Price gap stymies bulk sale transactions

Miami /
Dec.December 04, 2008 11:21 AM

Owners of bulk sale properties may still expect too much money for
their assets, and face a reality check once credit loosens and deals
start getting done.

Even cash deals are stalling, because the prices bulk sellers are
asking remain too high and are unrealistic for the current market
conditions, according to Dario Carnevale, vice chair of Foley &
Lardner’s real estate practice in Miami.

“Buyers tend to want to cherry pick the best properties but they also
have to deal with the applicable bankruptcy rules if they want to get
deals done,” Carnevale said. “A few bulk sales are rumored to be
proceeding. Other than that, there’s been a lot of talk and very little

The stalemate remains in thrall to the credit crunch. The one big bulk
deal, done by The Related Group, working with a Philadelphia private
equity firm Lubert-Adler, bought 120 condominiums in Miami August.
Related’s billion dollar deal with Lubert-Adler seeks to “leverage the
sluggish market,” according to Related CEO Jorge Perez.

But the Related deal was just under the wire. It was struck in early
August, before the worst of Wall Street’s systemic meltdown. Aside from
those 120 units, the region has plenty of unsold inventory, which
erodes pricing power. Downtown Miami alone is expected to see 11,551
condo units come online this year. That’s in addition to the more than
20,000 completed condos that sit empty. That adds to the growing glut
and sets the stage for bulks sales — at the right price.

Developers remain panicked by the oversupply, a global financial crisis
and clogged pipeline that will worsen in 2009. Meanwhile, banks are not
holding a fire sale on real estate owned property, or REOs, properties
that have been foreclosed on and have been taken back by the mortgage

“There’s a big gap between what buyers are willing to pay and what
banks are willing to sell at,” said Thomas McCarthy, managing director
of the Carlton Group and co-head of the loan sales group in Palm Beach
Gardens. “The good news is we are seeing more effort to meet in the
middle and make these transactions happen.”

The key to moving bulk sale deals forward more quickly is matching the
right buyer with the right asset. McCarthy reports that buyers
undertaking comprehensive feasibility studies are bidding for bulk
sales that demonstrate a low risk in their portfolio.

A reservoir of salable properties could flood the South Florida market — but nobody knows when the dam will burst. McCabe Consulting estimates
vulture funds have reserved at least $30 billion to purchase distressed
Florida real estate. Those funds have been accumulating for the past
three years, the firm reports, waiting for the bottom.

Cash, said Carnevale, will move the wheels of any deal that happens
now. Developers may not be filing bankruptcy in droves, but banks are
not lending greenbacks by the barrel anymore, either. Banks do own
condos, though, and are looking to get the properties off their books.

“There are plenty of fantastic properties for those with the cash, the willingness to handle the complexities of a bulk purchase, and the
proper advisors to get through the process,” Carnevale said. Still, so
far, he repeated, in the current market there is “lots of talk and very
little action.”

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