'Cash is King' When it Comes to Downtown Miami Condo Sales

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According to a new report from Condo Vultures, only 17 percent of the more than 700 new condo sales in Greater Downtown Miami in Q-1 of 2010 were financed, the balance of the transactions were cash buyers.

Buyers acquired nearly 600 units in 29 projects in Greater Downtown Miami in all-cash transactions between January and March. By comparison, financing was used to acquire less than 120 units in 19 projects in the 60-block stretch, according to the report.

"Even though the U.S. government is encouraging lenders to once again finance condo purchases, the results have not been impressive in South Florida," said Peter Zalewski, a principal with Condo Vultures, LLC. "Many lenders claim to be willing to consider writing loans for buyers of condominiums but the end results simply do not support that. The current new condo absorption is being driven by all-cash buyers who are purchasing more than four out of every five units in Greater Downtown Miami."

Buyers of new condos in Greater Downtown Miami obtained nearly three dozen mortgages - the greatest number in the submarket - in the ICON Brickell, a three-tower complex that was handed back by the developer to the construction lender the week of May 10, 2010.

The next highest concentration of financing related to new condo purchases is at the 500 Brickell project, across the street from ICON Brickell, according to the report.

The Ivy condominium, located on the north bank of the Miami River, rounds out the top three projects where financing was obtained in the first quarter, according to the report.

Fannie Mae has been working to remedy the condo financing problem by easing certification guidelines and even creating a special six-person team to review applications for new Florida projects seeking approval.

Fannie Mae certification is necessary as the public-private entity is one of the largest purchasers of lender-originated mortgages on the secondary market.

Fannie Mae has approved 70 Florida condominiums in the first five months of 2010 after approving 146 projects in the state in 2009. Contrast that with 2008 when no Florida condo projects were granted Fannie Mae approval, according to the report.

The lenders that are financing condominium buyers are doing so in a controlled manner, providing only a set number of mortgages per project, according to Condo Vultures.

For example, some South Florida community banks are comfortable providing no more than 10 mortgages per project at any given time.

Once the condo mortgages are sold on the secondary market, the lenders, in turn, will consider financing other buyers in that particular project, industry watchers said.

During the boom, lenders worked diligently to be one of the preferred lenders in a project in hopes of financing a significant number of the developer sales.

"The secondary market is in place for condo financing," Zalewski said." Unfortunately, many qualified and capable buyers cannot get past the first step, which is obtaining a mortgage from a lender. Until something dramatic happens, all-cash buyers will continue to drive the South Florida market, especially in Greater Downtown Miami."

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