News Wrap
continued from page 22
Buy-Back Plan Launched
At Luxury Condo Asset
In an effort to attract buyers to its West Bay
Club in Estero, FL, Lehman Brothers has
come out with a new initiative that assures
unit purchasers will not lose money on their
investments. The Value Protection
Program guarantees that the developer will
either sell or buy back the luxury condominium at the full cost of the purchase price
three years after closing.
Jack McCabe, chief executive officer of
Deerfield Beach, FL-based McCabe
Research and Consulting, says Lehman’s
plan is “a smart marketing program. Right
now, one of the biggest hindrances in completing sales transactions is that people are
afraid prices are going to continue to fall.
Lehman is, in essence, mitigating the risk
for the buyers by guaranteeing they won’t
lose money in the next three years.”
What’s happening in South Florida
today, he explains, is many would-be buyers are sitting back and waiting to see prices
decline in another year. By buying closer to
the bottom, the condo purchasers have a
better opportunity for price appreciation.
McCabe says that Lehman is likely betting that the market will turn in the next few
years. “They’re looking for a much higher
payoff right now compared to what other
developers are seeing in unit yields and the
repayment of loans,” he says. “They’re also
gambling that they will have very few cancellations and within three years prices will
have stabilized and may even begin to
d index
American Property Tax Counsel, 22
Arbor Communication Mortgage, 17
Ashford Hospitality Trust, 18
BlueStone Real Estate Capital, 16
Buchanan Street Partners, 19
Calkain, 38
CapMark Finance Inc., 36
CB Richard Ellis, Cover II
Chicago Title, 25
CIBC World Markets, Cover IV
Commercial Defeasance, 34
Developer’s Diversified, 30-31
Forest City Management, 48-49
GE Real Estate, 1
GMH Capital, 20
Heitman, 3
Hilton Hotels Corp., 59
HREC, 61
Journal of Commerce, 6
Kamil Homsi, 29
Kennedy Funding Invitational, 51
appreciate again, and people will want to
hold onto their units.”
That is indeed Lehman’s plan. In a statement announcing the program, the firm’s
managing director, Carmine Visone, said
the decision was fueled by the firm’s confidence in the interim and long-term strength
of the Southwest Florida market. At press
time, all 206 two- and three-bedroom units
in the two-tower property were available
for immediate occupancy. Ten penthouses
are excluded from the
program, which is in
place through June 1.
Prudential Douglas
Elliman is handling
the marketing of the
residences. No one
from Lehman was
MCCABE: available to comment
“Lehman is on the program by
mitigating the press time.
risk for the However, there are
buyers by some kinks in
guaranteeing Lehman’s plan, says
they won’t lose McCabe. Mainly, the
money.” asking price for the
units—from $480,000
up to $2 million—is far
above what comparable residences are
trading for in the market. “You could make
a case that if you bought a lower-priced
unit, you won’t lose money even if prices
go down, and you also still have opportunity for potential positive appreciation,”
he says. “Whereas with the Lehman
Brothers program, where you’re paying at
the much higher retail value, your risk
may be mitigated but your opportunity for
Marcus & Millichap, 5
NAI Global, 35
NorthMarq Capital, 7
ONCOR International, 13
Opus National, 9
ORIX Real Estate Capital, 18
Panattoni Development Group, 15
PASSCO Companies, 11
Potomac Realty Capital, 37
Reznick Group, 28
Rockefeller Group, 60
Select Leaders, Cover III
Specialty Finance Group, 39
Spectrus Real Estate, 26
Transwestern, 21
USAA Real Estate Company, 27
This advertising index is provided as an additional
service. While every attempt has been made to
make this index as complete as possible, the accuracy of all listings cannot be guaranteed.
profit may be alleviated. It’s going to be
interesting to watch this business model
and see if they’re successful at attracting
buyers.”—Sule Aygoren Carranza
Property Prices Rising
Even in Slow Economy
Despite an overall softening in the commercial real estate market, punctuated by
dwindling sales, asset prices have yet to
reflect current conditions. Three recent
reports have noted that price points continue to rise even though there are more sellers than buyers in the market.
The latest results of the S&P/GRA
Commercial Real Estate Indices found a
national year-over-year price appreciation of 7% for the month of January. The
indices, which measure the change in
prices by property sectors and geographic region, noted that office and warehouse properties, in particular, are seeing
prices significantly above January 2007
levels, at 9.9% and 10.1%, respectively.
Meanwhile, Moody’s/REAL
Commercial Property Price Indices, which
are based on the repeat sales of the same
properties at different points in time, relates
that prices rose 2.1% in February.
“We interpret the CPPI’s increase as a
continuation of the process of price discovery, which is likely to continue over a protracted period, possibly a few more quarters,” said Moody’s vice president Sally
Gordon when the findings were
announced. “Few foreclosures or other
forced sales at market-clearing prices have
occurred to help tease out the impact of the
credit crunch on current property prices.”
The ratings agency recorded fewer
completed repeat sales transactions,
attributing it to a disparity between the
expectations of buyers and sellers.
Indeed, Real Capital Analytics in its
April Capital Trends Monthly reported that
many sellers are unwilling to budge much
on asking prices. A number of them are
instead pulling properties off the market
that do not achieve anticipated pricing or
are terminating agreements where a potential buyer persists on re-negotiating the rate.
Overall first quarter sales volumes,
according to RCA, came in at around $43.3
billion, down 71% from the same period a
year ago. The firm forecast more of the
same lackluster activity in the foreseeable
future. And with property offerings greatly
outpacing acquisitions, the natural laws of
economics should soon take affect with a
reduction in pricing, the firm relates. ◆
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