Cash is King
At Friday’s ULI Conference Related Group principal Jorge Perez announced plans for a $1 billion “opportunity” fund for the purpose of bailing out troubled buyers and expanding assets. Mr. Perez emphasized the scarcity of prime land and claims that the next upswing, whenever that may be, will involve significantly higher acquisition prices–prices that will make today’s per square foot values seem minimal in comparison. In a market where cash is king, he aims to demonstrate that his crown shines the brightest.
Conflict of Interest?
When asked if he would use the fund to acquire mortgages and units in Related Group projects, he quickly dispelled the notion. He did not disclose the fund’s other partner. He went on to say that the next 8 months will be the toughest for the market as most of the construction units are delivered. Within the last six months the fall out (contract walk outs) for Related Group projects was hovering at around 3%, now he estimates that number to be at around 20% with matters likely to deteriorate before they get better.
The Fall Out
Closings in his most high end developments continue to remain strong. He went on to say that his lower end loft developments have not been hit hard by fall out, but the middle of the road luxury condos were being affected. He said that it’s important that during these difficult months Condominium Associations remain fully funded. His fund will help do just that.
Condo Associations Running Low on Funds
The media has seemed consumed with the high foreclosure rates and the growing fall out, but the negative effect caused by operational budget deficits has been mostly ignored. The problem is that foreclosure units aren’t paying maintenance. In most cases, when the bank forecloses on a unit, the Association takes a loss as most of the outstanding funds cannot be recovered. In the case of fall out, developers are left footing the bill for operational costs of unfilled units. To make matters worse, owners in troubled straits barely affording to pay their mortgages are also less likely to pay maintenance. This has led to widespread amenity cuts and a furthering of financial woes for both unprepared developers and troubled condominium associations.