Another Condo Boom Already?

Bet you didn’t think you’d be hearing this already. “Developers realize the next South Florida condo construction boom is just beginning,” said Peter Zalewski, principal of Condo Vultures. “There is a tremendous pressure on every developer to get started sooner rather than later in hopes of delivering their units earlier than the competition.”

Boom just beginning? Yes, Regions Financial out of Birmingham Alabama is leading a group of lenders making a $160 million construction, yes construction, loan to build something called the Mansions at Acqualina, an ultraluxury, 47-story tower in Sunny Isles Beach, near Miami.

From The Wall Street Journal‘s description, the lenders are using belts and suspenders to support this deal. There are $320 million in pre-sales, with condo buyers having to put up 50% of the unit price as a downpayment.

But good grief, the units start at $7.75 million. How many rich foreigners are there to buy these things?

It didn’t take long for Regions, a bank that appeared to be on life support (or Fed support as the case maybe) just 12 months ago, to regain its animal spirits.

Regions’ shareholder equity at 12/31/11 was $16.5 billion. If one subtracted the company’s preferred shares and intangibles from that number, tangible common equity was only $7.6 billion. Subtract from that the $8.1 billion in loan value that the company’s footnotes admitted wasn’t there and Region Financial’s real net worth (by some people’s reckoning) at year end 2011 was a NEGATIVE $525 million.

But hey, the big SE regional bank, passed the Fed’s stress test, sold stock, paid off it’s TARP and trust preferred and away they went, lowering the bank’s loan loss provision and making over $1 billion last year. Capital ratios are healthy and the stock has rocketed from $3 to over $7.

Their cost of funds is only 22 basis points and loan-to-deposit ratio is down to 78%. That 22bp money is just burning a whole in the vault. Time to do some condos.

Dade County condo prices per square foot bottomed at $107 a square foot in 2010 and have rebounded to $139, according to the WSJ. That sound impressive unless you purchased a unit at the height of the boom when units were selling for $400/SF.

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About Douglas French 16 Articles

Affiliation: Agora Financial

Douglas E. French is senior editor of the Laissez Faire Club. He received his master's degree under the direction of Murray N. Rothbard at the University of Nevada, Las Vegas, after many years in the business of banking. He is the author of three books, Early Speculative Bubbles and Increases in the Supply of Money, the first major empirical study of the relationship between early bubbles and the money supply; Walk Away, a monograph assessing the philosophy and morality of strategic default; and The Failure of Common Knowledge, which takes on many common economic fallacies. He is founder and editor of LibertyWatch magazine.

Visit: Laissez Faire Club

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