vultur
Active Member
I have seen the future of Toronto's condo scene and this is it!
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A Bank Bet on Condos, but Buyers Want Out
Sandy Huffaker for The New York Times
Jeanette Graham of San Diego moved into her new condominium development last year, but few others have joined her.
By CHRISTINE HAUGHNEY
Published: October 9, 2007
Javier Miglin may walk away from an $80,000 down payment on a condominium with water views in Miami. Randal Mills may give up a $130,000 deposit on a 15th floor condo on the Strip in Las Vegas. And in San Diego, Jeanette Graham would just like to meet the neighbors.
Sandy Huffaker for The New York Times
When Jeanette Graham bought her apartment last year, she was able to negotiate a reduction in homeowner’s fees and other sweeteners. Now buyers are offered even better incentives.
Enlarge This Image
Marc Serota for The New York Times
Jack McCabe, a real estate consultant in Deerfield Beach, Fla., says the market downturn will hurt even successful developers.
The three seemingly unrelated predicaments have a common thread that leads to Chicago, and Corus Bankshares, which financed the construction of each condominium development involved.
Whether buyers like Mr. Miglin and Mr. Mills close on their condos will be a crucial indicator for Corus. Many condo projects that started during the real estate boom are just being completed, and developers must begin repaying construction loans taken out before the market turned sour. If buyers do not close, and developers struggle, lenders like Corus may be left holding the bag.
“We’re at the riskiest point of the condo lending cycle as these projects are being completed,†Jefferson L. Harralson, a bank analyst at Keefe, Bruyette & Woods, said. “In the coming weeks and months, we’re going to find out what the demand for these condos really is.â€
Real estate clearly was a different story when Corus started concentrating on lending to condo projects a few years ago. The bank bet heavily that thousands of buyers, many hoping to turn a quick profit, would snap them up.
Today, developers owe Corus $4 billion, $3.7 billion of which, or 92 percent, is in condominiums. Of that, about 25 percent of them are in projects in the Miami area and 9 percent are in Las Vegas, according to regulatory filings. More than $2.15 billion of its outstanding loans are due by the end of this year. Nationwide, the number of condos completed this year will be up 45 percent — 232,933 vs. 160,239 — from 2006, according to data tracked by Marcus & Millichap Real Estate Investment Services, a real estate investment brokerage based in Encino, Calif.
But sales have fallen 12 percent through August, Marcus & Millichap said. And recent trends in Las Vegas and Miami, where at least six Corus-financed projects will be finished by next summer, are worse.
In the three-month period from June through August, sales fell 46 percent in Las Vegas and 29 percent in Miami from the year-earlier period, Marcus & Millichap said.
“Up until this point, Corus has been relatively unscathed with essentially one foreclosure,†said Peyton N. Green, a senior analyst in the Nashville office of the FTN Midwest Securities Corporation. That foreclosure, involving a condo conversion in Naples, Fla., resulted in a write-off of $13 million.
But the company’s stock price reflects the gloomy outlook, having fallen 36 percent in the past 12 months, to $13.61 a share yesterday. Mr. Green, who has a neutral rating on Corus’s shares, said about one-third of the shares have been sold short, a strategy used by speculators to profit from falling stock prices.
While most banks do not have the exposure to the condo market that Corus has, Mr. Harralson said they still face risk. Banks typically allocate an average of 15 percent of their loans to construction and the rest to consumer loans, business loans and other real estate.
Corus warned in its last quarterly filing that “a surge in buyer cancellations could be especially painful, particularly if a substantial percentage of a given project’s presale buyers did not close.â€
Still, the Corus Bank president, Robert J. Glickman, remained optimistic. So far, he said in an e-mail message, developers have used many successful strategies “to ensure that buyers come to the closing table.â€
“Good developers — those that are diligent, successful — need to keep up the buyers’ interest and desire to close,†he said.
That optimism raises warning signs with analysts like Jack McCabe, a real estate consultant in Deerfield Beach, Fla. He has been hired by hedge funds and other investors to study 8 of 12 projects in Miami that Corus has financed and advise them on their progress.
“In this market downturn, even the most successful developers with the best projects and the best geographic locations are going to take hits,†Mr. McCabe said. “Mr. Glickman’s comments are eagerly overoptimistic and do not match the severity of this downturn.â€
A real estate consultant in Miami, Lewis M. Goodkin, said a number of buyers under contract are hiring lawyers to help them get out of deals before the developers expect them to close. Mr. Goodkin, who has been hired by institutional investors trying to short Corus’s stock or buy up its loans at a discount, said that many buyers thought that they would be able to flip the apartments before having to close.
“They’re going to do everything they can to get their money back,†he said.
That is what Mr. Miglin is trying to do with the $391,000 apartment he bought at Corus’s Marina Blue project in Miami. The 36-year-old Los Angeles-based computer consultant put down his deposit three years ago with plans to flip the condo at a profit.
A year ago, he hired his developer to sell the 46th floor apartment. Then in August Mr. Miglin put the condo on Craigslist.com — along with seven other Marina Blue sellers who are trying to get rid of their apartments.
Now Mr. Miglin is running out of time because he expects his apartment to close at the end of October. If it closes, he will have to pay at least $20,000 to complete the unfinished unit with floors, closets and painting. He will also pay $15,000 in closing costs and roughly $3,500 a month on mortgage payments, property taxes and homeowners association dues. He calculates that even if he finds a renter he will not be able to pay back half of his monthly costs.
“I don’t want to take possession of it,†he said, but he still has not made up his mind.
Robert Cooper, a lawyer in Miami, said that buyers from five projects that Corus financed in Miami have contacted him seeking advice about how to get out of their contracts.
Ely R. Levy, a lawyer in Hollywood, Fla., said several clients approached him about breaking their contracts and recovering deposits on four South Florida projects financed by Corus.
Buyers in Las Vegas are starting to follow their Miami counterparts.
Mr. Mills, a 55-year-old general contractor and developer in Lake Havasu City, Ariz., put money down on a $728,000 apartment two years ago at a development called One Las Vegas. He hoped that eventually reselling the condo would give him a $100,000 profit that he could save for retirement. But as the project nears completion, he and his wife have decided that they would rather live in the cheaper condo they already own.
“I’m just doing what I can to sell mine before I have to close,†he said.
Then there are smaller markets like San Diego, where developers are also struggling to sell units. Corus helped finance 11 condo projects there, about 5 percent of its portfolio. More than half of the loans are for projects in downtown San Diego, which is scheduled to have 3,000 units completed by 2008.
Among the projects is the Icon, where Ms. Graham bought a one-bedroom apartment last year for $374,000. At the time, she said that she was able to negotiate a $9,000 reduction in homeowner association fees, $5,000 toward closing costs and a washer and dryer. She said that her building sold 80 percent of its apartments.
But she said that the building is now offering even better incentives. Residents who refer buyers get a $5,000 finder’s fee and an extra $5,000 for the buyer.
Still, she questions whether there will e any takers, especially since her building feels empty. “I can go a whole week without seeing a neighbor,†Ms. Graham said.
________________________
A Bank Bet on Condos, but Buyers Want Out
Sandy Huffaker for The New York Times
Jeanette Graham of San Diego moved into her new condominium development last year, but few others have joined her.
By CHRISTINE HAUGHNEY
Published: October 9, 2007
Javier Miglin may walk away from an $80,000 down payment on a condominium with water views in Miami. Randal Mills may give up a $130,000 deposit on a 15th floor condo on the Strip in Las Vegas. And in San Diego, Jeanette Graham would just like to meet the neighbors.
Sandy Huffaker for The New York Times
When Jeanette Graham bought her apartment last year, she was able to negotiate a reduction in homeowner’s fees and other sweeteners. Now buyers are offered even better incentives.
Enlarge This Image
Marc Serota for The New York Times
Jack McCabe, a real estate consultant in Deerfield Beach, Fla., says the market downturn will hurt even successful developers.
The three seemingly unrelated predicaments have a common thread that leads to Chicago, and Corus Bankshares, which financed the construction of each condominium development involved.
Whether buyers like Mr. Miglin and Mr. Mills close on their condos will be a crucial indicator for Corus. Many condo projects that started during the real estate boom are just being completed, and developers must begin repaying construction loans taken out before the market turned sour. If buyers do not close, and developers struggle, lenders like Corus may be left holding the bag.
“We’re at the riskiest point of the condo lending cycle as these projects are being completed,†Jefferson L. Harralson, a bank analyst at Keefe, Bruyette & Woods, said. “In the coming weeks and months, we’re going to find out what the demand for these condos really is.â€
Real estate clearly was a different story when Corus started concentrating on lending to condo projects a few years ago. The bank bet heavily that thousands of buyers, many hoping to turn a quick profit, would snap them up.
Today, developers owe Corus $4 billion, $3.7 billion of which, or 92 percent, is in condominiums. Of that, about 25 percent of them are in projects in the Miami area and 9 percent are in Las Vegas, according to regulatory filings. More than $2.15 billion of its outstanding loans are due by the end of this year. Nationwide, the number of condos completed this year will be up 45 percent — 232,933 vs. 160,239 — from 2006, according to data tracked by Marcus & Millichap Real Estate Investment Services, a real estate investment brokerage based in Encino, Calif.
But sales have fallen 12 percent through August, Marcus & Millichap said. And recent trends in Las Vegas and Miami, where at least six Corus-financed projects will be finished by next summer, are worse.
In the three-month period from June through August, sales fell 46 percent in Las Vegas and 29 percent in Miami from the year-earlier period, Marcus & Millichap said.
“Up until this point, Corus has been relatively unscathed with essentially one foreclosure,†said Peyton N. Green, a senior analyst in the Nashville office of the FTN Midwest Securities Corporation. That foreclosure, involving a condo conversion in Naples, Fla., resulted in a write-off of $13 million.
But the company’s stock price reflects the gloomy outlook, having fallen 36 percent in the past 12 months, to $13.61 a share yesterday. Mr. Green, who has a neutral rating on Corus’s shares, said about one-third of the shares have been sold short, a strategy used by speculators to profit from falling stock prices.
While most banks do not have the exposure to the condo market that Corus has, Mr. Harralson said they still face risk. Banks typically allocate an average of 15 percent of their loans to construction and the rest to consumer loans, business loans and other real estate.
Corus warned in its last quarterly filing that “a surge in buyer cancellations could be especially painful, particularly if a substantial percentage of a given project’s presale buyers did not close.â€
Still, the Corus Bank president, Robert J. Glickman, remained optimistic. So far, he said in an e-mail message, developers have used many successful strategies “to ensure that buyers come to the closing table.â€
“Good developers — those that are diligent, successful — need to keep up the buyers’ interest and desire to close,†he said.
That optimism raises warning signs with analysts like Jack McCabe, a real estate consultant in Deerfield Beach, Fla. He has been hired by hedge funds and other investors to study 8 of 12 projects in Miami that Corus has financed and advise them on their progress.
“In this market downturn, even the most successful developers with the best projects and the best geographic locations are going to take hits,†Mr. McCabe said. “Mr. Glickman’s comments are eagerly overoptimistic and do not match the severity of this downturn.â€
A real estate consultant in Miami, Lewis M. Goodkin, said a number of buyers under contract are hiring lawyers to help them get out of deals before the developers expect them to close. Mr. Goodkin, who has been hired by institutional investors trying to short Corus’s stock or buy up its loans at a discount, said that many buyers thought that they would be able to flip the apartments before having to close.
“They’re going to do everything they can to get their money back,†he said.
That is what Mr. Miglin is trying to do with the $391,000 apartment he bought at Corus’s Marina Blue project in Miami. The 36-year-old Los Angeles-based computer consultant put down his deposit three years ago with plans to flip the condo at a profit.
A year ago, he hired his developer to sell the 46th floor apartment. Then in August Mr. Miglin put the condo on Craigslist.com — along with seven other Marina Blue sellers who are trying to get rid of their apartments.
Now Mr. Miglin is running out of time because he expects his apartment to close at the end of October. If it closes, he will have to pay at least $20,000 to complete the unfinished unit with floors, closets and painting. He will also pay $15,000 in closing costs and roughly $3,500 a month on mortgage payments, property taxes and homeowners association dues. He calculates that even if he finds a renter he will not be able to pay back half of his monthly costs.
“I don’t want to take possession of it,†he said, but he still has not made up his mind.
Robert Cooper, a lawyer in Miami, said that buyers from five projects that Corus financed in Miami have contacted him seeking advice about how to get out of their contracts.
Ely R. Levy, a lawyer in Hollywood, Fla., said several clients approached him about breaking their contracts and recovering deposits on four South Florida projects financed by Corus.
Buyers in Las Vegas are starting to follow their Miami counterparts.
Mr. Mills, a 55-year-old general contractor and developer in Lake Havasu City, Ariz., put money down on a $728,000 apartment two years ago at a development called One Las Vegas. He hoped that eventually reselling the condo would give him a $100,000 profit that he could save for retirement. But as the project nears completion, he and his wife have decided that they would rather live in the cheaper condo they already own.
“I’m just doing what I can to sell mine before I have to close,†he said.
Then there are smaller markets like San Diego, where developers are also struggling to sell units. Corus helped finance 11 condo projects there, about 5 percent of its portfolio. More than half of the loans are for projects in downtown San Diego, which is scheduled to have 3,000 units completed by 2008.
Among the projects is the Icon, where Ms. Graham bought a one-bedroom apartment last year for $374,000. At the time, she said that she was able to negotiate a $9,000 reduction in homeowner association fees, $5,000 toward closing costs and a washer and dryer. She said that her building sold 80 percent of its apartments.
But she said that the building is now offering even better incentives. Residents who refer buyers get a $5,000 finder’s fee and an extra $5,000 for the buyer.
Still, she questions whether there will e any takers, especially since her building feels empty. “I can go a whole week without seeing a neighbor,†Ms. Graham said.
