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Flipping for Miami condos

Buying, selling and reselling condos is hot market. But is there a bottom?

By TAMARA LUSH
Published August 7, 2005


MIAMI - When Mark Zilbert moved to town three years ago, he had just been laid off from a West Coast tech firm and was looking for work.

Today, he drives a new Maserati, is one of the city's top real estate agents and is the most enthusiastic cheerleader for Miami's white-hot condominium market. Merging a savvy marketing sense and his Web knowledge, Zilbert recently created a new business that he says reflects the realities of the game: condoflip.com.

The slogan on his Web site: "Bubbles are for bathtubs."

Everyone from buyers and sellers to speculators and investors can "flip" preconstruction condos with the click of a mouse, selling contracts and deposits on properties that haven't been built.

One way or another, Zilbert is probably right: his Web site does reflect reality. The question is, which one? Is it the one that says the condominium market in Miami is so healthy it can support an organized tier of trading in property contracts? Or is it the reality many sober economists see that flipping condo contracts is a sure sign that too much speculation is driving prices?

It's worth noting that condoflip.com is not open for business. Zilbert is ironing out the details with developers, who must be willing to participate to make the contracts in their buildings available for sale. (Clauses in condo contracts ban buyers from reselling, but developers can waive that clause.)

For Zilbert it's no question. "I'm very worried about real estate across the country. We're headed for a big problem nationally," Zilbert said. "But the rules in Miami are so different. When we build in Florida, they come."

Some people, however, fear that Miami is the biggest real estate bubble waiting to burst. Consider these signs:

Merrill Lynch recently issued a report called "Mega Metro Bubbles." Miami ranked at the top.

Lehman Brothers noted that housing prices in Miami are far outpacing gains in income.

About 70,000 condo units are in various stages of development in Miami-Dade County. That's 10 times more condos than were built in the past decade.

"It's kind of like a gold rush," said real estate agent Grant Gannon. "Everyone wants to jump on the bandwagon and get rich quick."

It may be too late for that, says Jack McCabe, a real estate consultant.

"We're definitely headed for not just a bubble, but a boil," said McCabe, who owns McCabe Research and Consulting in Deerfield Beach. "Bubble doesn't have a nasty enough connotation to describe it."

McCabe says a massive inventory of condos and skyrocketing prices are signs that bad times are coming. Widespread speculation and "flipping" make McCabe and other experts even more skeptical.

"Each time that the property is sold it always goes up in price in a very short period of time," McCabe said. "Buying at the initial start, you as an average person stand to make a lot of money. But the vast majority of people get in on the tail end, and unfortunately they come in and buy on a down cycle, then prices go up."

Predictably, Mayor Manny Diaz and many of the city's top real estate agents deny the existence of a bubble.

"I think (the news media) is creating a bubble," Diaz said. "I'm not worried about bubbles."

Diaz ticked off the reasons why he is so secure: Favorable interest rates. Aging baby boomers looking to move to a warm climate. And the foreign buyers - 36 percent of South Florida's real estate is bought by people outside of the United States.

Many of the projects planned in Miami will happen, he insists. As far as the lower-income people, there's a plan in the works for that, too, he says. Called "Miami 21," the plan will rewrite city codes and plan for affordable housing, economic development and transportation.

Still, experts warn that the white-hot condo market in South Florida has become another case of "irrational exuberance," much like the tech stock boom of the early '90s.

From glossy supplements in local newspapers to sexy billboards downtown, Miamians are seduced with images of condo living. Soleil offers a "sports minded" lifestyle," with a 50,000-square-foot recreation deck. Jade offers Wi-Fi technology and a business center. Blue offers an in-house custom design center and blue-tinted floor-to-ceiling windows.

Every condo, it seems, offers Zen gardens, infinity pools and yoga.

What's unclear is whether people will be taking advantage of these swank amenities daily, or whether the buildings will be dark behemoths because they are second homes. Or worse, contain a glut of unrentable living spaces.

Raul Valdes-Fauli, the executive vice president and director for real estate at Colonial Bank's South Florida region, cited as an example a financial statement of one investor.

"He had deposits on 14 different units," Valdes-Fauli said. "Obviously, he's not going to live in 14 units - he's either banking on renting them or flipping them, and I'm assuming he doesn't want to close on all of them.

"If something were to turn, it's not going to be pretty."

In a recent report on economic conditions from the Federal Reserve's 12 regional bank districts, experts wrote this: "Loan demand remained strong, especially in the housing segment, although some lenders noted concern about the pace of condominium development in South Florida."

Valdes-Fauli noted that Colonial Bank has gotten more prudent in terms of lending construction money. But other lending institutions are charging ahead, and investors are snapping up units before cement is poured.

"It's getting a little bit scary," he said. "There's just so many deals going on and so much hype around them."

The hype, and prices, of the new construction affects the rest of the condo market. Even prices for most older condos, including apartment conversions, are well more than $200,000.

Rachel Rosenberg, a 22-year-old education major at Florida International University, remembers her excitement when she found the perfect condominium last month.

"It was a two-bedroom, two bath, on the second floor, overlooking the pool," she said. "I could just imagine myself graduated from college, being able to live there and driving home after a day of teaching."

Rosenberg visited the condo sales office, and reality quickly set in. The condo - which had been converted from an apartment - was $211,000. On a starting teacher's salary of $34,000 - and $6,000 down - Rosenberg simply wouldn't be able to afford to make the $1,700 a month mortgage payment.

"My heart almost poured out of my chest," she said. "I'm a professional, how could a professional not afford their own place to live?"

Tamara Lush can be reached at lush@sptimes.com or 727 893-8612.

What is flipping?

Condominium construction requires that builders get a minimum percentage of units under a purchase contract before the building goes up. In condo flipping, early buyers turn and sell their contract for a higher price before closing on the property.

Is that allowed?

Yes, but with limitations. Sales contracts typically ban a buyer from reselling the purchase agreement before closing, but developers can waive that clause for individual buyers.

Is it risky?

Well, it's highly speculative. When a contract is flipped, it's sold for more money so the buyer is paying for appreciation on a piece of property that doesn't exist.

[Last modified August 6, 2005, 02:15:04]


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