MIAMI—With South Florida's condo market kicking into high gear once again, a new financing model is fueling development: large cash deposits paid by buyers up front. But as projects begin going vertical, questions are being raised as to how this new model may affect development firms and their buyers, legally speaking.
We caught up with attorney Andrew C. Hall, founding partner of law firm Hall Lamb and Hall, to get his take on the issue. The bottom line: he believes this new format creates liability for all parties involved in a transaction.
GlobeSt.com: South Florida was among the hardest hit real estate markets in the country during the recession yet today stands out for its record levels of new construction activity. To what degree is buyer-financed construction playing a role in this comeback?
Hall: This finance model is playing a key role in fueling new condo construction, since these deposits are almost the main source of funding. This is risky for buyers.
Once most of their deposit money goes into the construction of the building, they may have a hard time getting it back if the project fails or they rescind their purchase contract. This is playing a big role in the post-recession condo comeback because it is more difficult for developers to get secured loans, this gives developers the money they need to build.
GlobeSt.com: This form of financing is quite common in other parts of the world, but has never taken hold in the United States. Do you think buyer-financed construction will be the 'new normal' for getting residential projects off the ground?
Hall: I see this as one of those things that will work well until somebody fails. We are seeing more projects financed this way as the demand for condos is increasing. The more developers use this development method, the more comfortable US buyers will become.
Come back to GlobeSt.com this afternoon where Hall will discuss the benefits of this type of financing, buyer risk and developer recourse.
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