Anyone who names his company Condo Vultures, ya gotta love. And we do. Founder and South Florida real estate veteran Peter Zalewski is that area’s favorite scavenger. He knows the law of the jungle all too well: gorge yourself when the prey is abundant. And right now, South Florida’s condo party boasts the world’s biggest buffet table.
Zalewski is also sort of notorious. He became widely known as the villain in the Michael Moore documentary, Capitalism: A Love Story. Only to hear his version of that story, we learn that he was simply giving some tough love, and that love means never having to say you’re sorry.
“Whatever I said, I still would have said,” he tells us about his infamous 2009 interview, which paints him as a ruthless – well — vulture. “There is no question. We were positioned as being the villains in South Florida, taking advantage of those who were in a desperate situation because they were losing their properties.
“At the end of the day, though, this market is all about all-cash buyers trying to take advantage of a situation that might be in front of them right now and might not be available to them in another year or two.”
Zalewski continues to stand firm on the quicksand of a bottom-line market. It boomed like no other, then busted spectacularly. Despite our sad economy, South Florida real estate is reigniting, hot as the weather and loaded for action. However, if you want to stay afloat in this area’s charming waters, you have to construct a life raft made of dollar bills, and lots of them.
“Because of the shortage of bank-owned properties, the real estate investor coming in today is going to be all cash,” he says. “Financing is virtually non-existent. Fannie Mae is willing to find mortgages, but the problem is that no lender wants to originate. The reason for that, and I’m not an active mortgage broker licensee, is if something happens and the loan goes bad, the bank is responsible for basically taking back the debt within that twelve-month period.
“The banks just don’t have a lot of confidence in what the pricing is going to be. They don’t know whether or not they are going to get thrown under the bus. They will have to deal with a whole brand new problem again, so you’re not seeing any financing in the marketplace.”
The properties are plentiful, but the investor has to understand how it’s being sold. It makes the biggest difference in the world. Not that it’s anything new, but Miami is the place where money talks and financing just limps along.
“On the bank-owned side, there is really very little product,” he says. “Only seven per cent of the available inventory is bank owned, and because of that, anybody going after bank-owned has to normally go over and above asking price to the competition.”
It seems, according to Zalewski, that in his market, it is no longer business as usual.
“You are really seeing a push toward short sales,” he says. “Banks are starting to become a little more responsive toward short sales. That’s because basically it’s going to cost the bank in South Florida about an average of $100,000 to repossess a property through the foreclosure process. This is what the banks estimate it costs them per repossession. And it’s going to take them eighteen months.
“A bank-owned property taken to market will typically trade for $30-40,000 less than a short sale. Prior to the crash, banks used to estimate six months to repossess, at a cost of $40,000. So lenders are coming to the realization that financially it just makes more sense to do a short sale rather than go the foreclosure route. And then the foreclosure freeze issue sort of accentuated that. So we’re really a market in flux.”
So that means that Miami is not open to all takers. That market is looking for one type of player only.
“Any buyer coming to play in South Florida needs to be all cash,” he says. “If that buyer is not all cash, they will pay 10-15% more than anyone else. Again, that’s because the seller has to have some incentive to take a chance at sixty days from now for the financing, if it does come, so they will actually be able to close.”
“The sellers don’t like financing. If you’re coming in with financing and you want to put down 10% and you want to finance 90%, chances are you are going to waste a lot of time. You are probably better off taking that cash and that time and going on a little Caribbean vacation and reading about real estate than actually trying to play the game.”
“Second of all, any buyer coming in and taking a look at what’s going on in the condo market, it’s sort of recognized that the product near the water has been picked over. Now you’re at the point where people have actually purchased [property]in ‘07, ‘08, and ‘09, and are re-trading this product with a premium on top of it.”
“What that’s doing is stabilizing pricing and setting new pricing standards. When buyers come in, they look at these new pricing standards and they might not achieve what they want. But they are increasingly being forced to recalibrate their approach.”
Also being recalibrated is the scene of the action. And where it’s going, it makes the alligators look tame.
“Many buyers are now not necessarily looking at new construction from unsold product,” he says. “They’re starting to look at re-sales, meaning short sales. Also, they are starting to go into suburbia, away from the water, into the reclaimed Everglades. So it’s really important to be focused on what these buyers want to achieve.”
He also predicts that, unlike vultures, construction cranes are the one thing you won’t be seeing circling the sky any time soon.
“It is unlikely to see a construction crane building a condo for a good five years,” he says. “Most lenders and developers I talk to will tell you that pricing will have to average $500-550/foot before new construction goes up again. And that’s based on a premise of $200-250/foot to construct, and another 10-30% for land.
“Typically a developer is in for $300 bucks per foot just to break even. So until pricing is coming in at north of $500 a foot, you’re not going to see new construction.”
Still, there is plenty for vultures to pick from in the current vast wilderness, even in just Miami alone.
“We just finished a big study that we’ve been working on since January 2008,” he says. “What we found is, in seven submarkets, which are the largest markets down here, 49,000 units were newly constructed during the boom. 22,000 went up in downtown Miami alone. Roughly just about half of all new construction east of I-95 in the seven submarkets went up in downtown Miami. It’s a massive number.
“In downtown Miami, for around forty years, 1963-2002, there were a grand total of 11,500 units built. In seven years, they effectively tripled that, from 11,500 to 34,000.”
Zalewski’s company is sitting high on its perch, patiently watching and observing. It’s no wonder that he came up with that memorable name.
He says, “People always say to us, ‘You peg your company to this disgusting creature that flies up and hovers and looks for road kill.’ And basically everything we do is similar to what a real vulture does. But I like to point out that the difference between us and a real vulture is that we don’t vomit on ourselves to cleanse our feathers. At the end of the day, we’re not the ones killing. We’re the ones cleaning up.”
For more information on Peter Zalewski and Condo Vultures, go to CondoVultures.com