Vultures in Miami's Real Estate Market

They're flocking to the city to make lowball, all-cash offers for batches of properties
Miami Ice: Broker Zalewski says it will be years before the market thaws Jeffery Salter/Redux

On the 79th Street Causeway that connects inner Miami to the city's beaches, a colony of giant turkey vultures sits ominously on a radio tower, staring at the downtown skyline. Migratory scavengers, they're drawn to tall buildings.

Across the bay, vulture investors, that other breed of migratory scavenger, are feasting. South Florida is in the throes of a truly hellish real estate bust. Home prices are down 24% in the past year, with many places changing hands for less than half their height-of-bubble values. The region has seen foreclosures on more than $14.2 billion worth of property this year—a record. Developers can't sell enough units to pay construction loans. Condo boards are trying to keep the stairwells of their half-empty buildings clear of vagrants. Landlords are renting out units at daily rates to makers of porn films.

The bleak tableau is exactly what vulture investors have been waiting for. Having sat out the bubble, they're flocking to the Magic City to make lowball, often all-cash offers for numerous properties at once. Some members of this motley assortment of foreign professionals, U.S. money managers, and retired corporate executives learned how to prey by picking through the detritus of the U.S. savings and loan bust. Others earned their stripes in emerging- market financial crises. They differ in their tactics; what unites them is their absolute insistence on paying bottom dollar.

Consider the hard bargains being driven by Beverly Hills banker Joel Heffron. On a humid October morning he ventures into Miami's Brickell Avenue financial district to meet with Peter Zalewski, principal at Condo Vultures Realty, a Miami real estate brokerage and consulting firm catering to distressed-property investors. The two are looking for real estate for Heffron's personal portfolio. They size up the luxe lobby of a waterfront high-rise that was the first building on mainland Miami to break $500 a square foot. Now it anchors what Zalewski has christened the Foreclosure District.


And yet the building is still too rich for Heffron's cold blood. "Look," he says, taking off his sunglasses. "The deal that I want to do—where my heart is at—is to steal apartments that I can rent for a few years and then sell. I have the cash. What I need is a nice building—not too nice, but not popcorn ceilings, either—with ownership problems or people not paying their maintenance."

The two move on to the neighboring tower. Zalewski notes that the seven-year-old waterfront building has banned realtors from using lockboxes, which hold keys for other agents to show properties and are usually placed on front doors, so as not to advertise that entire floors of condos are for sale. And yet, a flyer in the elevator reads: "Come to the board meeting in the Clubroom to see the status of our collections, foreclosures, and delinquencies."

On the 14th floor, a foreclosed two-bedroom with an expansive view of the bay is listed at $299,000, down from $700,000 just months ago. Heffron, 65, thinks the property could go for less than $250,000. The bank, after all, isn't pleased about paying a $680 monthly maintenance fee, which from the looks of the building's unkempt pool deck is sure to rise. In this financial crisis, says Heffron, sellers have no choice but to cut their asking price every 10 days or so until the property moves.

Not since a hurricane devastated Miami in 1926 has the city offered so much property at such steep discounts. "You're not going to see a new condo go up in this town for seven years, minimum," says Zalewski. "The common Joe can't get a mortgage, and a 40% downpayment is becoming the rule for anyone who can. But if you have the cash, you can feast like a king."

Especially foreign cash. Esteban, a doctor from Colombia who requested that his last name be withheld, has seen his buying power boosted by the strong Colombian peso, which he swapped for U.S. dollars this summer when it hit a decade high. On a recent Tuesday he inspects a new two-bedroom condo with a wraparound balcony overlooking the port of Miami, one of several purchases he wants to make. The unit's absentee owner paid $650,000 pre-construction, tried to sell it for $515,000, and is now asking $489,000. Esteban is confident he can close on a deal near $425,000 before Christmas, having just spied a foreclosure notice on a neighbor's door. "I don't care if they tell me to f--- off," says the Colombian. "They have to face the bank, not me."

A mile south, Frank Marrero, a snowbird from Hoboken, N.J., is three luxury bayfront condos into a campaign to buy 15 by 2010. "If you have cash down here and say you'll close in two weeks, you're golden," says the 31-year-old mortgage broker. Marrero is targeting the nonrefundable 20% cash deposits that buyers have put down on properties still in development. He offers to repay the buyers some portion of their deposit to entice them to back out. Then he plays hardball with the developers. So far he has pulled off this maneuver twice, he says. His goal is to buy places so cheaply that he can rent them out for enough to cover the entire monthly nut and still produce 8% cash flow on the investment—with the option of selling the units at a profit if the market comes back.

"Hey, other people—not me—got in at crazy prices," says Marrero. "Now the weak are trickling off, and I swoop down for the kill."

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