Miami Condo Loan Marks Milestone – This is Huge for Lending.
Lender Approval for Construction of Luxury Tower Is First Deal of Its Size Since Housing Crash.
A group of lenders has agreed to make the first major construction loan for a condominium project in the Miami area since the crash, marking a milestone in the recovery of real-state financing market for condos.
Loans to build condo towers were common during the boom years, but the downturn left Florida with an enormous glut of inventory and financing for new development evaporated.
But now a group of lenders led by Birmingham, Ala.-based Regions Financial Corp. RF +1.82% has agreed to lend $160 million to the developers of the Mansions at Acqualina, an ultraluxury, 47-story tower under construction in Sunny Isles Beach, near Miami. Condos at the project, which includes amenities such as a private movie theater, a cantilevered swimming pool and a Turkish-style spa, start at $7.75 million.
The loan is the first debt deal of more than $100 million for a new condo development since the housing boom, according to Scott Wadler, an analyst who covers the Miami market for brokerage HFF LP.
To be sure, the deal also shows that banks are still cautious about condos. The lender required the builder to have completed $320 million in presales, and stipulated 50% downpayments from buyers as a condition of the loan, said Michael Goldstein, president of the company building the Mansions project.
But the Mansions deal comes as banks throughout the country are showing a greater appetite for real-estate risk. Commercial real-estate loans on banks’ books grew by about $14 billion to $1.51 trillion during the fourth quarter, according to data released by the Federal Deposit Insurance Corp. on Tuesday. That is the largest increase in years.
“There’s been improvement over the last couple years, but really, it’s just within the last quarter that the overall sector has been turning,” said Matthew Anderson, managing director at loan research service Trepp LLC.
The return of bank lending in South Florida partly reflects the condo market’s rebound from the wreckage of the housing bust. Sales and prices have recovered over the last two years, buoyed by interest from foreign buyers, many of whom use cash to purchase the units, according to Condo Vultures LLC.
Sales in the broader South Florida market, including Miami-Dade, Broward and Palm Beach counties, fell to 29,058 transactions in 2007, but rose to 52,679 in 2012. In Miami-Dade County, where Sunny Isles Beach is located, the median price per square foot for condos fell to $107 in 2010. It reached $139 by the end of 2012, though still far below the $400 a square foot hit during the boom years, when more than 22,000 new units were added to the Miami market.
But developers have noticed the recent market improvement. Currently there are approximately 2,000 units under construction, according to HFF.
“Developers realize the next South Florida condo construction boom is just beginning,” said Peter Zalewski, principal of Condo Vultures. “There is a tremendous pressure on every developer to get started sooner rather than later in hopes of delivering their units earlier than the competition.”
Up until now, most condo developers have relied on a combination of their own personal wealth, investments from equity funds and buyer deposits up as much as 80% of the purchase price of the units to finance construction of their projects.
But the Mansions deal suggests that banks are becoming more confident. “At some point, lenders are no longer going to be able to help themselves,” Mr. Zalewski said.
High-priced luxury condos have been a particularly bright spot. In 2012, 48 Miami-Dade County condos changed hands for more than $5 million apiece, compared to just 31 in 2007. Last year, Miami was abuzz with news reports of a record sale price for a condo in the Miami area, after a penthouse in the Continuum, a South Beach tower, sold for $25 million.
The Mansions at Acqualina’s 16,000-square-foot duplex penthouse is on the market for $55 million.
The project is being developed by Trump Group, a conglomerate controlled by brothers Eddie and Jules Trump, sons of a tailor from Pretoria, South Africa, who came to the U.S. in 1974 and are no relation to New York real-estate magnate Donald Trump. The family developed the upscale Miami neighborhood of Williams Island, has invested in fertilizer, auto parts and clothing companies, and owns a high-end fashion modeling agency.
The Trumps have been building since the mid-1980s luxury real-estate projects in South Florida, such as the Luxuria, a condo building in Boca Raton. In 2004, The Acqualina, a 247-unit condo-hotel adjacent to the planned site of the Mansion project, sold the last of its units, which were priced between $700,000 and $3 million apiece.
In July 2011, the Trumps hatched plans for the Mansions. “I knew there was a gap in the market for large units, super-high-end luxury,” said Mr. Goldstein, who handles the project’s sales. “There’s a lot of product that’s coming on line. The question is, how much of it is actually going to be physically built?”