The impact of the continued influx of Brazilian homebuyers is no longer limited to existing residential inventory — Brazil is now starting to affect Miami developments of the future.
It’s all tied to the way residential projects tend to be built within Brazil, where condominium purchasers put down a substantial amount of money when they sign a pre-construction contract, and then pay more as each stage of the building is completed.
“[That process] is something my Brazilian developer [clients] do when they sell an apartment building,” said Coldwell Banker Realtor Jeanne Nicastri. “This is something that has been in use in Brazil, and, having all of the Brazilians here, now we have the Brazilian way of doing things.”
One project Nicastri pointed to is Related’s Apogee Beach, which is already using that method.
“In South America, it’s very different,” said Craig Studnicky, co-principal of Related ISG, which is marketing Apogee Beach. “They will pay over the course of construction. In fact, we’re selling [Apogee] using that exact same formula.”
According to Studnicky, Related is requiring a 20 percent down payment upon signing a purchasing contract at the project. When Related begins construction, buyers will pay another 20 percent, along with another 20 percent at two other stages of construction.
“Before closing, the buyer will have 80 percent of the purchase price paid into the property,” he said. “And I’m doing fairly well with that business model for Related at Apogee in South America.”
Apogee is one of the few projects actually beginning construction after the downturn, and developers have plans for 1,350 new condo units in Florida.
And with 53 percent of Brazilians purchasers in Florida snapping up condos, it’s likely that more developers will follow suit.
“I think real estate is a very copycat business,” Studnicky said. “I think some competitors, when they see how well Related does at Apogee Beach, might want to copy the business model. But I don’t know of any other developers that are ready to launch with this model.”
The 49-unit Apogee Beach launched sales in May, and will break ground by the end of the year; the company hopes to have 30 of the units under contract by mid-October, he said.
According Peter Zalewski, founder of Condo Vultures, it’s a trend that could catch on.
“Financing is extremely challenging to obtain for new condos in South Florida, and for developers who are confident that the market is there, but can’t get the financing, what they’re doing is opting to do a Latin American model, and that’s making typically standard deposits going away,” he said. “If you go to Latin America — Colombia, or anywhere else, and you try to get a condo, all the way through you’re putting down money.”
But there are still questions, he said, chiefly the question of what happens if the project falls apart.
“If something happens, if it goes sideways, what’s the buyer’s recourse if the money’s already parked into the construction?”
Miami law firm Bilzin Sumberg partner Martin Schwartz said the risk is essentially the same for any buyer who pays beyond an initial 10 percent.
“Under Chapter 718, which is the condominium statute in Florida, assuming you have appropriate language in the contract, the developers are entitled to everything over the first 10 percent in construction, and then that money can go into bricks and mortar,” he said.
He said that if a project were to fail under those circumstances, it would be the same kind of situation being faced by myriad developers — where there may not be enough value in the project to compensate the construction lender on the project.
“I understand that with these Brazilian deals, basically the buyers are putting up close to 100 percent of the purchase price — it’s a great deal for a developer,” he said. “It’s cheap money, but all the money that goes in after the first 10 percent is at risk if the project doesn’t succeed.”
Accordingly, some developers of new projects are not going the Brazilian way. For example, there’s Martin Margulies, developer of Bellini Williams Island, a 24-story residential tower in Aventura.
“Marty’s always been about one deal at a time,” said Shannon Selby, COO at Martin Marguiles and developer of the Bellini Williams Island project. “In that vein, it doesn’t make sense in this day and age to start with a 20 percent, 20 percent, 60 percent [payment structure]. I think in this day and age you have to have transparency and honesty, and in fact, we’re not using any deposit money [for construction].”
Selby said it was included in the purchase contract that a buyer would pay 10 percent upon signing the contract, with an additional 10 percent upon the closing of the loan and 10 percent when the project “hit the roof.”
It’s not clear just how much the trend will catch on, but with the continued influx of Brazilian and Latin American buyers for South Florida condos, and a wave of new developments on the way, the money will have to come from somewhere.