Foreign Interest in Miami Increases

Although there is no official data available, the estimated percentage of second and investment properties owned by foreigners in Miami is as high as thirty percent. We attract investors and second home owners from all over the world, with our primary feeder markets coming from flight capital leaving Latin and Central America. This is one of the reasons that we have a somewhat unique residential market, and what is now helping us turn over so many foreclosed properties.

We even have certain areas where foreign investors look to purchase residential property. In South Florida, for example, Doral and Weston are two preferred areas for Venezuelans. Known locally as Little Buenos Aires, Argentines love the mid-Miami Beach area.  In the past few years, Sunny Isles Beach in North Miami is fast becoming a Russian enclave for vacation and second homes. Meanwhile, European clients prefer the many waterfront areas of Miami Beach, including the South Beach, Venetian Islands, Normand Isle, Treasure Island, Sunset Islands and Harbor Island.

So while our traditional second home American buyers out of Chicago, Washington D.C., Boston and New York have taken a back seat, international buyers have been flocking to our market to buy distressed real estate.  This year, the range of our international clientele has been extremely diverse and from all corners of the globe, including Turkey, Switzerland, Germany, France, Argentina, Bahamas, Bermuda, Canada, Israel, South Africa, Angola, India, Italy, Brazil, Ecuador, Guatemala, Spain and England.

So what has prompted this surge of international buyers in Miami?  The following driving factors are what we most commonly hear from our international clients buying in our market  -

1. Miami remains an alluring international destination. It is the American Riviera, our own little Sardinia, St. Tropez, Cyprus or Capri.
2. Miami is a cultural Mecca, a tropical paradise where the many cultures of the Americas live, work and play.
3. The cities of Miami and Miami Beach have invested hundreds of millions of dollars to develop the arts, history and culture of our area.
4. Miami is an international hub and easily accessible from most continents. We are a major international airport, sea port for cargo and trade, tourist hub, and regional business center for Central and Latin America.
5. A foreign owner enjoys the same fundamental rights to ownership* as that of a U.S. resident or citizen.
6. Although our country is suffering from a major recession, Miami is a safe place to enjoy, relax and revitalize oneself.
7. The Miami lifestyle is very unique and different to other major cities. This is a city that is always alive and it shows in our people, places, colors, festivals, and experiences.
8. While Miami has one of the highest rates of foreclosures in the country, the value that Miami offers today surpasses that of ten or even twenty years ago.

One of the tools still available to most foreign investors today, is the ability to obtain financing for a second home. Fair enough, relative to three or four years ago when most banks offered generous terms to foreign nationals, it is more difficult to obtain mortgage financing today.

However, one of the common misperceptions of our clients is that the difficulty lies in the program either not being available, or that the rates and loan-to-values are unattractive.  This is mostly an incorrect assumption as today interest rates are far more appealing AND foreign investors may still borrow up to 70% loan-to-value, or 70% of appraised value, whichever is less.

The real difficulty lies in getting approved to purchase a condominium in a project that does not meet today’s guidelines. The personal or borrower requirements, however, for proof of employment, six months reserves, sixty (60) day sourcing of the down payment in a local bank account, and letters of credit, are practically the same.

For further information on any of our properties, or Miami real estate, please call our office at    (305) 673-5300    or email us at info@miamiangelproperties.com.

 * Note that time spent in the United States and immigration status will determine tax liability. Foreign investors should consider title options carefully. There are a several legal issues and tax consequences for foreign investors from purchase to sale of the property – the advice of a qualified accountant, finance professional and attorney should be sought.

Miami Year in Review 2008

In 2007, South Florida developers and investors were still pulling permits, successfully raising capital and buying up property at record prices. Then came 2008.

The residential downturn started with the collapse of the subprime mortgage industry, which then morphed itself into a full blown credit crisis. As the credit crunch spread to virtually every type of financing, real estate activity in our market dried up.

With the nation shedding over 2.6 million jobs this past year, which is the most dramatic year for job losses since 1945, South Florida’s unemployment rate continues to rise. We consistently ranked in the top three in the nation in number of foreclosures.

Thus far, we have not seen anything remotely similar in commercial real estate, and there were even a few high profile sales of South Florida commercial property to foreign investors last year. However, signs are beginning to show as default rates are increasing and workable financing is like finding a needle in a haystack.

It is likely that 2009 will bring in more turmoil to our real estate markets, but at the same time all of this distress will offer a tremendous opportunity to cash buyers that are willing to take some risk.

Vultures are increasing with few landing

Many large real estate funds announced their intentions to purchase distressed South Florida residential real estate, such as Lubert-Adler Related, Strategic Real Estate Advisors, Century Opportunistic Fund, and Rialto Capital Management.

The real estate community took a deep breath hoping for some relief, but the gap in pricing remained wide. A handful of deals did take place with the bulk purchase of condo units in buildings such as 50 Biscayne, Marinablue and The Harbor House.

As the market continues to deteriorate, banks are likely to start accepting much bigger losses to sell off their ever growing real estate portfolios. We did see the ratio of bank owned property sales dramatically jump in the fourth quarter. Many, including myself, are predicting that the banks will have to continue to discount further and that the vultures will begin to feast in 2009.

Community banks keep their heads above water

BankUnited, South Florida’s largest community bank, is at the forefront of the Miami foreclosure crisis. Unable to raise $400 million in capital and with a ballooning Option ARM portfolio, they face some immense challenges.

South Florida’s 80 community banks are beating everyone’s expectations having survived such a difficult year. However, as so many continue to bleed cash, take on more bad loans and burn through capital, this year presents a much greater challenge.

More Spanish banks arrived on the scene, including Caja Madrid’s $927 million purchase of 83 percent of City National Bank of Florida. It will be interesting to see what effect the global credit crisis will play on further distressed sales of local insitutions.

Rampant fraud

With the collapse of the market and visibility of the local FBI mortgage task force, many of the fraudsters closed shop and fled. To top it off, the Department of Financial Regulation had to take responsibility for licensing over 10,000 mortgage brokers that had criminal records.

It is disturbing to learn that, according to the Mortgage Asset Research Insititute, Florida still ranks highest in the nation for mortgage fraud.

Several developers incur major losses

Renzo and Pasquale Renzi had very ambitious plans to develop condo projects across South Florida under a mountain of debt on their development sites. In September, when they could no longer borrow or refinance to stay afloat, the brothers starting handing back their properties to lenders. This included an entire city block in downtown West Palm Beach and a 41,624 square foot parcel in Miami Beach.

The Merco Group, developers and owners of several projects in South Florida, including the Grand Bay Hotel, Akoya Condominiums and Deauville Beach Resort, lost a 4.5 acres waterfront site valued at $30 million to lender Eastern Financial Florida Credit Union.

Developer Enrique Dilon lost the 210-unit condominium building in downtown West Palm Beach to iStar Financial. Dilon handed over 141 units to iStar in a deed in lieu of foreclosure, which was valued at $43.8 million.

EB Developers was hit with multiple foreclosures throughout South Florida. Bank of America filed to foreclose on a $35 million loan secured by 108 acres near Boynton Beach. AmTrust also foreclosed on 42 acres in Palm Beach Gardens as well as over 1,200 acres in an unincorporated part of the county.

Lenders are suing Boca Developers for nonpayment of $189.7 million in loans and guarantees on nine projects in Florida, including the Las Olas Riverfront complex and Biscayne Landing project in North Miami. The developers claim that they are not in default.

And so the saga of South Florida developers will continue.

Even the super-rich suffer

Veronica Hearst, the widow of newspaper heir Randolph Hearst, lost her 52-room mansion in Manalapan after a long battle with her lender, New Stream Capital, to whom she owed approximately $45 million. Court papers revealed that she had even mortgaged some of her art and was paying $290,000 a year in interest payments on her loans. The couple paid $29.9 million in 2000 for the oceanfront estate.

We are now starting to witness oceanfront homes in very presitgious areas, such as the Venetian Islands, in the advanced stages of foreclosure.

Foreclosure crisis slams South Florida

South Florida banks and other major lenders dramatically increased the number of foreclosure filings over the previous year, a trend that does not appear to be slowing. Banks are under tremendous pressure to remove non-performing loans from their books as soon as possible.

Adjustable rate mortgages continue to have the highest share of foreclosures and Florida has over 40 percent of the prime and subprime ARM nationwide foreclosure starts. In Miami Dade County, we experienced over 27,000 foreclosures in 2007, which more than doubled in 2008.

Option ARM mortgages were especially popular in South Florida, and Option ARMs are the next major wave of mortgage resets to hit the market starting in 2009.

Condo association woes

Associations have been severely financially burdened by the growing number of foreclosures and difficulty in getting lenders of repossessed condos or exisiting owners to pay their dues.

Lenders do not like to own condos as they are automatically liable for up to six months of monthly dues or 1 percent of the original mortgage, whichever is the lesser amount. This has created a snowball affect of sorts – as more owners default, the assocation has to assess the existing owners that are in good standing, and so more unit owners are pushed into paying late and possibly foreclosure as well.

To add to an already difficult situation, banks are so concerned with the creditworthiness of associations that they have stopped lending to associations or pulled back on lines of credit. This is forcing condo associations to seek alternative sources of funding.

Lender pains grow with new maintenance requirements

The Miami-Dade Commission passed two new ordinances at the end of the year to make lenders responsible for maintaining foreclosed properties.

This includes informing new buyers of any zoning and building code violations, which creates yet another hurdle and delay for banks to sell repossessed properties. Code enforcement officials have also been coming down on lenders for violations adding to the difficulty and expense of managing large real estate portfolios.

Glut of office and retail space arrives

You see it everywhere, huge signs on most office or retail buildings “Space Available”. The office and retail segments are facing a major over-supply situation with over 2.0 million square feet to come online in Miami Dade County in the next two to three years.

The glut is most obvious in Miami’s downtown Brickell district. The oversupply will provide a clear benefit to tenants, who will be able to negotiate more favorable rental rates and concessions to occupy space.

For more information or further assistance with South Florida real estate, please do not hesitate to contact Ross at 305.673.5300 or via email info@miamiangelproperties.com

Miami Is Flying High

So you think that the local economy is depressed and you do not see any improvement on the horizon? It all depends on what information you are tracking and which segment of the Miami economy you are considering.

Let’s consider the latest data provided by the U.S. Department of Commerce and Office of Travel and Tourism Industries on international visitation to Miami:

• We ranked SECOND in the nation, behind New York City, in total number of visitors.
• Year-to-date through August 2008, with over 2 MILLION international visitors, we are up by 10% over the same period in 2007.
• The top ten tourist generating countries to the U.S. - Canada, Mexico, United Kingdom, Japan, Germany, France, South Korea, Italy, Brazil and India.

The Miami tourism economy is certainly alive and kicking. During the first six months of 2008, with an average stay of 5.85 days, overnight visitors in Miami spent $17.1 billion in direct expenditures. If you are looking for foreign real estate buyers, spend your marketing dollars wisely and make sure to focus your efforts and dollars on our feeder markets.