More bad news in the Florida condo market: [Thank you to John Hernandez who forwarded me his article]
The developers of Downtown Dadeland are walking way from the massive mixed-use project in Kendall and handing over the unfinished complex to construction lender Goldman Sachs Commercial Mortgage.
Gulfside Development principals Jackson Ward and Stefan Johansson say they can no longer afford to make payments on the $224 million construction loan and won’t fight a foreclosure suit filed two weeks ago in Miami-Dade Circuit Court.
The project’s failure is the largest yet in the current real estate downturn, which has hit the overdeveloped condo market especially hard.The development across the street from Dadeland Mall was planned to have 416 condos and 125,000 square feet of retail space in seven mid-rise buildings. Four of the towers were completed this year, but three still need some minor construction work before closings can start. The project was the centerpiece of redevelopment along Southwest 88th Street near U.S. 1.
“If not the largest one, it is one of the largest defaults in all time in Miami-Dade County,” said David Dabby, president of Coral Gables-based real estate research firm Dabby Group.
Defaults during the savings and loan crisis in the late 1980s and early 1990s were generally under $50 million, he said.
We’ve watched a lot of pain in the residential lending markets for the past year, but the pain is spreading to the commercial markets as well. This won’t be the last we hear of lenders taking over commercial projects.
I am familiar with this project. It was a dead horse right out of the gate. I think the total retail and office space was closer to 200,000 square feet. At $200 a square foot that makes the commercial area worth about$40 million. Leaving $200 million for the condos which are selling in the $250 to $300k range, although there were some higher end units I don’t know what they sold for. Simple math says 416 units x $300k = $124 million plus the $40 million commercial space equals $164 million. Way short of the $224 million they have sunk into this project. The math never did make sense even if the units sold for $400k. Kendall is some distance from the downtown Miami area.
Interesting situation. It’s hard to believe that such a sophisticated lender would get tied up in a project that wouldn’t float.
http://www.downtowndadeland.com/
What do you think Goldman Sacks will do with this pile of mess?
This demonstrate the problem with GS earnings being mark to theo: like many other contracts, you have no idea whether the other end will hold up. I can’t believe the street sees GS like they are some sort of geniuses.
Cfishy-
I kind of envision this:
http://housingdoom.com/2007/07/29/bangkoks-ghost-buildings/
Tobby,
That’s not the math these bankers learn at Harvard. LOL
There is so much bad news out there I think this mess will take 1/2 a decade to sort out. The Fed may just as well paper over(inflate the dollar more rapidly) the situation and erase all the debits and credits of the last 6 years because there ain’t enough lawyers and accountants to sort this mess out.
Banana Republic-
Do you really think they can straighten it out in five years? I doubt many of the lawsuits will even have made it to trial by then.
“This won’t be the last we hear of lenders taking over commercial projects.”
Speaking of which, I haven’t heard any news about the cement eyesore by Chandler Fashion mall lately…
Twist,
Ask and you shall receive. It was just two days ago that talked about the inevitable commercial failures, thanks for putting this up.
I did a presentation for a business group today and many thought I was talking out my hat. During the question and answer period, as always, I was shocked at the lack of knowledge and fore site.
They don’t even believe we are running out of oil, let alone a collapse coming in the commercial sector. However, they’ll come around to it.
Banana - The FED can’t “paper inflate”, they never have and never will. Its a common mistake to think that the FED actually controls anything except the overnight FFR.
Goldman is going to be one of the strong IB’s in this whole mess. They have even told Wall St. their strategy. They are shorting the heck out of the financials and other IB’s. Its a Genius hedge… and confirms their PIGmen status.
The short list of problems:
Commodities
Dollar
SIV’s
Flight to safety
Bonds under the EFF
Dollar/YEN carry
Inverted Yields
Inflation - Commodities
Deflation - Big Ticket Assets
ETC.
Ho hum another day another record default. Google to 10 million a share. Which will be my hourly wage next year, and I will live in poverty.
Sandman-
There were rumors floating around about a month ago that they were in talks to sell Elevation Chandler- but I’ll believe it when I see it.
historically real estate has appreciated somewhere in the 5-6% range annually. In light of the boom and collapse of the last f years, what are your guesses for average annual appreciation over the next 15-20 years?
TampaBay-
This situation was years in the making, and so it’s likely to take years to unwind. There are a couple of unknown factors that make a long term guess difficult though.
For example, credit is awfully tight at the moment- but the number of REOs are increasing. Will the bank dump them to raise cash, or be forced to hold their own paper and sell REOs to anyone with a pulse to get them off the books? How much more surplus supply will the HBs dump on the market?
I do think though, when we get down the road a few years, that logic says housing prices in a normal world keep pace with wages- they have to. I think the median will probably dip below the mean for awhile, but then eventually recover, meaning mortgages will be in line with wages.
It’s too bad there aren’t better deals on crystal balls out there. : )
Tampabay,
The problems goes much deeper than housing. Housing is only a symptom. The U.S. economic situation is dire. History may not have a great deal of value in predicting the outcome of this period,as circumstances are not conducive to past downturns.
A recession is unavoidable, how we deal with that recession will have much to do with the answer to your questions.
Secondly, the election of new leadership (all new) could help. Few politicians are courageous enough to level with the people. Congressman Ron Paul is the only candidate that tells it without the sugar coating.