(This story, in slightly different form, originally appeared in the Daily Business Review.)

Miami architect-turned-developer Willy Bermello knows firsthand about free-falling land values in the wake of the housing boom. Bermello and his partners sold a vacant site west of Brickell Avenue in Miami for $9 million, half of what they paid for it at the peak of a condo craze in 2005, according to Miami-Dade County property records.

Since the housing market crashed in 2007, hundreds of development sites across South Florida have remained idle. Developers abandoned plans to build condo projects as buyers left the market and banks almost stopped residential construction financing. The lack of demand for land has forced developers like Bermello to sell at large discounts and, in some instances, at below the outstanding mortgage on the property. Bermello’s $9 million sale price is less than the $13.5 million loan his company got from Colonial Bank when it refinanced in July 2006. Bermello did not respond to a phone message or an e-mail requesting comment.

Premiere Towers sold the 60,000-square-foot site for $150 per square foot, most likely the lowest sale price in West Brickell since the housing meltdown, according to three area real estate brokers and appraisers. SMA at Ninth LLC bought the development site on New Year’s Eve after getting a loan for half of the sale price. Colonial Bank lent the buyer $4.5 million. SMA at Ninth was formed by two trusts led by Miami-based Crescent Heights principals Russell Galbut and Sonny Kahn. They did not return phone calls by deadline. Crescent Heights is one of the country’s largest condo converters.

Partners of Premiere Towers included Gustavo Miculitzki, manager of GGM Developers, Albert Sutton, a representative of Middlegate Premiere, and Bermello, principal of BAP Development. The site is a collection of seven parcels across the street from Mary Brickell Village, a relatively new open-air retail center with trendy shops and restaurants.

“For that location, it sounds like a great buy,” says appraiser John Blazejack, adding that six parcels west of Brickell Avenue are on the market with asking prices ranging from $427 to $239 per square foot. Blazejack, president of Blazejack & Co. in Miami, is familiar with the property because he appraised the site for Bermello in 2005. Blazejack appraised a similar property near Mary Brickell Village in October and its value came in at $210 per square foot, he says.

Bermello and partners obtained city permits to build two condo towers totaling 556 condos in 2004. A year later, the partners paid $18.1 million for the about 1.4-acre site. The condo market was hot, and land values rose with every purchase contract that developers secured for their planned condos. In 2005, Bermello’s site was appraised at $25 million, as nearly 70% of the proposed condos were pre-sold. But the proposed Premiere Towers Brickell Village was never built, deposits were returned and land values plummeted.

It is not clear whether Bermello and his partners lost a lot of equity on the deal. Premiere Towers LLC bought the land with a $10 million loan from Stevens Capital Management in New York. In July 2006, Premiere Towers paid off the loan after securing the $13.57 million loan from Colonial Bank.

Bermello had been trying to sell the land for more than a year and owed Miami-Dade County $350,000 in 2007 property taxes. Area brokers say Bermello initially wanted $38 million for the property with permits in place.

“The permits no longer add value to the site because condos, in a depressed housing market, is no longer the highest and best use of the land,” Blazejack explains. “What is feasible in today’s market? Not much, now that you can’t get any loan. Hotel and office uses are also in jeopardy because it is a financial problem, not a use problem.” He said a possible use for the site could be a rental tower with about 200 units and retail on the ground floor.

Recent land sales in the West Brickell area show the continuing corrosion of land values. In October, a hotel operator paid $6.2 million, or $275.33 per square foot, for a 22,770-square-foot parcel at 1001 SW First Ave., a block south of the new retail center. HP Hotels plans to operate a 250-room Embassy Suites Hotel on the site, says Allen Morris Co. broker Louis J. Gallo, who helped broker the HP Hotels deal.

“Remember they are buying hotel land so it looks like the price was too much per square foot but it isn’t really. For its use and being next to the train station, the price is not bad,” Blazejack adds.

In October, New York lender iStar Financial sold 5.65 acres on SW Eighth Street and South Miami Avenue. Swire Properties in Miami paid $41.3 million, or about $167 per square foot, for the vacant site. Early this year, iStar took the land back from an owner who defaulted on a loan backed by the site, known as Brickell CitiCentre.

Yet, the November sale of a small parcel on Brickell Avenue for about $840 per square foot underlines the instability of Miami’s real estate market. The 26,182-square-foot parcel at 1451 Brickell Ave., next to the Four Seasons Hotel, sold for $22 million. The seller–an entity led by real estate broker Walter Defortuna–financed the sale with a $13.2 million loan. “That sale is not truly representative of the market. It is overpriced because of seller financing,” he says, adding that small parcels are appraised based on future rentable space such as in a hotel, a restaurant or an office building, rather than per square foot as larger sites.

Brokers and appraisers indicate they aren’t using that sale to help determine the value of land west of Brickell Avenue. Allen Morris Co.’s Gallo says he is not letting that sale influence how much one of his client is asking for a 46,000-square-foot parcel at 801 S. Miami Ave. Yet, he successfully persuaded his client to offer seller financing in an effort to get better offers, Gallo reveals.

Paola Iuspa-Abbott can be reached at [email protected].

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