Foreclosures strain condo buildings
It was about 8 a.m. in June, two months after Arnold Kovelman moved into his rented condo at Club at Brickell Bay in Miami, when he heard the knock on the door.
"I was kind of like sleep walking and this woman is there with a badge. She's saying she's the sheriff and she's there to serve my landlord a foreclosure," said Kovelman, 27, a senior account executive for a New York-based Web development company.
Kovelman's rental was one of 80 in the luxury condominium at 1200 Brickell Bay Dr. that dropped into foreclosure in 2007. The Club at Brickell Bay ranked first among condominiums in Miami-Dade and Broward counties with the most units in foreclosure. Borrowers owe lenders more than $42 million.
As the region's housing market sputters into the new year, a collection of largely unoccupied new towers are straining under hundreds of millions of dollars in defaulted mortgages. In the 20 buildings in Miami-Dade and Broward counties with the largest numbers of units in foreclosure, loans in default totaled more than $271.8 million, according to an analysis by Condo Vultures, a Bal Harbour real estate consulting firm and brokerage.
The epicenter: Miami's financial district along Brickell Avenue, where three of the top five buildings are located. Condo Vultures' principal Peter Zalewski jokingly refers to that area as Miami's "foreclosure district."
Among the 20 buildings ranked, the percentage of units in foreclosure varied widely. For some large complexes, a high number of units in foreclosure still represents a small portion of the overall building. But for the 36-story Vue at Brickell, its 65 units in foreclosure represented 20 percent of the complex. Two blocks away, the deluxe Jade Residences at Brickell Bay topped the list with highest dollar value of mortgage defaults of $60.7 million.
"It reflects the speculators that were coming in and coming in hard. They all had expectations of how spectacular Brickell was going to be from an investment perspective," with its new vibe, retail and night life, Zalewski said.
Others said widespread mortgage fraud, involving inflated appraisals and faux buyers, also led to the dizzying rise in defaults.
"These buildings are notorious because the fraud was so prevalent," said Lucas Lechuga, a real estate broker with EWM, who authors a local real estate blog called Miami Condo Investments.
Broward has seen fewer new -- and luxury -- condominiums than Miami-Dade, which probably explains the smaller overall number of foreclosed units and total delinquent loan values. But many of them, such as Sailboat Pointe in Oakland Park, which has a 9 percent foreclosure rate, are condo conversions. Those numbers, Zalewski said, reflect more "real people who are losing their real homes rather than speculators who bet wrong."
Zalewski, who scouts properties for investors, said the climate in Miami-Dade County, at least, was finally turning favorable for bargain-hunters and would only get better as the construction of some 10,000 units is finished, contributing to the glut.
"This is a tell-tale sign for buyers. If I were a seller, I'd be scrambling for alternatives,'' Zalewski said. ``As we go forward, foreclosure rates will be even higher with the new product."
Generally, buildings are considered "healthy" when roughly 10 percent of the units are up for sale. Any less, it's a sellers' market; any more, it's a buyer's. When more than 10 percent of units are in foreclosure, the prognosis could be grim.
The Club at Brickell Bay had 128 units listed for sale in the South Florida Multiple Listing Service on Monday. Thirty of those were listed as short sales, meaning they were discounted because of foreclosure or possible delinquency. An 818 square-foot unit, which sold in June of 2006 for $430,000, was listed Monday for $220,000, according to Lechuga.
The good deals weren't good enough for renter Kovelman, a New York transplant who said he was considering buying in the Brickell area before he unexpectedly got the boot from his landlord's lender. In November, he bought a $300,000 condo on South Beach, which he considered a safer bet.
"Hopefully, Brickell will come back and prosper and grow, but I think it's going to take some time," Kovelman said.
In the meantime, residents of condo buildings with high foreclosure rates are living with the burden of vacant units. Some face special assessments and hikes in maintenance fees from community associations facing budget shortfalls.
Lisa Magill, a lawyer with Becker & Poliakoff, which represents community associations, said she knew of associations struggling to cover expenses because more than 10 percent of their residents were behind on fees. Unkept grounds and disruptions in services could result, she said.
"In September, we started recommending associations include a line item in their budgets to account for anticipated bad debt from noncontributing residents," Magill said.
Earlier this year, the Club at Brickell Bay lost its cable and Internet service because the condo association fell behind on payments.
That doesn't worry Alex Fornet, who has lived at The Club for two years. He said he's there for the long haul. Besides the short cable outage, he hasn't noticed any effects of the foreclosures and said he enjoys the building.
"Hopefully, when we get all these issues with the foreclosures we'll prosper in the end and profit from our investments," Fornet said. "This is Manhattan, it's the future Manhattan, so we're all sitting real good."
Miami Herald - Wed, Jan. 09, 2008 - BY MONICA HATCHER