Q & A with Peter Zalewski, founder of Condo Vultures

Peter Zalewski was a business journalist in 2005, when he heard
consistently from Florida lenders that they were going to pull out of
the condo market. He thought it was time to start organizing. Now, five
years later, Zalewski has a thriving real estate consultancy,
Condovultures.com; a buy-side brokerage with 33 agents called Condo
Vultures Realty; and CVR Realty, short for Condo Vultures Resale
Realty, a separate resale brokerage that opened earlier this year with
nine agents. Condovultures.com, which issues weekly reports on Miami,
Sunny Isles Beach and South Beach, is expanding to report on Fort
Lauderdale, West Palm Beach, Boca Raton and Hollywood-Hallandale.
Zalewski was one of the pioneers in examining condo and foreclosure
data after the crash, and talked to
The Real Deal about how brokers are
using South Beach to sell properties in Miami and Sunny Isles Beach,
the effect of Fannie Mae’s special approval for condo buildings and
major trends in residential inventory.

What are some of the major trends you’ve been seeing?
What we’ve found is there were 108,000 properties for sale in November 2008 with 9,300 pending sales. And where we are today, as of the third of May, Monday, we’re at 65,000 available properties, down from 108,000, which is a reduction of about 40 percent, and we’ve seen pending sales go from 9,300 in November 2008 up to 22,250, which is an increase of about 139 percent. Condominiums are starting to finally move and there are also are less and less of these condos on the market. We just fell below the 40,000-resale mark. When we first started, there were 61,000 condos; now there are just 39,000 for sale. If you look at the supply-and-demand issue, the supply, which was just overwhelming, is slowly and continuously being reduced. If you look at pending sales on condominiums, it’s gone up 175 percent, which outpaces what you find on the single-family house side.

Recent reports showed around $1,370 per square foot pricing for new-construction units in South Beach. How is South Beach keeping these prices so high?
What is happening is Sunny Isles and Downtown Miami, new product and developers are benefiting from the fact that South Beach doesn’t want to negotiate. People are coming in and saying South Beach is the gold standard from an investor- or second-time homebuyer perspective, and many people are getting sticker shock, and if they want to be on the sand, they’re being basically forced to go up to Sunny Isles… If they don’t necessarily care to be on the sand, but they want value in product, because they don’t think anything is going to be built for quite some time, they’re increasingly going into Downtown Miami. South Beach has had high-priced product that realtors are using to sell Sunny Isles and Downtown. Because they walk into South Beach, they show a couple of properties, and say, “That’s it, we’ll simply go across the causeway or four miles west, or five miles north, you can get much better value at half, if not a third of the price.” That’s really a significant contributing factor for Downtown Miami and Sunny Isles’ success.

Will that have a downward effect on South Beach pricing?
The South Beach pricing bottomed out in 2008, so it’s well more than a year and a half. There is a general consensus in the marketplace that at least in South Florida, a bottom is being scraped at the pit, with the likelihood that it will come back or be restored in 2011, and there’s this thought process that if I’m an investor, I want to get in today because I want to sell in 2011. If there is a window in South Beach, it’s probably going to be in the next five months.

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What has happened with bulk purchases?
There hasn’t been a lot of bulk in the last 90 days, at least in greater Downtown Miami. Increasingly where the bulk is headed is into the B-and C-grade product, still in Miami and farther west. You’re seeing some stuff in Broward and Palm Beach. Most people come to Miami. We’re of the opinion that as the B and the C start to sell, as we get into next year, a lot of these condo conversions, those are selling now or likely to sell at the $10,000 to $20,000 to $30,000 per-unit range, buyers aren’t going settle for that until they pick off the new product. Everybody comes in, they want to live like a rock star, and once they realize they can’t afford it, they say, ‘Well I don’t need to be a rock star but I’d like to be close to the rock stars.’ …And that’s why you’re seeing some success at Icon [Brickell]. Icon moved 164 units in the first quarter, and looking at our data, they moved more than 100 units just in April alone.

What effect has Fannie Mae’s special approval for certain South Florida condo buildings had on the condo market?
Nothing. The primary reason is, Fannie Mae is telling all the lenders, “listen, if you issue a mortgage in one of these buildings we’ve approved, we will buy it or it will be able to be sold on the secondary market.” The real problem they’re running into is none of the lenders want to originate that mortgage to sell it on the secondary market. So step two is in place, step one is not there.

Did the tax credit have any effect on condo sales?
A lot of people want to make a big deal of the tax credit and how significant it was to moving product. The tax credit did have some effect but I think it was more on the single-family house side… I’m less of a believer that the tax credit affected the condo market. I’m more of a believer the tax credit affected the single-family house market.