South Florida had better hope the lessons learned from the last condo boom-and-bust cycle that devastated values, destroyed developer reputations, and damaged lenders’ balance sheets will be remembered – and adhered to — in the next few quarters of the current market run-up.
Clear-headedness about the Great Recession could prove crucial, especially for the veteran players of a gamble whose repercussions are still being felt.
Two-thirds of the more than 21,800 new condo units proposed for coastal South Florida are slated to be developed by individuals and groups that built during the last cycle, which ended with a spectacular crash in values in 2007, according to an analysis of Condo Vultures’ preconstruction condo project website, CraneSpotters.com.
Many of today’s developers were stuck with unsold new condos – both recently completed and still under construction – when the real estate market began to unravel five years ago, some even taking hits to their personal wealth.
The current fervor for preconstruction distorts the not-too-distant past, when developers were suddenly unable to compel buyers – many of whom were speculators making deposits on multiple units during the boom – to close on their contracts, notwithstanding 20-percent cash deposits down.
In a market spiraling downward, developers were forced to play a kind of real estate Hunger Games, competing for a scant supply of buyers and loans. Many of the same developers who today are commanding record prices for luxury preconstruction were forced back then to slash prices, offer incentives like cash allowances for interior design and even release buyers from multiple contracts if they agreed to complete even one deal.
When all else failed, developers were compelled by the courts to negotiate a workout with lenders or else hand the condo units over. Read more here