Real Estate Fool's Gold

July 10, 2007 — -- You can't miss the flocks of cranes that hover over Miami's skyline. They were hatched by a condo fever that seized the city and fueled what is now the biggest construction boom in the country.

Not long ago the only thing going up faster than buildings in Miami was the prices -- and Lucy Blanco wanted in.

"It was going up so rapidly that I was fearful that if it went any higher I could not afford it anymore," she said. "So I needed to get it while it was still at a price I could afford…before it went out of my range.

"If we don't hurry up and buy something now," she said, "we're never going to be able to buy anything."

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In February 2006, Blanco bought a preconstruction one-bedroom unit in a condo community called Quantum on the Bay. She paid $465,000. Today, however, Blanco estimates the property is worth $100,000 less than what she agreed to pay.

The condo has lost more than the value of Blanco's $93,000 deposit. And so, just as fast as Blanco wanted in, she now wants out. That's where Michael Schlesinger comes in.

'Can I Get Out?'

Schlesinger is at the forefront of a new subspecialty in Miami real estate law, that might be called condo extractors. He said he gets 20 or more calls a week from people like Blanco.

"They're all asking the same questions," he said. "Can I get out? Do I have a chance to get my deposit back? If not, what are my options?"

Schlesinger said he looks for a flaw in the condo contract -- a blocked view, a change of design, delayed construction -- anything about the new building that allows him to argue the developer isn't delivering on what was promised.

Schlesinger said he's got about 50 active cases today. He only takes on a few new cases a week -- the ones he thinks he can win.

"Most of the time, unfortunately, I have [to] say that the contracts are too tight," he said. "There's not much I can do, and the options are either you close or you leave your deposit on the table."

Ultimately, Schlesinger said, greed played a huge role in Miami's current situation.

"I think two years ago people were making hundreds of thousands of dollars doing exactly what they're asking me to get them out of today," he said.

Blanco is convinced she's not getting the square footage she paid for. She's enlisted an architect to measure her floor plans.

"It's wrong," she said. "It's not what I purchased. I paid a lot of money for that. I want every square foot of it, because I paid for it. I'm entitled to it."

It's not clear that she's right and the lawyers for Quantum on the Bay have not responded to her case.

Lessons From Desperate Buyers

Steven Landy is a lawyer who represents other developers seeing a surge of similar cases from buyers desperate to get out of their contracts.

"I can't think of any other area of investing," said Landy, "whether it be investing in the stock market or putting your money on a particular horse…where if it doesn't go your way… you say, oops, it didn't work out, now I want my money back."

Blanco said she has learned "lots of lessons. Never put so much money in a preconstruction. I would never do that again," she said.

Miami has a long history of greed-fueled building booms and busts. This round is a not a lot different. It is the logical endgame in a market fueled by speculators selling to other speculators. Inevitably, the market would run out of speculators.

The situation in Miami is also a classic case of oversupply. From 1995-2005, 10,000 new condo units were built in Miami, and in the next two years another 20,000 units will be completed.

'Learn to Take Some Hits'

Retired businessman Tom Leon knows a bad deal when he sees it. He bought two condo units two years ago for $500,000 each, hoping to flip them for quick profit.

Today, as the buildings near completion, Leon is certain he couldn't he even get $400,000 for each of the units -- so he's decided to cut his losses and walk away from $200,000 in deposits rather than pay the $800,000 balance he now thinks is a bad investment.

"Listen, you can be the richest guy in the world. Nobody wants to lose a hundred grand," he said. "But in business you've got to learn to take some hits. I've made a lot of money so once in a while you've got to be smart enough…to leave when the time is right and I think now is the time."

When those cranes arrived in Miami, it seemed they were constructing towers of gold. But as more and more buildings approach completion and the cranes begin to disappear from their perches it becomes clear that for many it was a fool's gold.

The city's skyline has been transformed at great expense to those who dreamed of easy riches.