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Developers Gietl and Levy-Hara buy below replacement cost

July 29, 2011 01:27PM

Developers Stephan Gietl and Fernando Levy-Hara of the McKafka Development Group have been buying up distressed properties by the load and marketing them to investors who still believe South Florida is paradise, Bigger Pockets reported, all the while bringing an international perspective — Gietl is Austrian and Levy-Hara is Argentinian — to a market that is of increasing interest to foreign buyers.

“We started in 2009, picking up distressed properties,” Gietl told Bigger Pockets. “Everybody was afraid and scared, but this is actually where you usually can make the most money.”

The pair came up with a basic idea — buy below replacement cost. “If you can buy below replacement cost, it means that the land value is negative, Gietl said. “In a market-oriented society — in a capitalistic system — land value in the long run can never be negative, but for only one simple exemption: and that’s if demographic data is so bad that people are leaving a place and you have no positive population growth. That’s the only scenario where you can have negative land value.”

Gietl has noticed the uptick in foreign buyers and all cash transactions, which he attributes to an increasing interest from banks in providing loans to foreigners.

“Domestic financing usually requires a leverage of 80 percent because people cannot afford the pay down. The foreigners say, ‘I don’t care if the leverage is percent. I have the money. And the interest at the moment is low.’” [Bigger Pockets]