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miami roundtable Greg Freedman

Martin Z. Margulies

Len Dugow

Anthony Burns

Sunny Developments Our Miami experts talk about the state of real estate in their city moderated by Len

Dugow photographed by Michael Price

AVENUE: It has been reported that over 175 pre-construction condominium projects have been announced in South Florida. This robust development cycle has been driven by what is referenced as “progressive buyer deposits,” meaning as much as 50-70 percent of a unit’s full purchase price is being funded by the buyer, prior to closing the project. What do you believe will be the ramifications when the first (of possibly many) fails? GREG FREEDMAN: I think the protection that we all look for as developers, and the reason we support this buying model, is to have committed purchasers, the scaled deposit model means buyers are more committed to the product offering as a result of having more “skin in the game” and this also further eliminates the speculators that historically would make heavily leveraged financial commitments they couldn’t adhere to. However, this deposit model shouldn’t replace the necessity for developers to be well capitalized with substantial equity of their own, separate and apart from the deposits. There will certainly be an instance where an aggressive and/or inexperienced developer is under-capitalized and fails to deliver the finished product on time or on budget, either as a result of poor planning, or as a result of contracted purchasers failing to make their scheduled deposits on time. The ramifications in this instance are untested, hence buyers should go through due diligence on who their developer is, and look at his or her company’s track record. AVENUE: Martin, you’re the only exception in South Florida who chose not to embrace a progressive payment program for 74 | AVENUE MAGAZINE • DECEMBER 2013

your Bellini, Williams Island project; instead, you pledged tens of millions of dollars’ worth of your art collection to secure your construction financing. Why? MARTIN Z. MARGULIES: I believe the buyer has a lot more confidence when the developer is using his own money. On top of that, at the time I started financing, it was all but impossible to get it—especially for multiple projects—but construction costs were very low. I felt it was an opportune time to fund the project myself and reduce risks to buyers, as well as lower costs for the development. AVENUE: Anthony, regarding Martin’s point about increased costs: are you discovering this at your Marina Palms project? ANTHONY BURNS: Absolutely. We priced our project, which we just started construction on a couple of months ago, when we were running our RFP with three of the big general contractors. By the time we had finally selected our contractor, hard costs had already gone up 10 percent. We were able to beat those prices back down, but there is an extreme amount of upward pressure on the material, and soon, too, with labor pricing, which is just now starting to come back. AVENUE: Kevin, you came to market with Echo Aventura a year ago; are you now facing similar challenges? KEVIN MALONEY: Certainly. In 2010, when banking financing wasn’t available, the construction trades were abundant, and labor was

Profile for AVENUE Magazine

AVENUE December 2013  

Founded in 1976, AVENUE is a must-read among the city’s most discerning, stylish and savvy audiences. As Manhattan’s oldest society magazine...

AVENUE December 2013  

Founded in 1976, AVENUE is a must-read among the city’s most discerning, stylish and savvy audiences. As Manhattan’s oldest society magazine...