The view from a construction crane

Sex,
taxes and real estate scams in Miami 

The
view from a construction crane 

By
Alan Farago                                                                        Read Spanish Version

A
reprint of an article published in Progreso Weekly on June 21, 2007.

Editor’s
Note: When this opinion piece was first written not many were
listening. Read it carefully, again, and suddenly Alan Farago appears
a prophet. The truth is this terrible mess we are in did not happen
overnight. And there is plenty of blame to go around. 

Miami
developers, whose condominiums are nearly completed, could tap into a
new source of revenue based on a news report from the Florida coastal
town, Punta Gorda. 

There,
police arrested a couple having sex atop a 100 foot high construction
crane. The man, who worked at the site and had keys to the crane,
told officers he was photographing the city skyline. 

For
the foreseeable future, renting out crane cabs for sex would generate
a higher percentage profit than selling condominiums in unfinished
buildings. 

What
is happening to Miami real estate markets and its skyline dotted with
cranes atop unfinished condominiums is both predictable and
terrifying. And because it is terrifying, not a single elected
official is copping to responsibility in the unfolding collapse,
spurred by their blind enthusiasm for zoning and permitting decisions
and the influence of campaign contributors and the bill-by-the-hour
development lobby. 

[The]
Miami Herald [has] documented the pain felt, especially in some of
Miami’s poorer neighborhoods, where increasing numbers of
homeowners are facing foreclosure. The poor are always hit the
hardest by corruption and fraud: the landmarks of the housing boom as
with all sorts of pollution. 

They
are also hit, first, on the bottom step. But the entire economic
ladder is being shaken hard and under-reported by the mainstream
media. 

Lots
of people in high places (measured not by construction crane height)
are praying that the mortgage fiasco resolves itself quietly. Elected
officials who presided over the mess have their game faces on. 

Government
officials — in Congress and the White House — are scrambling to
come up with plans to stage-manage the fallout (urging “cooperative”
efforts of financial institutions to work out billions of loans
generated in the enthusiasm of the “ownership society” —
remember that?). The Florida legislature has been engaged in a highly
publicized effort to “jump start” the Growth Machine by slashing
property taxes. But when all is said and done, the proposed relief of
7 percent is mired in delusion. 

Over
the last year revenue that Florida collects from real estate
transactions dipped 25 percent, “causing overall tax revenue to
fall for the first time since the 1970’s.” (New York Times, June
15, 2007) 

So,
at the same time that damage in Miami’s condominium, mid-price and
upper price housing markets is just beginning, cuts in tax revenue
piled atop declining tax base are setting the stage for recession and
social unrest. 

The
billion-dollar Boca Development — that focused on coastal condos —
is trying to shed hundreds of millions of assets. Production home
builders are burning cash under conditions of tightening credit and
ballooning inventory. 

The
New York Times reports that a Bear Stearns “set of hedge funds”
tied to leveraged mortgage portfolios is down 23 percent “and
recently suspended redemptions, prohibiting investors from getting
their money back.” 

If
you own shares in a hedge fund, you will never know if its managers
have been buying Miami condominiums until it is too late to do
anything about it. One is tempted to say, speculation is an
individual and personal choice. But not when the societal outcomes
are so severe. The notion that what is happening in real estate
markets is inconsequential is reinforced, almost like a mantra, by
the financial elite. 

According
to The New York Times, “None of the finance officials at the banks
expressed concern about the recent spike in interest rates,
suggesting that the market’s adverse reaction passed quickly and
that spikes occur every year. ‘As long as we continue to see that
kind of benign environment — good availability of economic liquidity
— I don’t think it will have much of an effect on our business,”
said David A. Viniar, Goldman Sachs chief financial officer.

In
markets like Miami, governed primarily by speculators, thousands of
investors are not facing the future with the same equanimity. 

In
the next six months, as Miami condominiums obtain certificates of
occupancy, the real Miami will begin to hurl, showing what was
achieved by politicians in Tallahassee and Washington who promoted
the “ownership society” as the replacement for the dot.com boom.
The stories are yet to be told of ordinary people who leveraged hard
earned dollars into properties their ordinary incomes cannot afford. 

But
of communities in Florida, and developers who got their way by zoning
changes and building permits in wetlands and farmland — suburban
sprawl that should never have been allowed — every single taxpayer
will be paying for terrible decisions made by their elected officials
for a long, long time to come. 

Those
at the top of the Ponzi scheme, and the politicians they subsidized,
will be on easy street — no matter how bad inflation gets or how
many police officers scour crane cabs for couples engaged in free
expression.

Alan
Farago, an attorney,
lives in Coral Gables and writes about the environment. He can be
reached at alanfarago@yahoo.com.