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Miami Condo Market Shows A Way To Solve Inventory Glut

February 26th, 2013 4:56 am

Don’t look now, America, but Miami might actually be setting a positive example for the rest us.

Never mind how my hometown’s biodiversity features corruption, gaping income inequality, and octagenarians who floor their 30-foot sedans to make early-bird dinner specials. More recently, South Florida was a hotbed of subprime excess that gave rise to an absurd number of half-financed, quarter-occupied condo towers. That overdependence on glass, concrete, and teaser mortgages left the local economy devastated once housing collapsed.

A cautionary tale for the ages … or for all of five years.

No less an authority than the Federal Reserve Bank of Atlanta has issued a report (PDF) that highlights how Miami is successfully shedding its inventory overhang, so much so that the local real estate market is suddenly hungry for new condos. It brings to mind this recorded interview Mitt Romney gave to a newspaper in Nevada, which sits right beside Florida in terms of pain felt from the housing crisis. The lessons: allow investors—all walks of them—to buy distressed properties; fix them up and fill them with renters; let increasing rents and the natural push of demography drive increased property prices.

“The presence and health of birds,” the report begins, with a flourish of taxpayer-funded metaphorical license, “often signal the health of an environment. An abundance of waterfowl, for example, can signal that the surrounding wetlands are healthy. An unhealthy canary in a coal mine indicates the presence of toxic gases. One ‘bird’ that indicates the health of the real estate development industry is the construction crane, and it appears to be making a comeback [in Miami].”

Florida, like the bottoming national market for new homes, is benefitting from a growth in population. A headcount of nearly 20 million Floridians has the state on track to become the nation’s third-largest by 2013, when it’s expected to surpass New York. Next year is also when nearly all of the area condos developed during the bubble are on pace to sell out; as of the second quarter of 2012, just 3,400 units out of 49,000 condos created were unsold in South Florida’s seven largest coastal markets, according to Peter Zalewski, principal of Condo Vultures, a local brokerage and research firm that was quoted by the Atlanta Fed.

“South Florida’s newest condo boom-and-bust cycle is just getting started,” he says. “Developers are already rushing into the market to secure their sites.” Zalewski says he has tallied 70 proposed towers in South Florida, with nearly 10,500 condo units planned—18 percent of them already sold. “The only thing they’re waiting for,” he says, “is the return of condo construction financing, which is still elusive in South Florida.”

Zalewski says South Americans with strong currencies are prodding developers to overcome their financing hurdles by offering cash installments of 30 percent to 80 percent of a new condo’s contracted purchase price. And so nearly 20 construction cranes have been ordered to return to South Florida in short order.

As for all that inventory from the Great Miami Overbuild of 2005? The Atlanta Fed report notes how a re-prioritization of renting—by both new renters and condo owners who were previously fixated on flipping for gains—has helped fill a skyline full of empty boxes: “The past several years’ distressed housing market—including the limited access to financing—may have forced many residents (and visitors) into renting. The now-flourishing rental market may be helping to bolster condo development, as the sharp growth in rents may be causing some consumers to reconsider alternatives such as trading down to rent a cheaper multifamily unit or trading out to rent a single-family home or to pursue homeownership.”

Yes, much of this rebound is idiosyncratic to Miami, which is already one of the nation’s more idiosyncratic cities. “While it would be nice if the anticipation being felt in Miami could be translated to a rosier picture for the broader economy,” concedes the report, “factors such as international demand make the South Florida condo market not necessarily representative of the rest of the country.”

Still, the mere fact that a sense of fundamentals-driven investment can take hold in a market never quite known for sober capital allocation should give some a reason for hope.

In Real Estate Law, What Is a Covenant?

July 10th, 2012 12:20 pm

Properly defined, a covenant is a promise made in a deed. In practice, though, and contemporary legal discourse the word is used rather more loosely to mean simply an obligation affecting landowner, regardless of the obligation is created by deed. The covenant may be positive, or it may be negative. A positive covenant requires an act to be done such as building a house. A negative covenant requires an act not to be done such as to not build a house. landowners often find useful to attempt to regulate the use and development of land. For example, two neighbours may agree with each other that one will not build in a way that interviews with the others view. Or a person owning two adjoining parcels of land, intending to sell one and became the other, may wish to preserve the amenity of the retained land requiring the purchaser to agree to use the land sold for residential purposes only. Or yet again, and owner intending to develop land is a residential subdivision may want to ensure that purchases of lots in the subdivision built in a way that will remain the character and value of the subdivision, and so may require purchasers to agree to build houses of a certain size and quality. Each of these examples shows how a covenant can be used as a tool for creating a legal right and securing title to property.

Covenants are special because they can take on the character of property, transcending limitations contract will such a covenant will then run with the land and enforceable by and between successes in title, persons who were not parties to the making of the covenant. At common-law, the burden of a covenant affecting freehold land does not run with it. This is an immutable rule, to which there are almost no exceptions. The original covenant for successors in title are not bound by the covenant, regardless of whether the covenant is positive or negative. However, in most jurisdictions there is now legislation which appears to overturn this common-law rule. An example is the New South Wales conveyancing legislation. The interpretation of this legislation by the courts led to the conclusion that the the covenant cannot bind successes in title where it is deemed to be made on behalf of the covenantor and his or her successors in title. it is very important to understand that there is a covenant on title revealed in the title so when buying a property because you would need to know if there is some obligation that the person you’re buying a property from has signed up to and can bind a purchaser to. this is why it is important to know when the covenant over a piece of land.

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