After making a name for himself brokering luxurious Trump real estate projects in South Florida and Panama, Jack Studnicky has returned to his real estate-owned property, or REO, roots.
When he looks at Downtown Miami, the vice president at International Sales Group, an Aventura-based luxury real estate brokerage, has flashbacks of Ocean City, Md., in the early 1970s. The oceanfront of the vacation retreat was lined with 25 luxury buildings — about 3,000 empty condos — and nothing was selling.
“I did my first workout in 1975 with Chase Trust. We had a fire sale and the flames roared up the beach like an inferno,” Studnicky said. “Back then, nobody knew the negative impact of a fire sale and it destroyed the market by establishing low prices. It took 15 years for the values in Ocean City to return to normal. That doesn’t have to happen in Miami.”
Like many brokers, Studnicky, who still oversees all sales for Trump Ocean Club, a mixed-use, 70-story tower in Panama City, is transitioning much of his practice to REOs and workouts because that’s what the market has dealt. Studnicky bets his past experience, which includes over 50 workouts worth over $1 billion, will give him the advantage in a market that will soon be flooded with young brokers trying to position themselves as workout specialists.
And that market is growing. The third quarter saw a 16 percent year-over-year increase in repossessed South Florida properties, according to Condo Vultures Realty. There could be nearly 29,000 South Florida homes repossessed by the end of the year if the current pace continues, with that number continuing to climb.
“We haven’t seen conditions like this in 25 years. This is an old business that has just reared its head again,” Studnicky said. “We’re going to see a bloodbath, but we don’t have to give away real estate to work our way out of this situation. We need to keep cool heads.”
Peter Zalewski, a principal with Condo Vultures, commented: “On one hand, the number of REOs will continue to rise in unison with the number of foreclosure actions — on pace for nearly 100,000 in 2009 — being filed in South Florida. On the other hand, the pool of buyers for REOs is extremely deep in South Florida, despite the challenges of obtaining financing in today’s market.”
Studnicky said his approach differs from other REO specialists because he works to get the highest price possible per square foot for the banks, rather than dumping the real estate as quickly as possible. Instead of taking a commission on each sale, International Sales Group takes a percentage of the profits above what the lender set as a sales goal.
“Essentially, the lender knows we are working hard on every transaction to get them the return they want,” Studnicky said. “We make our profit primarily on this upside. The bank’s loss is minimized because we are paid like a junior partner. The more we get for the bank, the more we make.”
Lew Goodkin, principal of Goodkin Consulting, a Miami-based real estate consulting firm, agrees with Studnicky’s workout strategy. He said too many brokers sell off real estate at bargain basement prices and congratulate themselves. Goodkin said Studnicky wants the best possible price for developers and banks.
“It takes a savvy person to succeed as a workout specialist,” Goodkin said. “Of course, there are existing organizations that are already established as workout specialists in the local market and they have an advantage coming out of the gate. But Jack will get his share of the market.”
Jim Shindell, chair of the real estate practice group at the Miami law firm Bilzin Sumberg, sees opportunity for highly-skilled, highly knowledgeable real estate professionals for one reason: This is not like previous downturns where most of the deals are the same.
“There are a lot of complications in the current environment with the distressed properties and workouts and there is a premium on experience,” Shindell said. “Many institutions that hold paper are trying to decide how to evaluate the asset and they are woefully understaffed — they need experienced help.”