Originally published April 8th 2008

Selling real estate for over 30 years, developing real estate, trading stock index futures, using Elliott Wave theory and a host of psychological indicators, had prepared me for picking a top in the market in 2005.

In February of 2005 a partner and I went to Florida to find large development deals. With all the Florida hoopla, we had to try to join in.  We looked on the East coast from Palm Beach to as far north as Jupiter and Singer Island. We were only looking for water front properties, except for a hotel to condo conversion in Palm Peach. We met about 3 brokers, a couple of developers and spoke to a few real estate attorneys. We looked at quite a few large condo projects as well as many large to be developed condo, high rise, townhouse properties.
There was one property on Palm Beach Shores, which was two adjacent houses on the inlet. The two houses per the broker, had a view of Drew Barrymore’s house on Palm Beach.  Non of the other properties were offered to us by the owners, but by flippers. No, not the Dolphin but speculators. Who were would be developers who tied up large properties for 30 – 60 day due diligence periods. They would try to find someone to sell the contract to for a profit, well over the price they were paying for it. This was a big problem.
The contracts were weak, meaning they were all seller side weighted. This was because they wanted the seller to agree to this contract without showing the where with all to close. A lot of smoke and mirrors.   This was the first strike. Almost every broker was trying to flip and unless you had inside contacts you were at the mercy of the speculator groups. This was sell signal number one.
The property on Palm Beach Shores overlooking Drew B house, was owned by 15 cousins. Their fathers were brothers and own the two houses on the inlet for many years, and left it to their respective children. The broker that showed us the property was an older woman quite comical which we enjoyed. We made an offer which she had to get to the representatives of the cousins consortium.

On our last day we went to a restaurant late in the afternoon. We sat at the bar awaiting our table. However, we never sat at the table, the bar was too interesting. There was a young man and woman bartenders. We were, I think in Jupiter. I guess our red sun burnt faces gave us away that we were not from Florida. Or, maybe it was my Italian New Jersey accent but they asked where we were from. We told them from Northern Bergen County, New Jersey looking at Florida real estate.
They both chime in together and said they were involved in Florida real estate and between them they were contract purchasers for 15 new pre-construction condos. They put up small deposits on each, and they were waiting for the condos to be almost finished so they could flip them for a huge profit. This was sell signal number 2.

There was no way that all these people were going to make this much money in a market that had already moved so much. You see the builders could not build very fast, between all the hurricane construction repairs and the building boom there was too much demand for the building trades and material. We saw a project of 1000 condos that were pre-sold by the builder in the 180-200k range. They were just big 5 story concrete buildings empty, under construction. We went into the sale office and people who bought them from the first purchasers for 300k or so were selling them for 500-650k on a third flip. No one lived there, and wouldn’t for some time, there was a lot of work to do and it was happening on all the units at once. This was the best for the builders cost to build. You see he sold out at 180-200k and the only additional money he may make was in the sales office crews handling all the flips for the purchasers. He had to maximize his profits because he sold out in four hours all 1000 units about two years earlier. It took a while for the builder to get going and construction prices were rising quickly again due to the hurricanes and the building boom.
You know it looked to us that all the units were for sale or nearly all of them. One flip early on, back in late 2003 early 2004 was ok. Two flips, I don’t think so. And at over 200 per cent higher then what the builder sold out at!  Sell signal number three.
You see I suspected that many of these purchasers in this chain were not capable of closing when the time came, and many would fall thru and total disarray would occur. You have to believe me I came home from Florida in a panic. This was lunacy, and I had to pre-sell all I could before Florida’s big problem would come to affect us in Northern Bergen.

I called an old friend and client. He is a very prosperous developer property owner maybe a billionaire by now. I did business with him back from 1989 to about 1993. He bought up a lot of retail land to build shopping centers and a lot of existing centers. He inherited about $30,000,000 or more and was loaded for bear. He was on a mission to buy good properties cheap in the bad S&L market. I put together every hot deal I could. CVS stores to build, strip malls, even properties in Manhattan N.Y.. He was however very conservative and protective of his capital. He liked in town based shopping centers, food anchors and basic commercial properties. He owned a lot of apartments that he inherited and he managed. He never believed in selling any property so he kept them all. We did one 5 lot development together and it wasn’t his cup of tea. He didn’t like the sales risk, and only liked rental property returns.
Well, he was no longer conservative or anti residential. He was building high rises in Miami and large town house residential projects in Las Vegas. I could of died. The market took away his philosophy. Sell signal number four.  We use to talk about how he or his siblings didn’t have the money during the 80′s real estate boom because they were disagreements over the estate.  This kept his money intact and did not get hurt in the Savings and Loan crisis. I wish him well and hope he is not getting hurt now.

I guess it was "location, location, location", which kept us wanting the property facing Drew B’s house. Our offer on the Palm Beach Shores property went south fast. By the time our broker got to the cousins group there was a Dolphin contracting 6 blocks which ended with the cousins. They bid a million dollars more then us. They figured the more they contracted the more they could pay and the more someone would pay them for the contract. I guess that’s like when you go to the butcher and buy a one steak, it is $10.00 per pound but, if you buy the whole side of beef you pay $15.00 per pound for steak. I guess bigger is just better or isn’t it?  Sell Signal Number 5.
By the way that deal never closed. Surprise!

So after 3 years of good time, everyone believes things are great, you have to hurry or you won’t get the deal, pay what ever price someone cares to ask, things are going to go up, up, up, and everyone is going to get rich.  Sell Sell Sell !!!!!
So after 3 years,(February 2005 top) thing have been going bad and prices are dropping, everyone what’s to pay less and less, everyone feels they should wait, that prices will go lower, people are fearful and afraid of buying . Sellers should accept any terms buyers offer. What do you think you should do? 
So when do you think the real estate market will bottom????? 
 

By: Richard Stabile

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