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Pre-Bubble Burst Investing in South Florida
Jack McCabe thinks Federal Reserve chairman Alan Greenspan is asking
the wrong questions about housing price bubbles and busts. McCabe, a
veteran real estate feasibility and marketing analyst who works for
major apartment developers and owners, believes that speculative
bubbles exist within a growing number of large real estate markets --
especially his own in South Florida.
Rather than debating whether the price bubbles will deflate, McCabe
says the better question for astute real estate investors is: Are you
getting ready to pick up the pieces? Are you positioning yourself to
snap up post-bubble, troubled properties?
McCabe, principal of McCabe Research and Consulting, based in
Deerfield Beach, Florida, is putting together a series of what he
calls "opportunity funds" to acquire condominium units and projects in
the Miami/Dade County market during 2006-2007. He says he's already
raised over $10 million from large and small investors without even
marketing his limited liability company (LLC) funds.
"A lot of smart people think there will be fallout" from the
overbuilt, speculator-driven condo conversion and new construction
sector in places like Miami. McCabe says some large properties in
South Florida are "70 to 80 percent" sold to speculators who are
highly-leveraged and betting that prices will keep going higher and
allow them to flip their units profitably after short holding periods.
The problem, however, says McCabe, is that Miami/Dade's
already-glutted market has 64,000 additional condo units either
announced or in the advance stages of construction planning. On top of
that, 25,000 new condo units have certificates of occupancy and will
be delivered to investor buyers by the end of 2005.
Prices are often "ridiculous," he says. Units that went for $500,000
last year are on the market for $700,000 this year, and only selling
because speculators are using high-leverage creative financing
including negatively-amortizing interest-only loans.
"People are buying this stuff thinking they cannot lose, and that
they're in some sort of gold rush. But they do not know what they're
doing," says McCabe. A bank executive who recently visited Miami said
speculation in pre-construction and converted condos is so out of
control that his airport taxi driver boasted that he personally owned
20 units and was expecting to make a killing on their resale.
"The question isn't whether, but when," said McCabe. "We are in a
transition period" -- the peak of the speculative binge -- "with a
major price correction beginning later this year and continuing
through 2006-2007.
"We think there will be very attractive opportunities (starting) in
the first quarter of 2006." To pick up defaulted or troubled units,
McCabe's LLCs are structured for maximum flexibility. With up-front
cash commitments ranging from $50,000 to $1 million and more, the LLCs
will vary acquisition and holding strategies according to the
situations that present themselves. Some projects may be held for as
long as 3 to 5 years as rental real estate; others may require
renovation and repositioning to market.
Could McCabe's concept apply to other markets around the country? Will
there be deals for people with cash when the speculator-driven sectors
of local markets come back to earth? McCabe feels that is definitely
the case.
"Wherever you have prices going higher every day solely because
speculators think they'll always be able to flip for a profit" --
2005's version of the greater fool theory -- "then I think you're
going to see corrections and adjustments" that produce buying
opportunities for heads-up investors.
http://realtytimes.com/rtnews/nlpages/20050613_southfloridabubble.htm?opendocument&Vol=88&ID=audrywolff
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FYI: Pre-Bubble Burst Investing in South Florida
