Remarks by Rafael "Ralph" Sanchez

President
Ponce Circle Developers LLC


        
Right now we are in the middle of the Old Spanish Village project, a very urban infield project, about three and a half blocks south of Miracle Mile and Ponce, right across from the Ponce Circle. We have been at that project for almost four years, from the day that we acquired the property to start working with the city on permits, entitlements, etc. to where we are today, where we just started pouring concrete on some of the foundations. It’s been a very trying process.

Adapting to Meet Market Challenges

I started in real estate development in 1972 or 1973, within a year we had Watergate, we had Nixon resign, and the interest rates went up to 22 percent. And if you think that some of the credit issues today are bad, back then, you couldn’t buy a house, you couldn’t see a house, you couldn’t rent a house, it was deadsville around here. We were able to pass laws to overcome that and put a ceiling on interest. Since that day I have gone through about four other recessions in South Florida and every one of those recessions are portrayed by the press as the end of the world. But you know what? We are still here, the world hasn’t ended. So my perspective on the future is yes, we have some bumps on the road, but we are able to overcome those roads. You have to learn to adapt. Dr. Bohl’s presentation is almost exactly what we have done.

Developer Impact Fees

Some of the challenges that we have had have been produced by the needs of the city to continuously raise taxes in a way that the taxpayer wouldn’t notice. So here is what they charge developers. I’m going to read you the text of money that we have had to pay to the City of Coral Gables for our project in the last four months. In the last four months they have passed impact fees of 1 percent of the total gross value of the project for police and fire. The next month they passed another impact fee for 1 percent of the total project for infrastructure. Then they just recently passed a 1 or 1.5 percent fee for art in public places. Those are three impact fees that were not being charged just one year ago. The building permit fees have gone up almost 50 percent at the same time that they are charging you that.

There is no project in Coral Gables that will be approved unless there are some extractions, and I call them extractions, because basically, they put their hand in your pocket and they extract the money. For us, we have to give a $1.2 million donation for the park. Our infrastructure work that was originally supposed to be $6 million to take care of our property is now in the excess of $10 million because we have had to do other things for the city. They also put a restriction that we have to provide some affordable housing before completion. I do agree that affordable housing has its place within South Florida. But you cannot place it in the middle of one, two and three million dollar houses or condos. What you are doing is reducing the value of your high-end apartments.

Location, Location, Location

Going back to some of Dr. Bohl’s comments, location, location, location, is what we look for. We’re looking for a downtown and urban area where people can walk to, and where you will have, like in Coral Gables, about 30 of the best restaurants in Florida. You have Publix within two blocks. You have car dealerships within a block and a half, anything you want. A person can live where we are without a car. Since we started the project - and we do focus groups - we’ve talked to brokers, we believe that the market has changed, and when I say that the market has changed. The desires of the buyers that we saw four years ago were units of around 1200 to1400 square feet. Now they want a lot more square footage. There is a segment of people here in Coral Gables made up of the empty-nesters. Those who can live in Key Biscayne saw that it was a paradise. But there is nothing to do at night, and there are one or two restaurants. Those people are now coming to our place because we are within walking distance of Miracle Mile and we have more activities at night. So we started to re-design our units, combining units and cutting the density from 400 plus and we are now just below 200. Commercial, like Scott said, we don’t even push it – they knock your door down. Right now we have someone who has given us a deposit for about 7,000 square feet for $750 per square foot. So these are big numbers – location, location, location.

Real Estate Market Issues

Our product is in a niche market. We have a lot of problems in the overall market with foreclosures, and a lot of that is not only the fault of the buyers, but the fault of the banks, because they needed to collect the money, and if they can get a higher return by putting out the money somewhere else, that is what they do. They also got a lot of these sub-prime mortgages and they packaged them in deals and they sent them to Wall Street in something that is called securitizations. One thing that you don’t know about securitizations is that once your property is in a securitizations package, you can’t pay it off and you cannot get out of that until the terms you have been given. If it’s 10 years, a 10-year bond, then that is how long you are going to be there. Or if you do get out, if someone allows you to get out, you’re going to pay a fee as high as 20 to 25 percent to get out, so the banks have a lot of fault in this. Also, there has been a lot of fraud; I had an experience with a building a few years ago. Its 159 units were converted into condominiums, and those condos sold between $200,000 and $300,000. There was a gentleman who turned around within 30 days, and he had $100,000 more than the total price that I charged him in a mortgage with someone else. Now, you know that in order to do that you need a friendly appraiser, you need a friendly banker, and that is in the works right now. The State Attorney’s office is looking at that right now.