Sunday, June 07, 2009

Build it and they will come.......

Used to be the mantra during the housing bubble. Thousands of unsold, unoccupied and often unneeded condos were built or proposed to be built. I remember seeing a report that there were some 50,000 condos either under construction or planned. That is about the same amount built over the past decade. Frequent visitors to Miami have witnessed the skyline littered with cranes and scaffolds. If you take a drive up A1A at night, you will see the thousands of empty, dark condos and unfinished projects.

What will happen to all of these?

An indication might be this example.

"A year after taking over a struggling condo project from Boca Developers, mezzanine lender Momentis Property Group is walking away from The Oaks I at Biscayne Landing in North Miami. Momentis, which seized the 373-unit property from Boca Developers in July after the developer defaulted on a construction loan, has agreed to hand the project over to iStar Financial, the senior lender."

According to the developers, the project had become “uneconomical” for it to own, meaning they can't turn a profit. iStar, acquired Fremont Investment & Loan in 2007, which loaned $123 million to Boca Developers in October 2005. Madeleine then lent an additional $275 million to cover Phase 1 of Biscayne Landing and other projects.

The Oaks is the first phase of Biscayne Landing. It was approved at the peak of the housing bubble in 2007. The developer planned 6,000 residential units, 180,000 square feet of office space, a 200-room hotel, 300,000 square feet of retail space and an Olympic training facility. In reality, Boca Developers built two towers with 373 condos.

Now, with the project a bust, iStar will take back 160 unsold condos at The Oaks. It will has to begin construction on the pool and other amenities promised in 2007, but they face the challenge of having to negotiate with the city and Boca Developers to acquire more space for those facilities. Plus, they are are responsible for paying down the construction loan and paying the condo assessments, taxes and insurance on the unsold units.

Building like these are common in Miami and other major metropolitan areas. They are a testament to the absurdity of the speculation that ran rampant during the last decade.These nightmares are now half empty, and will add to the foreclosure problem. The values have dropped more than 50%, and a high percentage of buyers never closed.

Much like the Tech bubble of 2000, the 'build it and they will come' scenario never came to be.


Post a Comment

<< Home