14 Aug Developer Loans Bridge Path to Closing Pre-Construction Sales
By Ross Milroy | August 14, 2017
How times have changed since the most recent condo development cycle began in Miami around the year 2012. As developers broke ground, foreign investors were flocking to Miami to take advantage of the weak US dollar and favorable exchange rates. Investors used this advantageous financial market to park their cash with 50% deposits on pre-construction deals at the numerous condo projects being built in Miami. Now, five years later, as these buildings reach farther in the sky, the time has come for many of those investors to pony up the remaining funds and close on their condo properties.
The problem is, as the buildings were being built around the clock, the financial situation for many investors has changed drastically. The dollar has significantly gained value against most South American currencies, especially in Brazil, Argentina and Venezuela, all while the turmoil in those countries has escalated.
Further, banks have tightened their lending guidelines and regulations have increased. Many developments have simply been cancelled due to the lack of construction financing and buyers with hard deposits, albeit with much lower deposit requirements.
This leaves developers holding numerous condos at risk of not closing. Although they would be entitled to keep the down payment if the buyer defaults, many developers are launching generous sale and leaseback programs as well as offering their buyers mortgage financing to close the transaction. This strategy is eerily similar to what took place during the last condo crash.
Recently, Fortune International Group announced plans to work with Lennar subsidy Rialto Capital Group as well as with Related Group to form Vasser Capital which will issue bridge loans to their buyers who are in need of cash to close on their condos.
Although they carry higher interest rates, bridge loans are typically short-term loan solutions that are due and payable in three to five years. The result is a buyer who is now able to close and then rent the condo to cover the cost of the loan until they have paid back the developers in full. To date, the group behind Vasser has not seen anyone walk away from their 50% deposits.
As of the end of June, Miami-Dade saw 4,513 condos completed with 10,100 currently in the process of completion. Ultimately it’s in everyone’s best interest for these condos sales to close so they can be occupied as opposed to what happened during the Great Recession when investors simply walked away. With any luck, the bridge loans will prevent ‘ghost buildings’ that became all too familiar in 2009 where massive developments were occupied by a handful of residents.
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