Banks Selling Foreclosed Condos Is Impacting Markets

By Anuradha Kher, Online News Editor Miami–The Club at Brickell Bay, The Vue at Brickell, Blue Lagoon and Parc Central are are all buildings that topped the charts for the most foreclosures in 2008. But a lot has changed in a year. Now these very same buildings are among the most active-selling buildings showing significant sales activity in the first quarter of 200, according to a recent study by CondoReports.com. “It is no coincidence that many of last year’s top foreclosure buildings are among the most active in 2009, Adam Cappel, president of CondoReports.com, tells MHN. “Many banks have taken ownership of units in these buildings and are looking to get out. Banks, either through short sales or units they own as a result of foreclosures, are the most active sellers in today’s market as they are willing to accept market prices.” So what kind of prices are we talking about?“Substantial discounts from prior years, but those numbers are almost meaningless in today’s market. It is very difficult to determine the discount from other market sales as these distressed sales constitute so much of the condominium market in Miami Dade County. A non-distressed seller is competing with banks to sell their unit, so they need to price them accordingly,” says Cappel. Activity among the 10 most active-selling buildings in the first quarter of 2009 averaged at more than 29 sales per building, or one sale every three days, according to the report. These top selling buildings, which account for only one half of one percent of the buildings tracked in the study, accounted for over 11 percent of all condominium sales activity in Miami Dade County.  “This kind of sales activity is remarkable and shows that these buildings are going through a normal cleansing process where banks are foreclosing on owners that aren’t paying and selling the units after they get control. These buildings are moving towards stability as speculative investors and thinly capitalized owners are being replaced with either owner occupant or well-capitalized, patient investors buying in at a much lower cost,” says Cappel.  Many of these buyers are cash buyers, generally investors, as financing is a major issue in the market at large and in these buildings in particular. There are some owner-user buyers, but the levels vary by building. Among the projects that made the list, the Homestead/Florida City projects tended to have more investors that purchased multiple units. Typically, investors are projecting three- to seven-year holds and plan to sell the units when prices return to replacement cost. While this increase in buyers is not about to magically cure problems in all the badly affected condo market, Cappel says we will likely see the trend play out in other markets that have similar dynamics to Miami Dade. “Banks aren’t interested in owning collateral taken through the foreclosure process. While other unit owners are much more focused on the basis they paid for the unit, banks are focused on what it takes to monetize their real estate owned portfolios,” he explains.For example, a building with a large number of foreclosures is likely to see significant sales activity as compared to others that do not have the foreclosure activity. There is usually a lag from the initial foreclosure filing date, but activity will pick up either through short sales or after the bank takes ownership of the units. The trend seen in the Miami Dade County is a small step towards recovery but in order for markets to recover, units need to “get out of the hands of zombie owners that are unable to pay their mortgage or their association dues and go into the hands of fresh buyers who can afford these units. Generally, this occurs at drastically reduced prices,” Cappel says. Of course, for a sustained recovery, two things need to happen. The massive supply of units on the market needs to be absorbed, and the backlog of foreclosures in the middle stages need to work their way through the market.