Friday, March 11, 2005

Condo boom worries Wall Street

Two Wall Street reports on Bonita Springs developer WCI Communities cast doubt on the staying power of South Florida's condominium development.

BY MATTHEW HAGGMAN


Wall Street analysts issued a stern warning Thursday about South Florida's unprecedented real estate boom, with one report cautioning that speculators and investors account for as much as 85 percent of all high-rise condominium sales in downtown Miami.

Citing concerns over ''investor speculation,'' Credit Suisse First Boston downgraded the stock of WCI Communities -- one of the only publicly traded condo builders in South Florida -- and said it now regards the shares' prospects as ``neutral at best.''

Meanwhile, a competing report by Raymond James & Associates said concerns over WCI are ''overblown'' but declared speculation ''alive and well'' -- particularly in downtown Miami.

''By way of anecdotal reports, we believe as much as 85 percent of all condominium sales in [the downtown Miami] market are accounted for by investors and speculators,'' Raymond James stated in a report issued by its equity analyst Rick T. Murray. The St. Petersburg-based brokerage has done investment-banking work for WCI.

Downtown developers have brushed off worries about rampant speculation and rejected Thursday's reports. They note that buyers must place a 20 percent down payment on preconstruction condo units priced anywhere from $500,000 to more than $1 million.

''For them to make that kind of statement, I don't see it backed up by empirical statistical data,'' said Pedro Martin, chief executive of privately held Terra Group. The company recently signed a contract to buy 10 acres next to the Performing Arts Center from The Herald's parent company, Knight Ridder, for $190 million.

''You don't put 20 percent down on a $500,000 condo when you are a speculator,'' said Martin, who has two other high-rise projects in downtown Miami along Biscayne Boulevard.

The two reports come as South Florida is in the midst of an unprecedented condo development boom. More than 55,000 residential condo units are in some phase of development in Miami, according to the Jan. 31 city of Miami large-scale development report. That number is increasing monthly.

In contrast, Miami has built about 7,000 condo units in the last 10 years.

Some observers worry that many condo buyers, who purchase units before construction, have no plans to live in the units when the buildings are completed.

Yet the down payments enable builders to get loans to finance construction. Analysts believe many buyers hope to resell units at a hefty profit, but fear that those ''flippers'' won't be able to find buyers as more and more condos are built.

As a result, people may walk away from deposits.

''There are aspects of this market . . . that quite clearly are aimed at attracting speculators as a source of mezzanine financing for undercapitalized developers,'' the Raymond James report said.

Stock of Bonita Springs-based WCI dropped nearly 4 percent Thursday, closing at $31.49.

''In 2004, less than 0.4 percent of our tower purchasers failed to close on their purchases,'' said WCI Chief Executive Jerry Starkey.

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