The below came in as a comment yesterday and we are moving it to a post to maximize its visibility. I really appreciate Cristian, the President of the company that purchased the auctioned off units at the Vue in Lake Eola, filling in some blanks and adding to our knowledge of purchasing condo real estate. It was very nice of him to take the time to do this and I hope we can perhaps hear more from him in the future. One key takeaway and I will be focusing on this some more in upcoming posts is, at the end of the day, this whole project is going to come down to basic supply and demand. If the Vue is a high quality product; if there are enough people that want that product and can afford it and feel they are getting good value for it, it will sell. I am quite certain that the Developer has decided that he is going to let all this chatter continue without a response, and let his great product speak for itself. That may not be a bad way to go. Enjoy the post, and share your comments!
My name is Cristian Michaels, and I am the President of Condo Developer, LLC, the development company which purchased the Vue Orlando out of a bankruptcy auction, on May 17th. I feel it’s important to clarify some misinformation given in the last post by “Owner in Orlando and Charlotte weighs in”. When a developer constructs a luxury tower, the magnitude of a Vue Orlando, or Vue Charlotte, they often attain financing from multiple sources. In the Vue Orlando’s case, there were eight lenders competing over any revenues generated from sales, after the market adjusted nearly 40% in Orlando. In the end, the Developer on Vue Orlando was forced into Chapter 11 bankruptcy, by the lenders involved, which in turn led a judge to order an auction of the entire unsold portion of the asset to a single buyer. The auction process, as many may know is not the most effective way to liquidate an asset and attain close to fair market value. It is however, appropriate in a case of a more urgent fire sale situation, which deems quick results. The Orlando market easily bears 200 psf today, whereas in auction, our developer paid close to 125 psf (25.9 million cash). The current owner is mistaken, however, we have no intentions of renting the building. As much as this may stabilize some assets in the Orlando market, like Paramount on Lake Eola or 55West, it is not a carry strategy which we plan on taking. The primary difference with the Vue Orlando, is there is a significant demand for the product. The new developer, has come in and stabilized the association budget, are funding reserves, investing a substantial amount of money in the building into returning it to the caliber it was destined to be. We have multiple contracts as high as $265 psf, showing that we are commanding a premium in today’s market above the competition. That being said many of the owners in the building that we have engaged are glad we are on board and have the money to carry the project through this market adjustment.
Another factor to consider heavily is, end loan financing. In most markets, 15-25% of buyer’s pay cash, but the rest require mortgages which in turn require appraisals. Appraisers have been deluged with new guidelines to protect lenders from over leveraging their position when considering real estate as collateral for the mortgage. This often means undervaluing the collateral or lowering the loan to value ratio. This will be a significant challenge for Vue Charlotte. Vue Orlando was at a critical point of being nearly 2/3rd’s closed, which to a lender is much less risk than a tower that may only be 20-30% closed. How things pan out on a closed sales ratio will have a significant impact on what financing will be available to future buyers of the project.
As for comparing Charlotte to Orlando, every market experienced very different levels of market correction, usually directly tied to the amount of over speculation experienced through 2005-2007. Buyers should consider the very different components that create market value in each of these cities. At the end of the day it all boils down to supply and demand. If a contracted buyer can attain a mortgage and they plan on holding 4-5 years, and occupy as a primary, then it may very well make sense to close. If you were an investor planning on a quick flip and a profit of 100K, those days are most likely nonexistent.
We are excited to see in Orlando, at least, an end to our market slow down and distress inventory has begun to diminish significantly. With this transition, we will see a return to a stable real estate market and there has never been a better time to buy.