “the standard commission for the area.”
• The commission cannot be set higher or be split more favorably with another real estate licensee based on the additional work involved.
• The OFR opinion is limited to the facts set out above.
Under those conditions, OFR agreed that a licensee’s negotiation with the lender is “ancillary to services provided by a real estate licensee in the sale of his or her client’s property.” Given that, it does not appear to break the law.
© 2009 FLORIDA ASSOCIATION OF REALTORS®
Tuesday, August 4, 2009
Condo conversions collapse
Much of the attention heaped on South Florida’s struggling condominium market has been focused on the sexy, luxury towers that shot up along the coastal waterways. Before the curious eyes of the world, a historic construction boom restyled the skyline in just a few short years. But beyond the waterfront properties and the focus of the national media, in South Florida’s less come-hither heartland – communities such as Kendall, Hialeah and Lauderhill – an even larger wave of condo creation was taking place and bringing rapid change to the housing landscape.
Hundreds of rental buildings, representing tens of thousands of units, were being bought by developers, emptied of renters and turned into condominiums for quick resale, mostly to investors and speculators, as so-called condo conversions. And now that slice of the market is in real trouble.
Since 2003, when housing prices took off, more than 74,000 rental apartments were converted into condominiums in Miami-Dade and Broward counties, twice as many as the previous 50 years combined, according to state records of condo conversion applications. The number compares to roughly 53,000 new units constructed in both counties since 2003, according to research of state records by Condo Vultures, a Bal Harbour-based brokerage and real estate consultancy. As the fallout from the housing collapse continues, the conversion market – largely a collection of aging garden-style complexes and dowdy mid-rise buildings – is shaping up as one of the biggest losers of the downturn.
Most real estate analysts predict it will be the last submarket to recover since it is competing for scarce buyers with the swanky supply of new condos being marketed at cut-rate prices.
“It’s ugly out there. The conversion market is extremely dysfunctional,” said Constantine Scurtis, the Miami-based vice president of The Lynd Co., a large, national apartment management company headquartered in San Antonio. “There were a lot of inexperienced developers that converted product that never should have been converted.”
Extreme example
While almost all condos have faced plunging values, abysmal sales, high foreclosure rates and cash-strapped condo associations since the market took a dive two years ago, condo conversions have all those problems in the extreme, analysts said.
Adding to their woes are aging buildings, developer disputes, high rates of absentee landlords and foreclosures of entire projects.
Median prices for conversions are down by an estimated 60 to 75 percent since peaking. Overall, median home prices have fallen by just over 50 percent in Miami-Dade County and 60 percent in Broward, according to statistics from the Florida Association of Realtors.
Grant Stern, a mortgage consultant in Bay Harbor Islands, who joined partners in converting an apartment building during the boom, estimates that between 10,000 and 20,000 units are severely underwater and at risk of being reverted to rentals.
Vince Yambrovich, for example, paid about $174,000 for a condo at the Mirassou conversion in Northwest Miami-Dade when the market was at its peak. Now similar units are being listed for about $50,000, he said.
“People camped out to buy these places – my family didn’t do that – but several people that are still living here did and they talk with … regret about that experience to be first in line to buy one of these places. Nobody saw this coming,” Yambrovich said.
Investors have begun picking through the distressed projects, looking for high quality complexes whose developers have sold only a few units.
Scurtis says his company has access to a $500 million fund and is actively seeking to acquire bank notes and distressed South Florida conversions that can easily be turned into rentals.
The biggest challenge to so-called conversion reversions is getting lenders to stomach the huge losses, he said. “Some of them cannot take the losses because it will put them out of business,” Scurtis said. “They’ve been frozen like deer in headlights.” Stern said he was arranging financing for a developer looking to buy back 35 units from condo owners for a conversion reversion. Down the road, the idea would be to resell the entire apartment complex when the market recovers.
Renting out the remaining units in one of these “fractured” projects can pose difficulties for developers, especially when high foreclosure rates have left condo associations on the ropes.
Not only is the money coming in from the associations insufficient to keep buildings up, but the tolerance levels of owners and renters also are different. “You are dealing with a lot of homeowners, so you can’t take the place over with your maintenance crews and leasing offices,” Scurtis said.
Relatively forgotten by developers until the early 2000s, conversions were rediscovered as an inexpensive way to provide affordable housing and homeownership to low-paid workers in South Florida’s service and tourism industries.
Cashing in
When both prices and demand began to heat up in 2002, though, the virtues of conversions as quick, easy and profitable investments became clear to astute converters looking to cash in on rising property values and potential buyers’ belief that prices would continue to go up, up and up.
“To convert an apartment into a condo building required a legal declaration, a coat of paint, some new sod and blacktop for the garage, and you had a condo conversion,” said Peter Zalewski, Condo Vultures president. New construction could take two to three years or more to bring to market. Conversions, by comparison, could be turned around in nine to 12 months. The relatively simple process drew a crowd of new condo converters to the field, from doctors and plumbers, to attorneys and mortgage brokers. They pooled their money and dove in. Project financing was ample and ubiquitous.
“The root cause of the condo conversion boom was that residential apartment values were skyrocketing in comparison to the commercial income value of the apartments,” Stern said.
In much the same way that investors were making unsolicited offers to homeowners to purchase their properties, condo conversion companies were making handsome offers to buy apartment complexes from multifamily operators.
“Developers were trying to get as many deals as they could,” said Robert White, a managing director of KW Property Management & Consulting, a Coral Gables-based firm that helped arrange financing for several converters during the boom. It now handles several failed conversion projects for lenders.
Rental depletion
The result, according to analyst Jack McCabe of McCabe Research & Consulting, was “an incredible depletion in the rental apartment pool – in Florida, but especially in Miami.”
The sweep pushed rents up by 14 percent in 2006, McCabe said. “We lost over a third of the apartments to condo converters.”
At the beginning of the craze, developers were buying new apartment buildings for roughly $80,000 to $85,000 a unit, said Adam Cappel, president of Miami-based CondoReports.com, a condo consultancy. As the boom progressed, unit prices skyrocketed to $165,000.
As the best properties were snapped up, developers eventually began turning to older complexes. “Generally, converters were looking for 15 percent [or higher return] on their total development budget. So if the complex cost $40 million to buy and they needed to put in another $10 million in costs, then they would want to project a $7.5 million to $10 million profit beyond those costs,” Cappel said.
Some deals returned more. Others, obviously, ended in bankruptcy and foreclosure when the market turned, Cappel said.
Meanwhile, easy credit made homeowners and investors out of people who had little ability to afford a new condo in the soaring market. Thousands of renters, who may not even have been looking to own, were offered a chance to buy their units.
White, of KW Management, said developers offered renters first dibs on properties slated for conversion. Lenders often set up shop on the premises to peddle payment-option adjustable rate loans and mortgages requiring no proof of income or assets. Enticements included no closing costs and no money down. “Those deals [to renters] were best for developers,” White said. “Often their units wouldn’t need any upgrades. A lot of people wanted their units ‘ as is.’”
Around 25 percent of the renters would end up buying in typical projects, White said.
Easy investment
Other investors and speculators flocked to conversions not only because they were less expensive than new construction but also because developers of the ready-made product required no preconstruction deposits as builders of new condos did.
“For speculators with no financial wherewithal to enter the market, conversions were the way,” Cappel said. Teaser-rate loans allowed them to buy several units, rent them out or flip them as values rose. As conversions opened with grandiose sales events, some developers sold out their units in a matter of hours to buyers who sometimes camped out overnight so they could be among the first purchasers.
By the end of 2005, it was becoming clear to consultants like McCabe that the rate of conversion projects coupled with new condo construction was leading to a serious oversupply. “And, we knew that well over 50 percent of the sales were going to speculators,” McCabe said.
Analysts say the crash of the conversion market came in early 2006. White said instead of one or two deals a week, rather abruptly his company went to handling no deals at all. Units continued to sell for another six months but eventually that, too, slowed to a trickle.
With the pool of buyers evaporating, KW Management, whose job on some projects had been to kick out renters because prices had risen beyond their reach, began a mad scramble to bring renters back in.
Pulling back
Overall, some 16,000 conversions have been pulled back into the rental pool since the market cooled, according to McCabe. The number grows daily.
As the market turned to cinders, buyer incentives such as free granite upgrades and no maintenance fees for two years worked for only a short while. The efforts became, as White put it, “like putting a Band-Aid on a leg that had been cut off.”
When 2008 rolled around, the chips had fallen. Those developers who failed to close their units were trapped in a financial vise.
The market freeze caught many in the midst of project renovation with construction dust still in the air. “They had torn up the units to renovate them. They couldn’t sell them, but they couldn’t rent them. Then, they were in a world of trouble,” White said. Conversion foreclosures have been widespread. White’s company, for example, currently manages 20 foreclosed projects in receivership.
Timing turned out to be crucial. Analysts said most developers who delivered conversions to the market in 2006 are stuck with significant unsold inventory.
Some of those who sold at least half of their units, however, are able to stay afloat by renting out what’s left.
But other developers have simply run out of money. Flameouts range from small, individual converters to Juan Puig of Puig, Inc., one of the first major conversion companies to file for bankruptcy.
Unable to shoulder their share of maintenance fees, these developers typically have projects that are in very bad shape. “Vendors are not being paid; electricity and water are turned off. The garbage is not being picked up. It’s bad. Some are complete disasters,” White said.
While no one is tracking how many condo conversion buildings are in foreclosure or bank-owned, analysts believe it is easily in the hundreds.
Meanwhile, conversion owners like Yambrovich are stuck in quickly deteriorating properties. The Mirassou condo association is receiving demand letters from creditors because high fee delinquencies and foreclosures have made it impossible to pay all the bills.
“I see our situation as being kind of like a renter,” Yambrovich said. “We’ll never sell the place and be able to pay off the mortgage, but we need a place to live right now. So, we’re living – existing here.”
Copyright © 2009 The Miami Herald
Hundreds of rental buildings, representing tens of thousands of units, were being bought by developers, emptied of renters and turned into condominiums for quick resale, mostly to investors and speculators, as so-called condo conversions. And now that slice of the market is in real trouble.
Since 2003, when housing prices took off, more than 74,000 rental apartments were converted into condominiums in Miami-Dade and Broward counties, twice as many as the previous 50 years combined, according to state records of condo conversion applications. The number compares to roughly 53,000 new units constructed in both counties since 2003, according to research of state records by Condo Vultures, a Bal Harbour-based brokerage and real estate consultancy. As the fallout from the housing collapse continues, the conversion market – largely a collection of aging garden-style complexes and dowdy mid-rise buildings – is shaping up as one of the biggest losers of the downturn.
Most real estate analysts predict it will be the last submarket to recover since it is competing for scarce buyers with the swanky supply of new condos being marketed at cut-rate prices.
“It’s ugly out there. The conversion market is extremely dysfunctional,” said Constantine Scurtis, the Miami-based vice president of The Lynd Co., a large, national apartment management company headquartered in San Antonio. “There were a lot of inexperienced developers that converted product that never should have been converted.”
Extreme example
While almost all condos have faced plunging values, abysmal sales, high foreclosure rates and cash-strapped condo associations since the market took a dive two years ago, condo conversions have all those problems in the extreme, analysts said.
Adding to their woes are aging buildings, developer disputes, high rates of absentee landlords and foreclosures of entire projects.
Median prices for conversions are down by an estimated 60 to 75 percent since peaking. Overall, median home prices have fallen by just over 50 percent in Miami-Dade County and 60 percent in Broward, according to statistics from the Florida Association of Realtors.
Grant Stern, a mortgage consultant in Bay Harbor Islands, who joined partners in converting an apartment building during the boom, estimates that between 10,000 and 20,000 units are severely underwater and at risk of being reverted to rentals.
Vince Yambrovich, for example, paid about $174,000 for a condo at the Mirassou conversion in Northwest Miami-Dade when the market was at its peak. Now similar units are being listed for about $50,000, he said.
“People camped out to buy these places – my family didn’t do that – but several people that are still living here did and they talk with … regret about that experience to be first in line to buy one of these places. Nobody saw this coming,” Yambrovich said.
Investors have begun picking through the distressed projects, looking for high quality complexes whose developers have sold only a few units.
Scurtis says his company has access to a $500 million fund and is actively seeking to acquire bank notes and distressed South Florida conversions that can easily be turned into rentals.
The biggest challenge to so-called conversion reversions is getting lenders to stomach the huge losses, he said. “Some of them cannot take the losses because it will put them out of business,” Scurtis said. “They’ve been frozen like deer in headlights.” Stern said he was arranging financing for a developer looking to buy back 35 units from condo owners for a conversion reversion. Down the road, the idea would be to resell the entire apartment complex when the market recovers.
Renting out the remaining units in one of these “fractured” projects can pose difficulties for developers, especially when high foreclosure rates have left condo associations on the ropes.
Not only is the money coming in from the associations insufficient to keep buildings up, but the tolerance levels of owners and renters also are different. “You are dealing with a lot of homeowners, so you can’t take the place over with your maintenance crews and leasing offices,” Scurtis said.
Relatively forgotten by developers until the early 2000s, conversions were rediscovered as an inexpensive way to provide affordable housing and homeownership to low-paid workers in South Florida’s service and tourism industries.
Cashing in
When both prices and demand began to heat up in 2002, though, the virtues of conversions as quick, easy and profitable investments became clear to astute converters looking to cash in on rising property values and potential buyers’ belief that prices would continue to go up, up and up.
“To convert an apartment into a condo building required a legal declaration, a coat of paint, some new sod and blacktop for the garage, and you had a condo conversion,” said Peter Zalewski, Condo Vultures president. New construction could take two to three years or more to bring to market. Conversions, by comparison, could be turned around in nine to 12 months. The relatively simple process drew a crowd of new condo converters to the field, from doctors and plumbers, to attorneys and mortgage brokers. They pooled their money and dove in. Project financing was ample and ubiquitous.
“The root cause of the condo conversion boom was that residential apartment values were skyrocketing in comparison to the commercial income value of the apartments,” Stern said.
In much the same way that investors were making unsolicited offers to homeowners to purchase their properties, condo conversion companies were making handsome offers to buy apartment complexes from multifamily operators.
“Developers were trying to get as many deals as they could,” said Robert White, a managing director of KW Property Management & Consulting, a Coral Gables-based firm that helped arrange financing for several converters during the boom. It now handles several failed conversion projects for lenders.
Rental depletion
The result, according to analyst Jack McCabe of McCabe Research & Consulting, was “an incredible depletion in the rental apartment pool – in Florida, but especially in Miami.”
The sweep pushed rents up by 14 percent in 2006, McCabe said. “We lost over a third of the apartments to condo converters.”
At the beginning of the craze, developers were buying new apartment buildings for roughly $80,000 to $85,000 a unit, said Adam Cappel, president of Miami-based CondoReports.com, a condo consultancy. As the boom progressed, unit prices skyrocketed to $165,000.
As the best properties were snapped up, developers eventually began turning to older complexes. “Generally, converters were looking for 15 percent [or higher return] on their total development budget. So if the complex cost $40 million to buy and they needed to put in another $10 million in costs, then they would want to project a $7.5 million to $10 million profit beyond those costs,” Cappel said.
Some deals returned more. Others, obviously, ended in bankruptcy and foreclosure when the market turned, Cappel said.
Meanwhile, easy credit made homeowners and investors out of people who had little ability to afford a new condo in the soaring market. Thousands of renters, who may not even have been looking to own, were offered a chance to buy their units.
White, of KW Management, said developers offered renters first dibs on properties slated for conversion. Lenders often set up shop on the premises to peddle payment-option adjustable rate loans and mortgages requiring no proof of income or assets. Enticements included no closing costs and no money down. “Those deals [to renters] were best for developers,” White said. “Often their units wouldn’t need any upgrades. A lot of people wanted their units ‘ as is.’”
Around 25 percent of the renters would end up buying in typical projects, White said.
Easy investment
Other investors and speculators flocked to conversions not only because they were less expensive than new construction but also because developers of the ready-made product required no preconstruction deposits as builders of new condos did.
“For speculators with no financial wherewithal to enter the market, conversions were the way,” Cappel said. Teaser-rate loans allowed them to buy several units, rent them out or flip them as values rose. As conversions opened with grandiose sales events, some developers sold out their units in a matter of hours to buyers who sometimes camped out overnight so they could be among the first purchasers.
By the end of 2005, it was becoming clear to consultants like McCabe that the rate of conversion projects coupled with new condo construction was leading to a serious oversupply. “And, we knew that well over 50 percent of the sales were going to speculators,” McCabe said.
Analysts say the crash of the conversion market came in early 2006. White said instead of one or two deals a week, rather abruptly his company went to handling no deals at all. Units continued to sell for another six months but eventually that, too, slowed to a trickle.
With the pool of buyers evaporating, KW Management, whose job on some projects had been to kick out renters because prices had risen beyond their reach, began a mad scramble to bring renters back in.
Pulling back
Overall, some 16,000 conversions have been pulled back into the rental pool since the market cooled, according to McCabe. The number grows daily.
As the market turned to cinders, buyer incentives such as free granite upgrades and no maintenance fees for two years worked for only a short while. The efforts became, as White put it, “like putting a Band-Aid on a leg that had been cut off.”
When 2008 rolled around, the chips had fallen. Those developers who failed to close their units were trapped in a financial vise.
The market freeze caught many in the midst of project renovation with construction dust still in the air. “They had torn up the units to renovate them. They couldn’t sell them, but they couldn’t rent them. Then, they were in a world of trouble,” White said. Conversion foreclosures have been widespread. White’s company, for example, currently manages 20 foreclosed projects in receivership.
Timing turned out to be crucial. Analysts said most developers who delivered conversions to the market in 2006 are stuck with significant unsold inventory.
Some of those who sold at least half of their units, however, are able to stay afloat by renting out what’s left.
But other developers have simply run out of money. Flameouts range from small, individual converters to Juan Puig of Puig, Inc., one of the first major conversion companies to file for bankruptcy.
Unable to shoulder their share of maintenance fees, these developers typically have projects that are in very bad shape. “Vendors are not being paid; electricity and water are turned off. The garbage is not being picked up. It’s bad. Some are complete disasters,” White said.
While no one is tracking how many condo conversion buildings are in foreclosure or bank-owned, analysts believe it is easily in the hundreds.
Meanwhile, conversion owners like Yambrovich are stuck in quickly deteriorating properties. The Mirassou condo association is receiving demand letters from creditors because high fee delinquencies and foreclosures have made it impossible to pay all the bills.
“I see our situation as being kind of like a renter,” Yambrovich said. “We’ll never sell the place and be able to pay off the mortgage, but we need a place to live right now. So, we’re living – existing here.”
Copyright © 2009 The Miami Herald
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