1390: Anatomy of a Cancellation

Originally Posted on Friday, February 17, 2006

Yesterday it was reported in both the Miami Herald and the South Florida Daily Business Review that the developer of 1390 Brickell Bay has cancelled the project due to higher than expected construction costs. Deposits will be returned to buyers, most of whom have been without their original deposit for more than a year. This is an inherent risk in investing in Preconstruction Real Estate becuase you are giving money for something that has not even been built. If a cancellation does happen most developers will return deposits promptly and most will include some small interest earned on the deposit. Luckily we didn't have any buyers with units reserved in 1390 Brickell Bay. Although the project has been handled in a very professional and open manner from the beginning and I am sure buyers will get there money back...they would rather have the unit they decided to purchase.

So why did 1390 Brickell Bay fail? Did the developer grossly underestimate construction costs? Did the "Bubble" that has been so widely reported finally rear its ugly head and put downward pressure on prices, thining the developer's margins to almost nothing? I suspect it is a combination of these factors and a little bit of that old Real Estate mantra: Location, Location, Location. 1390 Brickell Bay would have been located in a less than inspired piece of land that is in fact not on the bay but accross the street from it. Also accross the street: the Jade (2004), the Emerald (2005), the Sail (2005), the Club at Brickell Bay (2005), Solaris (2006), and Villa Magna (2007). With so many projects within a few blocks and many others within a square mile, only the strongest and most desirable projects will be completed. It is now more important than ever before to scrutinize the Developer, the surrounding competition and the market factors that might affect a project's viability before making a decision on which property to invest in. The good news for non-1390 Brickell Bay owners of preconstruction condos in Brickell is that there is now one less building to choose from and demand remains very high. If you are in a good project, and you can weather a brief storm of uncertainty and doomsday predictions, then you stand to profit greatly in the next five years.