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Foreclosed Condos: You've Got to Know When to Hold 'Em

Lenders who dump foreclosed condominium units on the market at fire-sale prices may be shooting themselves in the proverbial foot, according to an expert in peddling real estate-owned.

Pointing to a recent transaction in Miami Beach in which a bulk buyer of foreclosed condo apartments made a tidy profit in less than four months, Jack Studnicky of the International Sales Group, Aventura, Fla., says that lenders could have pocketed that money if only they had been a little more patient. "It's not a matter of holding on and waiting for the market to turn," says Mr. Studnicky, who cut his teeth on selling real estate-owned in Ocean City, Md., more than 30 years ago. Rather, it's about hiring a specialist to devise and carry out a sound marketing and sales program.

Case in point: The plan ISG proposed recently for a 117-unit Collins Avenue condo. The five-building property had been taken back by the original lender and resold to a new developer at roughly 10 cents on the dollar.

ISG had sold the place out for the first developer, who ran out of money before he could finish the complex. Now, it was proposing to do the same for the second developer.

The company said that if the new developer would go along with its plan, it could not only sell all 117 apartments within a 12-month time span, it would fetch the $275-$300 per square foot the developer needed to be successful.

This, by the way, in a market that is absolutely flooded with unsold apartments, many being offered at less than what it currently costs to build them. At midyear, developers alone were said to be holding something like 9,400 built or unfinished condos, making Miami perhaps the epicenter of the Sunshine State's condo glut.

To achieve its goal, ISG told the developer he needed to have, among other things, proper street signage, including flags - half American, half international - every 25 feet; a website; fully furnished "dropdead" models, including a "killer" penthouse; a sales center; event space for weekly socials; access to the Atlantic Ocean; and housekeeping and security. In other words, a typical new home sales operation.

Mr. Studnicky, who did his first workout for ChaseTrust at the Maryland shore in 1975, doesn't want to reveal too much of the company's proposed strategy. But he says the plan would encompass a range of prices, depending not just on the size of the units but also their juxtaposition to the Atlantic Ocean, Collins Avenue and neighboring buildings.

In addition, ISG would go after previous "buyers," those folks who lost their 10% deposits when the original developer went belly up.

Conventional wisdom suggests that those who have been burned once would think twice about jumping back in the market, particularly at the same condominium. But he believes that if they liked the place once, they'll like it again, especially when they are offered a discount equal to their original deposits - and not just off the old price, say, of $500,000, but the new price of $350,000.

"If they liked it once," says the REO specialist, "we can probably bring them back in."

Being able to buy a condo you fell in love with a year or two back at $200,000 less than what you originally planned to spend is pretty tempting, alright. But if the "buyer" has already bought another place or just says no, ISG's experienced sales people are trained to at least ask for a referral.

"The average sales person doesn't do any of that," says Mr. Studnicky.

Another ISG twist: The firm, which has completed over $5 billion in sales over the years, doesn't work on commission. Rather, it takes a percentage of the profits above whatever the seller sets as its sales goal. That way, the seller knows ISG is working hard on every sale to achieve the desired return.

At press time, the new developer hadn't responded to ISG's proposal. But that's not the point here. Rather, it's that it takes this kind of professional effort to successfully sell in today's difficult market. Not a local real estate broker who just completed a two-day course and now calls himself an REO specialist, but people who have worked the difficult distress sale side of the market for years.

Mr. Studnicky recently took an REO class put on by the Real Estate Association of Greater Miami and approved by the National Association of Realtors just to see what it was all about. About 60 people were in the class, and when it was over, they all could sign onto the Web, take an accreditation test and, if they pass, call themselves accredited REO specialists.

"This is a very scary thought as most of the people attending the class don't even know what they don't know and yet they are certified REO specialists," says ISG vice president, who recently returned to Miami from Panama, where he still oversees sales for Trump Ocean Club, a 70-story mixed-use property in Panama City.

"I did my first REO workout in 1975 and have done at least 50 since then, and the information communicated in the class was overwhelming, even to me."

He was particularly struck by the one thing that was repeated over and over and over by the class's instructors - that the sales people chosen by the lender would never actually speak to the bank's asset manager. Rather, all their business would be transacted via e-mail and that all the sales person needed was a cell phone, camera, computer, fax machine and contacts with local repair people.

"Is it any wonder that real estate values are plummeting?" he asks rhetorically. "If it any wonder banks continue to find the best solution to their problems is by cutting their prices and getting out as soon as possible?"