The marketing fact sheet reads "Icon Vallarta designed by Yoo by Stark another Related Group project co-developed with Grupo Chartwell."
If that marketing blurb wasn't confusing enough, so is trying to get discloure about prices, condominium budgets, delivery schedules and financing.
The Related Group is a Miami based, privately-owned, development company with several successful projects in Florida. Related has decided to expand in Latin America through Related International. Given the nature of the US housing market, particularly in Related's core market of South Florida, Related might benefit from focusing only on selling unsold inventory in South Florida.
Related's business model is to introduce a multi-phase project with low prices and low deposits on day 1, and then increase prices on a daily basis. Related keeps deposit requirements as low as their bank will allow in order encourage speculators and create the impression of selling out as fast as possible. The result is that Related is selling to clients for whom they know will lack the financial resources to close or simply have no intention of closing. This business model is precisely why the US housing market is now in so much trouble. Buying into a Related project is like buying a plane ticket. The guy beside you might have paid 50% what you paid, or 200%. And everyone paid with a credit card. But many of the buyers won't be able to make the monthly credit card payments. Related's target market in its key South Florida market are speculators. These are investors who hope to buy condos for as little down as possible and then sell them before they ever have to pay for closing. If prices go up, these guys flip and make money. If prices drop, they walk away from their deposit and the developer gets to sell into a declining market through an auction system. It is estimated that 50% of all condominiums in the Miami area that are completed within the next 18 months will be in Related projects. And many of these Florida condos will never be occupied. The problem is that Florida real estate prices are plummeting, down 30% in the past year in some markets. Related will be left with a large number of units where investors either walk away from their deposit or simply lack the financial resources to close. Related will have to sell those units via auction. And auction prices are typically 40% below original sale price.
Icon Vallarta was planned before the recent problems in US real estate surfaced. Icon is supposed to be a 3 tower, 336 unit project. Related used the same business model to "sell out" Phase 1 in Icon Vallarta as it used to sell its recent Florida projects. Published entry level prices were $240M to $300, but we are aware of buyers paying as little as $190M. Although Related claims to have sold out Tower 1, Related will not provide any information about the profile of the buyers or how many buyers purchased multiple units. We are of the opinion that some of the building contractors bidding on construction were required to buy units in Tower I to secure construction contracts. Usually the contractor is required only to place a small deposit and to defer all further payments until closing. This type of purchase does not have to be disclosed in Mexcio. It artificially creates demand and creates the false impression that there are many interested purchasers.
We have attempted to get full pricing disclosure from Related for Tower II. The best we can acheive is being told that buyers in Tower II will be offered units from $300,000 to $1.3 million. Related will not put anything in writing. Delivery of units in Towers I and II is expected sometime in late 2009 to middle 2010. No budgets have yet been developed. Related will say nothing about financing other than a $10,000 deposit is needed at the time a contract is signed. Related appears to require about 30% prepayment over the construction period, with 70% at closing.
Related's marketing material references a designer called Yoo by Starck who Related claims is world renowned. I asked my New York-based, self-described design-nerd expert about Yoo by Starck. He had no idea what I was talking about.
The project will likely be built, so construction risk is limited. But everyone will eventually be taking write downs on this project when it is completed in 2-3 years. Better to wait 3 years and buy for 30% less than existing rumoured prices today.
Even experienced speculators will be taking a hair cut on this project. US investors have bought into Tower I relying on their US experience as speculators They will eventually find out that when they flip/close, they are going to have to pay 8% in closing costs (compared to 3% in the US), as much as 8% in real estate sales commissions (compared to 4-6% in the US) and be liable for the new capital gains tax, only last year introduced to Mexico.
I have only ever reviewed two condominium projects more risky than Icon Vallarta. They are the Toronto Sliver project, now renamed 5 King Steet, which was built and is now under a complete financial restructuring, and the Toronto Sapphire Tower, which failed and will not be built.
Recommendations:
Existing Purchasers: Request initial deposit be returned
All Others: Pass
1 comment:
I love your website, but when I read your comments regarding designer Starck, I just had to post one of my own. You need a new self described designer nerd friend in New York. Yoo by Starck is very real. You simply have to Google it. Starck is Philippe Starck and he is very much world renowned, one the most celebrated designers of our time.
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