A handful of seemingly left-for-dead apartment and condo communities are being resurrected in some of the nation’s most overbuilt markets, indicating glimmers of hope for the multifamily sector.
Stalled projects in markets hit hard by the economic downturn, including New York and Miami, are slowly moving forward as owners renegotiate loans with their lenders or new buyers find ways to make the projects pencil out financially. For stalled condo developments, that typically translates into selling unsold units to buyers at steep discounts.
“We are starting to see some stalled projects come back where banks are starting to be a little bit more interested in getting liquidity back,” says Andres Hogg, general manager of U.S. operations for Espais, a Barcelona, Spain-based developer, which is actively looking to invest in stalled condo projects. “But I have to say that the numbers are not to the level we in the private sector would like to see them. We have some offers on the table for projects that have stalled or for vacant lots where developers couldn’t get financing. The problem is the value we wish to get on the land or the unfinished condo is not there yet, as there is still a margin between sale value and purchase value. I don’t know if we are too conservative or the seller is too greedy.”
Whatever is causing the bid/ask gap, the market has a long way to go before the majority of stalled projects will trade hands and resume sales or construction. This is especially true in the Las Vegas market, where no notable stalled deals have yet to stage a comeback.
“Unfortunately, it’s very challenging to get a lender, whether it be national or local, to issue new money for a buyer,” says Peter Zalewski, a principal at Bal Harbour, Fla.-based Condo Vultures Realty, which tracks condo sales and brokers bulk sales, primarily in the Miami market. “If you are a buyer and you need financing, the likelihood is that you will have to pay a significant premium to secure the property from the seller, usually a 15 percent to 20 percent premium. Many sellers don’t want to sit out of the market for 30 or 60 days while financing may or may not come at the end. There has to be a financial incentive for them to take that offer from a buyer with financing unless it’s just a deeply distressed, troubled property that no one else wants.”
Multifamily Executive scoured local markets to find four stalled projects in overbuilt markets that have recently managed to resurface (through a variety of tactics), eschew the challenging financial markets, and forge ahead.