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It appears that Bear Stearns the famous investment banking house is going to handle the $220,000,000 bond offering that Trump Ocean Club is going to require to move ahead towards completion if Panama approves it. Apparently more conventional sources of financing have failed to come up with the money. Bear Stearns has come in and saved megaprojects before, noteably the White CAP in the Dominican Republic. Can Bear Stearns bail out the Trump Ocean Club?
Roger Khafif the Panama partner for the Trump Project has stated that the project is already 70% sold out as reported in the papers. I would have to say that they have spent a fortune on advertising and marketing to get there and wonder why they have not reached 100% with such a strong marketing push. Khafif states that a suite that originally sold for $220,000 is now selling for $375,000. Lets give a round of applause to the real estate brokers and the flippers, most of whom never intend to live in the project.
To break it down by the sq. meter, units that started out at $3,600 a sq. meter are now selling for $4,700 a sq. meter. Why are people buying these units? Because the brokers and promoters are telling them that they will be worth more in a few months or down the road. Many other suitable properties can be had for much less money.
So if the bond issue goes through what happens. Bear Stearns will more than likely successfully sell the bonds. They are good at what they do. The bond will more than likely be secured by the equity in the property. If upon completion the developers find out that the flippers and speculators who invested 30% down actually do come up with the extra 70% or sell the units to someone who comes up with the money then all is well. If the speculators cannot sell the units for a profit and then do not come up with the extra 70% of the payment then the developer has a problem, or do the bond holders have a problem?
What the developer would be likely to do is reduce the prices down to the $3600 a sq meter level and see if they sell. Now remember he already has a 30% down payment on 70% of the units so he can easily do a 20% price drop and see if they sell. Then if needed he goes to a 30% price drop, then a 40% price drop and what is still left becomes rental units. Between the sales revenue and the rental revenue he can service the debt on the bonds. Now another nice question is are the banks going to write individual mortgages on these properties or consider them too high risk and require high down payments like 40% or more. This could result in more failure to close upon completion. Speculators love leverage, not paying all cash. Trump does seem to be the master of the deal but how will his customers come out that are paying amazingly high prices for the units?
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