There are a lot of Condo Hotel projects in trouble in America today, but W South Beach is doing better each day. The project was well conceived and has a loyal following… it has become a SoBe hot spot. They have been selling 6+ units a month, which is slower than anyone would like, but it is a pace that will sell out the project in 4 years - not forever…
Plus, the lender is stepping up to support the project. Smart!
This from the FL Business Review:
“Despite slow sales, the owner of the W South Beach condo-hotel obtained an $8.4 million increase to its mortgage.
The 420-unit condo-hotel was developed by 2201 Collins Fee, an affiliate of New York-based TriStar Capital and RFR Realty. The project was funded by a $370 million mortgage in 2007 by Hypo Real Estate Capital Corp., a German lender acting as the lead agent for a consortium of lenders. As such, it is not under the scrutiny of U.S. banking regulators, which have come down hard on major real estate loans in South Florida.
On May 28, Hypo Real Estate increased 2201 Collins Fee’s mortgage to $378.4 million.
It is unusual that the loan was not reduced, given that the developer has sold just 77 units. Normally, the loan balance is reduced with each sale. However, 2201 Collins Fee must still fund the operations of the hotel, and that could require additional capital.
Since opening sales in June 2009, the developer has sold an average of 6.4 units a month. At that pace, it would take four-and-a-half years to sell out.
Miami Dolphins running back Ronnie Brown is among those who have purchased a unit there.”
Marquis Offers Mortgages to Buyers MIAMI-The developer of the 292-unit luxury condominium in downtown Miami known as the Marquis Residences is trying to sell the remaining 227 units at the development in a unique way by offering to fund mortgages for so-called non-conforming loans. The 67-story tower, the tallest residential building in Miami as well as Florida, is largely regarded as luxurious and comes with a host of amenities, such as a five-star boutique hotel in the building, which boasts a spa and fitness center which owners can use, and panoramic views of Biscayne Bay and Miami Beach.
But even those attributes are not always enough to close the deal at a time when there are still too many condominiums around, albeit much fewer than a year ago, because of bulk condominium sales. One prominent exception to the deflation in condominium prices in Miami is the recent sale of the 7,800-square-foot penthouse unit at the Marquis, which sold for $4.2 million, which the developers say is the most expensive condominium ever sold in Downtown Miami’s Biscayne corridor.
The aforementioned penthouse sale notwithstanding, Marquis developer New York-based Africa-Israel USA has reduced its prices by as much as 40% (units start at $375,000), which in today’s market is just a starting point, but that is not all. Africa-Israel, in partnership with Americor Mortgage, based in Birmingham, Michigan a suburb of Detroit, has dedicated $50 million to fund buyer mortgages.
Many of the Marquis’ buyers, if not most, are foreign, so they do not quality for Fannie Mae or Freddie Mac loans, because they do not have green cards, says Bob Waun, CEO of Americor. In addition, there are condominium investors and buyers of so-called jumbo mortgages, those over $417,000 in Miami, who also do not quality for Fannie Mae and Freddie Mac loans. These buyers are Americor’s target market.
“We closed our first loans at the Marquis last October,” says Waun. Americor is a correspondent lender in the state of Florida, which has been in business since 1986, he says. “Our specialty is new condominium projects, condo-hotels and resort properties,” says Waun, who adds that while the mortgages are originated by Americor, post-closing they have a hybrid structure. “They are close to being seller-financing, but not quite,” he says. “Although we make the loan, Africa-Israel stands behind each transaction, which means that some of the money is theirs,” says Waun, declining to more specific.
Ironically though, “Almost no one to whom we’ve given a mortgage needs one,” says Waun. “Some foreign buyers think they have to pay cash,” although when given a choice, they opt for a mortgage, he says. Americor mortgages only go up to 50% loan-to-value, much less than conventional financing.
“Although there were some pre-sales which closed in October,” units at the Marquis were not available to the general public until April, says Lori Ordover, managing director for Africa-Israel USA. Since last fall, the Marquis sold 65 units, but most of those were sold between mid-March and mid-June, she says.
“We started marketing units a few months ago,” says Ordover. “Before that, we didn’t have a certificate of occupancy.” As for pre-construction buyers, who bought units starting in 2005 and 2006, before the building was up, she says that only 20% of them actually closed, because of the financial crisis.
Because so many of Marquis’ buyers are foreign, “We worried about the euro taking a dive recently, but we still do have a lot of international buyers,” says Ordover. That’s partly because prices are still very low by historical standards, she says.
Timeshare lawyer, David Sudeck, organized a great panel of vacation ownership experts who met earlier this month to discuss developments and opportunities for profit within the vacation ownership industry. David Sudeck, a senior member of our Global Hospitality Group® who focuses on vacation ownership issues, writes extensively on issues in this area.
Executive Summary:
Timeshare is not recession proof, but the fundamentals remain strong!
There are underserved areas where demand for vacation ownership is greater than current and planned supply.
Hotel owners are using certain tools from the vacation ownership industry (e.g., sampler programs) to drive hotel occupancy through presold short term stays.
Certain hotel properties may benefit from partial or complete conversion to timeshare or fractional use, but the property must be well-suited for a conversion. A failed hotel may just become a failed timeshare!
And here are the highlights from our experts:Howard C. Nusbaum President American Resort Development Association (ARDA)
While timeshare sales were down for the 4th quarter of 2008 and early 2009, sales and financing are getting better. The issue for some smaller developers remains access to capital. Prices for timeshare interests have actually increased year over year, and fractional interest pricing has decreased only by 7%. Occupancy at timeshare resorts remains high, even during a recession due to the prepaid nature of the product and the overall high satisfaction of timeshare owners. Timeshare consumer loans tend to have lower defaults than other consumer loans; this is true in part because the average timeshare consumer is 47 yrs old, college educated, enjoys using his or her timeshare, and is unwilling to default on a small timeshare loan and hurt his or her credit. Also, lower cost “sampler” products are allowing today’s consumers who may not otherwise be familiar with the benefits of ownership to test drive timeshare products.
Richard L. Ragatz President Ragatz Associates
Ragatz Associates has collected comprehensive data on the fractional industry and has completed a study identifying underserved markets (especially urban areas where demand exceeds supply even in today’s market). Richard educated the attendees regarding the differences between time shares, fractional product, private residence clubs, and destination clubs. He also discussed the critical physical components of fractional product and the types of hotel rooms and condominium units that are viable candidates for conversion. The average number of fractional interest units is 30, and typically a kitchen is required, but there is much more that goes into a successful fractional conversion.
Bob McGrath Vice President, North American Business Development RCI
RCI doesn’t develop timeshares, it makes them better by offering flexible exchange options (including traditional, points-based and high-end whole ownership). Demand for timeshare is based in large part on the ability of timeshare owners to exchange their interests. RCI has collected valuable data, prepared by Ragatz Associates and from other analysts, relating to underserved markets, demographics and other key determinants for success.
David Cox President FNTC America Trust Company
Trust-based timeshare and fractional products are growing in popularity in the U.S. (they are already established in Europe) based on the industry’s desire for a more flexible and reliable structure. This structure can be used, for example, by hotel owners wishing to place only a portion of a hotel into a timeshare program for a limited number of years. The structure has been time-tested and is now familiar to state regulators.
Jamie Klein President & Chief Executive Officer The Lore Institute
Permanent or interim conversion of hotel rooms to timeshare and fractionals may be a good way to monetize hotel rooms if they are not operating at higher than a 70% occupancy rate. Jamie helped convert two St. Regis hotel properties from under-occupied hotels to thriving vacation ownership properties. The marketing of the intervals helped drive occupancy, and the hotel’s transient occupancy guests were the ideal potential buyers of the intervals. The owners are great users of the property’s facilities, and the interval owners help subsidize operating and replacement costs. The hotel must be appropriate for conversion. Jamie is available to discuss what makes a good candidate. Lore Institute is available to conduct a Sales and Marketing Effectiveness Audit for vacation ownership projects. Lore recently enjoyed tremendous sales for an Oregon vacation ownership project after performing a full Audit on the property.
Bob Waun Chief Executive Officer Vacation Finance
Bob sees great opportunity for vacation ownership within the hotel sector, because many consumers who want to be a stakeholder in a hotel that they like and frequently. Over the last 10 years lenders have enjoyed above a 15% return on investment in the timeshare space. The consumer is looking at timeshare as a consumption product, and they value their ownership. This translates to lower defaults involving timeshare loans. There are opportunities for lenders willing to learn about the vacation ownership industry, but the lender needs to both understand and believe in mixed-use and an ownership component.
David A. Sudeck Of Counsel, Global Hospitality Group® Jeffer Mangels Butler & Marmaro LLP (JMBM)
JMBM has several hotel clients that are exploring shorter term non-fee simple products so that they can weather the downturn without losing long-term control or ownership of their hotel inventory. We are also working on more traditional timeshare projects with foreign investors looking to capitalize on the bargain prices that we are currently seeing. JMBM is working closely with several of the panelists to meet our client’s objectives.
The mood was upbeat … cautious optimism. One thing was clear, our panelists know, live and breathe shared ownership, and we want to continue to work with professionals of their caliber as we help steer the industry toward its successful future.
Jim Butler is a founding partner of JMBM and Chairman of its Global Hospitality Group®. Jim is one of the top hospitality attorneys in the world. GOOGLE “hotel lawyer” and you will see why. JMBM’s troubled asset team has handled more than 1,000 receiverships and many complex insolvency issues. But Jim and his team are more than “just” great hotel lawyers. They are also hospitality consultants and business advisors. For example, they have developed some unique proprietary approaches to unlock value in underwater hotels that can benefit lenders, borrowers and investors. (GOOGLE “JMBM SAVE program”.) Whether it is a troubled investment or new transaction, JMBM’s Global Hospitality Group® creates legal and business solutions for hotel owners and lenders. They are deal makers. They can help find the right operator or capital provider. They know who to call and how to reach them. For more information, please contact Jim Butler at jbutler@jmbm.com. or 310.201.3526.
June 1, 2010
By Stephanie RiccaThe future of timeshare, fractional ownership and residences aligning with hotels is promising despite setbacks in recent years, according to industry experts.
The buoyancy of mixed-use development dominated the discussion at a panel on timeshare at the Meet the Money conference held in Los Angeles in early May. Panelists discussed the feasibility of financing and operating hotel properties that choose to convert some space into fractional ownership or timeshare.
“It’s a very healthy environment to monetize hotel rooms into fractional ownership at the high end, or into timeshare at the lower end,” said Jamie Klein, president of The Lore Institute of Shared Ownership. “From a hotel perspective, it’s an outstanding way to monetize your hotel rooms. It’s also a great way to take a whole-ownership project and use it as an exit strategy.”
Mixed-use with timeshare can be a win-win if developers take advantage of the inherent strengths of the hotel.
“If you have another expression of your hotel in an ownership form, your marketing is taken care of,” Klein said. “You’re not taking business away from your hotel; you’re adding to it.”
Guest-to-owner marketing
Tapping into the guest-as-a-potential-customer mindset is critical, said Howard Nusbaum, president and CEO of the American Resort Development Association.
Hotel guests become repeat guests when they love the hotel experience, he said. After that, they are more inclined to buy an ownership product. “By the third or fourth visit, [the guest] wants to feel some affinity,” he said. “It’s very compatible to your marketing mix.”
The key is to maximize the marketing overlap, not fight it.
“Just don’t try to convert [the ownership part] to a different consumer than what the hotel goes for,” warned Richard Ragatz, founder of Ragatz Associates. “Make sure you’re compatible with what you’re converting to.”
Even given the marketing advantages, panelists cautioned against over-aggressive growth in the mixed-use space.
Klein pointed out that generally speaking, mixed-use has more success when high-end properties convert space into fractional ownership rather than timeshare, which tends to do better in non-luxury properties.
Ragatz said the key to fractional ownership conversion is control. “Don’t even think about converting 50 to 100 units,” he said. “Go for fewer.” He said developers interested in turning high-end hotel space into fractional ownership must consider zoning regulations (Will laws permit two- or three-bedroom units?) and utility availability (Does existing infrastructure allow for kitchen plumbing and wiring?).
Financing
“We think there’s great opportunity in the resort sector, condo-hotels, fractional ownership and timeshare,” said Bob Waun, CEO of Vacation Finance. “From a lender’s viewpoint, I can tell you that over a 10-year period, we’ve had about 15-percent return on our hard investment in the timeshare space.”
Despite the optimism of some lenders, however, financing development remains a hurdle in the timeshare space. And it’s not just because of the common lack-of-liquidity problems. Mixed-use timeshare developers have another hurdle to overcome—education.
Mixed-use “kind of blows the lenders’ minds a little bit,” Waun said. “The minute you start introducing some other form of shared ownership, lenders just don’t get it. They don’t understand the timeshare or shared-ownership model. There has to be a lot of education at the lender level before you introduce shared ownership.”
Nearly 800 Canadians will jam a hotel ballroom near the Toronto airport Sunday to hear the gospel of Florida real estate.
High-end Brazilian buyers prefer to be wooed more intimately — perhaps at a cocktail party or a small private dinner — but they are just as pumped.
Lured by rock-bottom prices, international buyers are now flocking to buy Florida properties. It’s especially true in countries where the currency is strong against the dollar.
“We’re telling Canadians this is a once-in-a-lifetime opportunity — the perfect storm,” said Brian Ellis, who heads Toronto-based Florida Home Finders of Canada. “The prices are just incredible and the Canadian dollar has been so strong.”
At least three of five buyers in the Greater Downtown Miami condo market are coming from abroad, estimates Jenny Huertas, international sales director for Condo Vultures, a real estate advisory and research firm.
The stampede from overseas is “kind of like a foreign subsidy helping us resolve our real estate problems,” said Peter Zalewski, a Condo Vultures principal. “This time the assistance isn’t coming from Washington. It’s coming from Caracas, London, Milan, Bogotá.”
The buying frenzy was set off by developers lowering prices on new units to below what it cost to build in today’s market, Huertas said.
“There were many people on the sidelines watching for the floor. In the last three or four months there’s the perception that we’re there,” said developer Edgardo Defortuna, president and chief executive of Fortune International.
CASH CUSTOMERS
Most of the foreigners are cash buyers like Leroy Jean Francois, who has snapped up 47 properties since January for the two real estate firms he works for in France and Switzerland. The plan, he said, is to buy, fix up if necessary, rent out for the next five years, then sell — for a profit.
The Frenchman has already made a paper profit on a unit he closed on in January at Marquis Residences, a 67-story luxury tower in downtown Miami where prices for a one-bedroom apartment start at $375,000. His unit cost $317 per square foot — “a great price, incredible,” he said.
A recent plunge in the euro — it’s now worth $1.23, down from its high of more than $1.60 in 2008 — could cool things off a little. To buy a $1 million condo, it now takes around 814,000 euros compared to 625,000 euros under the old exchange rate.
Meantime, prices at Marquis Residences also have strengthened to around $400 per square foot.
But even the declining euro has barely given Francois pause.
“I think the euro will weaken more. But even if the exchange rate is $1 to 1 euro, South Florida real estate is still a great bargain for us,” said Francois, who is president of The Bridge, a real estate fund consultancy.
AVERAGE JOES
Luxury condos are once again popular among Latin America buyers who purchase them as investments but also as a home base while their children attend school here, they attend to business interests or escape strife at home.
But for his Canadian buyers, Ellis scours South Florida for condo units at around the $150,000 price point. “We’re basically the Wal-Mart. We’re for the average Joe.”
And these days average Joe Canadian can afford much more. For decades the U.S. dollar was worth more than the Canadian dollar and buying in the U.S. was always more expensive for Canadians. But in September 2007, the Canadian dollar reached parity with the greenback for the first time in 31 years. It fell back again, but now the Canadian loonie, which takes its name from the loon pictured on the one-dollar coin, is near parity at around 95 cents.
So Ellis has been offering his Florida real estate seminars to packed houses in Ontario and is thinking about taking the show on the road to Montreal. There was so much interest in the latest seminar that he had to schedule two sessions for 400 people each this Sunday.
Most of his Canadian buyers are what Ellis calls “end-vestors,” meaning they plan on renting a unit out for now with an eye toward using it themselves down the road.
Since Home Finders is licensed as a brokerage only in Canada, it works with Florida brokers who complete the sales and pay the Canadian firm referral fees. By year’s end, Ellis said he expects to have facilitated 500 Florida closings.
PRICES HALVED
Though Home Finders is now working with one Sunny Isles Beach property where condos are listed for up to $350,000, the Sun Vista Gardens in Tamarac is a more typical offering.
There, buyers can find a one-bedroom for under $75,000 and a two-bedroom for under $100,000. That same one-bedroom, used to cost $190,000, according to Florida Home Finders’ website.
Ellis said he’s actually having a hard time coming up with enough Florida properties in the $150,000 range. Of course, he’s picky. He’s looking for good value, a good location and properties without legal complications. Most of the Canadians want condos, but Ellis said he has some requests for single-family homes.
Though buyers from Europe, Latin America — most from Argentina, Brazil, Colombia, and Venezuela — and Canada predominate in the South Florida market, a smattering of Chinese investors and African buyers also are starting to make purchases.
“We recently sold a $7.5 million penthouse at Jade Ocean to a Nigerian buyer,” said Defortuna. “They were here and they loved it.”
CHINA, TOO
At Fortune’s 237-unit Artech building, Defortuna said 11 condos were sold to Chinese investors. Units in the building are selling for almost half of the original asking price.
“I think China is still a marginal market,” said Defortuna. “The Chinese are more focused on the West Coast and New York, but small pockets [of Chinese buyers] can make a big difference in a building.”
With international offices in Mexico and Argentina, Fortune can tap directly into those markets, and it frequently holds seminars on the legal and financial aspects of owning property in the United States. At one recent event in Buenos Aires there was space for just 200 people, so Fortune decided to charge a $60 fee. “We still had to close reservations,” said Defortuna.
One big concern of foreign buyers is what happens to their properties when they lock up after a vacation, said Defortuna. But Fortune International’s property management division will take care of things like paying utilities and condo fees — and even turn over a client’s car engine once a week so the battery doesn’t die.
A number of local brokerages have country specialists on staff who work with their counterparts abroad to bring in buyers.
Elite Global Reality, for example, has sales associates who specialize in the French, Italian and Chilean markets, said Thiago Costa, executive director and sales associates.
Costa, who is Brazilian, travels frequently to his homeland where local partners have set up meetings with potential buyers in Sao Paulo, Rio de Janeiro or Belo Horizonte who are “willing and able to buy.”
He prefers to present one South Florida project at a time to 10 to 20 people at a cocktail party or even a dinner at the home of a potential buyer.
With Miami prices so low, the Brazilian currency (the real) strong, the Brazilian economy robust and real estate prices on the rise in cities like Sao Paulo, where a luxury property might cost $800 to $1,000 per square foot, Brazilians like what they see in South Florida.
`IMPOSSIBLE TO LOSE’
“They feel it’s almost impossible to lose money,” said Costa.
Africa Israel USA, the New York-based developer of the 292-unit Marquis Residences, also works with the brokerage community in target markets like Venezuela, the South of France, Mexico and Brazil. Working with brokers, it has put on events ranging from fashion shows to invitation-only cocktail parties and dinners, said Lori Odover, the managing director.
“It needs to be someone they know, that they have a one-on-one relationship,” she said. So that means even an event at a synagogue or someone’s uncle’s pool party can be a selling opportunity.
Though most international buyers pay cash, there’s an international financing program at Marquis that has proven popular. Some 57 percent of Marquis’ foreign buyers have chosen it.
While the program’s 45 percent down payment for a five-year ARM seems steep, Bob Waun, managing director of Americor Mortgage/Vacation Finance, said, “We find international buyers are more than willing to put 50 percent or more down. They want to put money in U.S. real estate as a currency hedge or an inflation hedge.”
Meanwhile, Ellis keeps telling Canadians what a great deal Florida is: “We believe Florida is in for quite a rebound. We just don’t know when.”
