The spring thaw has reached all the way down to the South
Late last month, the Trump Group closed on a $160 million loan to build a 47-story tower known as the Mansions at Acqualina in Sunny Isles Beach. It is one of more than 80 proposed condo properties counted by real estate consultant Peter Zelewski for the tri-county region since the crash began in 2007.
But the Mansions is different from most of those—in several ways. For one thing, it is being built by one of the most successful developers in the country. No, not that Trump. These are the brothers Trump, Eddie and Jules, who have no relation to “The Donald” but do have a track record that even their more famous namesake would envy.
The other Trumps first came to prominence in South Florida in 1985 when they developed Williams Island, which now includes eight high-end high rises and a Mediterranean village in Aventura. Their portfolio also includes Luxuria Residences in pricy Boca Raton and the Acqualina Resort & Spa in Sunny Isles Beach.
In short, they are exactly the type of developers construction lenders are looking for, says Howard Taft, senior managing director of the Aztec Group, an investment banking firm here.
“The construction loans being made are extremely conservative, and only to well-capitalized and seasoned developers who have presold and collected deposits valued at half the purchase price,” says Taft, a former managing director at Cohen Financial and senior managing director at Holliday Fenoglio Fowler.
That way, he explains, lenders can cover up to 200% of their nut.
And although “all the top-tier banks are back into the condo construction market—Bank of America, Wells Fargo, SunTrust, BB&T—the loan broker reports they are being extremely selective.
“The days of 70% construction loans with just 20% down are gone,” Taft says. “They are no more.”
The Mansions certainly fits that criteria lenders are demanding.
According to press reports, 80% of the 79 units planned at the Mansions are under contract, with buyers required to ante up half the purchase price—units start at $7.8 million and go all the way up to $55 million for the 16,000-square-foot penthouse apartment—when the building is topped off. Completion is set for late next year or in early 2015.
No wonder the loan was over-subscribed. “We had more commitments than we needed,” Johnathan Davidson, managing director of the Miami-based Trump Group told a local newspaper. “We only needed $160 million because of the use of deposits and equity.” (In Florida, developers are free to use any deposit amount over and above 10% to fund construction.)
As it was, the loan was syndicated to a number of institutions. Regions Bank was the lead lender as administrative agent, with SunTrust, Mercantil Commercebank, Sadadell United Bank and the Miami branch of Israel Discount Bank of New York each taking a piece of the deal.
Attorney Jim Shindell of Bilzin Sumberg, who represented the Trump Group in the deal, is not sure if any of the more than six dozen other projects announced for Miami-Dade, Broward and Palm Beach counties will find financing.
“I just don’t know if that’s going to happen,” Shindell says. “A lot of those projects are kicking the tires, but whether or not they are ever going to come on line is a good question.”
But if they do, the real estate lawyer says, a big part of the construction cost will be financed out of buyers’ deposits. Consequently, conventional construction funding will be in smaller loans “to even out the developers’ cash flow and cover what the deposits don’t.”
Shindell echoes Taft’s thoughts when it comes to lenders being more risk averse. Banks “are being very careful,” he says. “They want to make sure buyers actually take title as opposed to flippers.”
Lenders also are requiring a large number of presales with big deposits and only one sale per customer.
“Things are a lot tighter than what we saw in the last run,” the lawyer says. “I don’t expect to see what we saw at the end of the last boom when many projects in secondary and tertiary sites being developed by a group of dentists were getting loans.”
Shindell says the 40 real estate attorneys in his firm have “moved from the distressed world to a much more normal residential real estate environment.”
But don’t count out those more marginal developers who aren’t as high on lenders radar screens. A lot of construction can be financed by buyers’ deposits, which are required to run up to 80% of the purchase price by some developers. And when buyers put up that much dough, they’re a lot less likely to back out of the deal, even if the market turns south again.
Even the less spectacular properties are commanding 50% deposits—20% at signing, 10% more at the start of construction and the other 20% when work reaches their floor.
That’s the kind of cash that is flowing from Central and South America into a market that now rivals New York, London and Paris as an important international city.
“All eye are on Miami,” says Taft. “The city has gone global, and with the passing of (Venezuelan President Hugo) Chavez, we might see even more South American investors in South Florida.”
And for those developers who are short on cash or don’t want to give personal guarantees, Taft says he’s also working with a handful of nonresource lenders who might charge a little more interest and want a little more leverage.
