Sunday, September 16, 2012

Argentines Turn Cash Into Condos in Miami

Big Deal

Oscar Hidalgo for The New York Times
CURTAIN CALL The view from Opera Tower in Miami, where many Argentines are buying investment condos.
IN early August, Jorge Sanchez, a broker with Douglas Elliman, flew to Buenos Aires to sell some Miami real estate. He returned to Florida a few days later with four signed contracts from Argentines for apartments in a 60-story tower in downtown Miami.
The fact that the buyers signed the contracts without ever flying to Miami to see the building -- Opera Tower -- speaks volumes about how eager, and desperate, Argentines have been to direct their money out of their country and into real estate in Miami and New York.
In the past few months, Argentines have quietly passed Brazilians to become the most active group from Latin America buying Miami real estate, according to Millie Sanchez, executive vice president of development marketing for Douglas Elliman Florida.
Brazil’s demotion from the top spot likely has something to do with the weakening of its currency, the real, versus the dollar in recent months. But in Argentina, a weakening peso and 25 percent inflation, economists say, have spurred many affluent Argentines to move their money into American real estate by expensive and sometimes illegal means.
Economic and political uncertainty around the globe are benefitting real estate in the United States, especially in Miami and New York, the two “safe haven” American cities foreign investors usually look to first. South Florida’s real estate market is certainly no stranger to capital flight from Latin America. But the velocity at which some Argentines are investing in Miami real estate has shocked some brokers here.
“The desperation of the Argentine people has taken over and they are actually market leaders here now,” Ms. Sanchez said. “Any project today in Miami is probably being sold 50 percent to the Argentines.”
The government of Cristina Fernández de Kirchner, Argentina’s president, has been trying to stop the capital outflow, which nearly doubled to $21.5 billion last year from $11.4 billion in 2010, with increasingly severe methods.
Argentines now have to submit requests to tax authorities to convert pesos into dollars for overseas trips, and are rarely approved for much. Overseas credit card purchases are heavily taxed at home. And specially trained dogs working for tax authorities are sniffing for dollars at ports, airports and border crossings.
The government began restricting access to dollars last November, days after Ms. Kirchner won a second four-year term.
What’s driving all this? Argentina has struggled to preserve its hard-currency reserves in the Central Bank and sustain a trade surplus. The country has had limited access to international credit markets, owing to its inability to win back the confidence of global investors after its $100 billion default in 2001.
The government has refused to take on more debt, to rapidly devalue the peso, or to reduce spending, which it needs to sustain programs for the poor and working class that make up its voter base. Instead, Ms. Kirchner’s government has chosen to clamp down on capital flight by whatever means possible.
Banks in Argentina are lending at rates some 10 percent under the inflation rate, economists say. There are few profitable investments left in the country, said Eduardo Blasco, a financial consultant in Buenos Aires.
Argentines are buying foreign properties not only to park their savings but also to make extra income through rentals. “Argentines don’t want any more Argentine risk,” Mr. Blasco said.
So they are willing to risk their savings on Miami real estate instead. At Opera Tower, at 1750 North Bayshore Drive, half of the 30 apartments sold in the past month were bought by Argentines, Ms. Sanchez said. Most were all-cash purchases, even though the developer, Florida East Coast Realty, has offered to finance up to 65 percent of the purchases.
After selling about a third of the building’s 635 apartments before 2008, the developer turned the building into rentals after the housing crisis. Six months ago, Opera Tower began selling condos again. Since then some 90 apartments of the remaining 394 have gone into contract, said Luis Espinosa, the director of marketing for Florida East Coast Realty.
The building has become almost a pure investment play. Owners are occupying less than 5 percent of the apartments, which are selling for $250,000 to $650,000 for studios, one-bedrooms and two-bedrooms, said Ana Tajes, Opera Tower’s sales director.
Opera Tower is popular with Argentines because the developer is offering to lease back the apartments from the buyers, pay their monthly maintenance charges and give them an annual net rent equal to 6 percent of the purchase price for three years.
Argentines have also been scooping up apartments in Manhattan. Maria Velazquez, a broker with Prudential Douglas Elliman, met a group of Argentines in Miami earlier this month and accompanied them to New York. She said she has sold six apartments totaling $8 million to Argentines since last November, including four apartments at One Museum Mile, located at 1280 Fifth Avenue.
In December, Ms. Velazquez represented a group of Argentines that bid $10.35 million for eight apartments at 400 Fifth Avenue. They were later outbid, she said.
“They wanted to act fast and get their money out” of Argentina, Ms. Velazquez said. “Whoever buys in New York already has four or five apartments in Miami.”
While her Argentine sales have been strong, Ms. Velazquez lately has been selling even more in New York to another skittish group from Latin America: Venezuelans.
Concerns about the Oct. 7 election in Venezuela, in which the 13-year incumbent, President Hugo Chavez, faces perhaps his stiffest challenge from Henrique Capriles, have led to a new exodus of cash from the country that is finding its way into New York real estate.
In the past year Ms. Velazquez said she has sold $35 million worth of Manhattan real estate to Venezuelans, including nine apartments at the Aldyn (60 Riverside Boulevard), three of which were $7 million penthouses of about 3,096 square feet each.
In contrast to about four years ago, when many Venezuelans struggled to wire large sums of money out of the country because of government restrictions, this time around they are using funds from accounts in Switzerland and the Virgin Islands, she said.
Some Argentines are using money that was already waiting in American bank accounts. Others have been willing to pay a black-market premium of up to 40 percent to convert their money into dollars at home, and a commission of up to 7 percent to transfer funds abroad through a currency exchange house, an illegal transaction, economists said.
The dollar restrictions have caused Argentina’s own real estate market, which has traditionally been transacted in dollars, to flatten, as Argentines sit on their properties, said Marina Dal Poggetto, an economist in Buenos Aires.
“Those that have properties don’t want to sell in pesos, only in dollars,” she said. “But buyers don’t have dollars.”
The government controls are having a profound effect. Capital flight from Argentina plunged 69 percent to $3.57 billion in the first half of 2012, from $11.7 billion in the second half of 2011.
Deserving part of the credit is Argentina’s national tax agency, which has used a team of 50 specially trained dogs -- most of which are golden retrievers and Labradors -- to sniff out the dye in dollars and other foreign currencies.
The Kirchner government has boasted about the dogs’ exploits.
In February, the government said, Tiza found $110,000 in a car crossing into Uruguay. In July, Isidoro and Bruno, two other dogs, found $20,000 in a car trying to cross the border with Paraguay. Then last month, Catalina, which appeared to be a black Labrador, found 187,000 reals ($92,493) in the airbag of a Toyota Hilux at a border crossing with Brazil.
The busts pass for black humor in Argentina these days. But a good chunk of the money that is managing to slip out by determined Argentines is finding its way into Florida and New York real estate, and for brokers here that is no laughing matter.
Charles Newbery contributed reporting from Buenos Aires.
Follow Alexei Barrionuevo on Twitter: @alexeinyt.
This article has been revised to reflect the following correction:
Correction: September 14, 2012
An earlier version of this article misstated the size of three apartments at the Aldyn that sold for $7 million. They are each 3,096 square feet, not 8,000.

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