With mortgages hard to come by, some developers are lending the money to buyers themselves in order to sell units.
“It just reflects the fact that it’s not easy to get financing for a condo unit,” said Guy Cecala, CEO and publisher of the Maryland-based Inside Mortgage Finance Publications, a group of industry newsletters. “They’re the black sheep of the mortgage market.”
That’s especially true in South Florida where it’s ground zero for the condo market crash, he said. Since the peak of the boom years in 2006, condo prices have dropped around 50 percent, according to real estate tracking company Zillow.com.
So condo projects like the Luxuria in Boca Raton, 1200 Hillsboro Mile, which is just south of Boca Raton in Hillsboro Beach, and the 1800 Club in Miami, a 42-story luxury condo in the Miami Performing Arts District, are finding alternatives to the traditional mortgage market.
“People like options,” said Michael Goldstein, Luxuria’s president of sales and marketing. “It doesn’t matter how much money you have.”
At Luxuria — where units range from $4.5 million to $15 million — the developer financing program started last month with an advertisement in the Wall Street Journal, Goldstein said. While it’s too soon to gauge the success of the new offering, so far, the developer is working with one buyer through that program.
It’s not your traditional mortgage. The developer requires a larger down payment of 50 percent, a credit check and the loans are only for two years. It’s designed for an owner who may be downsizing and has to sell a home. In this market, that’s going to take time, Goldstein said. But with the developer loan, they can move into their Luxuria unit much sooner. There are no set rates, he said.
“It’s like anything else, we have to look at the person,” Goldstein said.
Ten units are left to sell in the 10-story, 26-unit Luxuria, he said. The building is paid for, which gives the developer more flexibility to create a lending program.
In rare cases, a developer can influence a bank to lend money to its buyers.
At 1200 Hillsboro Mile, Marrano/Marc Equity, the Buffalo, NY-based developer, was able to work out a deal with its bank — in Buffalo — to provide financing, said David DePaolo, executive vice president at Marrano/Marc Equity.
“We can bring the bank to the deal,” DePaolo said.
After that, however, the mortgage process follows a traditional process, like the 20 percent down payment, good credit and an appraisal before the bank will lend the money.
“It’s a unique situation,” DePaolo said, since the developer has had a long-standing relationship with the bank and borrowed money from it to buy the land and construction. So the bank has a big stake in the project’s success, he said.
The $40 million, two-building project, where units go from $650,000 to $2 million, has seen six units sold in the completed 11-unit building on the Intracoastal Waterway. The developer recently broke ground on the 18-unit ocean-side building.
Cecala, of Inside Mortgage Finance, said condo developers and buyers can expect to see more programs like these from builders who have the deep pockets, for a while. He doesn’t expect banks to start lending any time soon without some special program, like at 1200 Hillsboro Mile, in place.
“There’s no movement to loosen the underwriting for condos going forward,” he said.