Real estate developers gleefully took advantage of the crypto craze as newly minted crypto millionaires looked to real estate as a way to diversify. They bought expensive homes all over the country, especially in cities like Miami – home of the FTX Arena – New York and Los Angeles.
But that party collapsed last week with the spectacular collapse of Sam Bankman-Fried’s FTX, the world’s second largest cryptocurrency exchange. The consequences will be huge, with some estimates putting the number of FTX creditors at 1 million. And then there’s the ripple effect that many observers are predicting across the crypto space, with brokers, other exchanges and crypto startups vulnerable to collapse.
Crypto buyers have already pulled back on real estate spending, brokers said, and now dealmakers are experiencing a more dramatic slowdown since FTX filed for bankruptcy last week. Star broker Ryan Serhant called the collapse a “watershed moment.” The Real Deal‘s Miami event.
It is unclear what will happen to buyers who used FTX to buy pre-built apartments with cryptocurrency.
“Crypto-rich, cash-poor buyers are probably in a little bit of trouble executing their contracts, especially if they’re transferring,” said Erik Mendelson, a broker specializing in crypto deals at Miami Real Estate Agency.
When Kevin Maloney’s Property Markets Group wanted to appeal to crypto buyers, they used FTX to convert buyers’ funds to dollars, as many developers cannot accept cryptocurrencies directly because their lenders or investors do not allow it.
— Dan Toomey (@dhtoomey) November 16, 2022
Ryan Shear, managing partner of PMG in Miami, said at the time that its agreement with FTX “will bring increased security to our cryptocurrency payment processes offered to buyers.”
“Currently have no funds being processed by FTX.”
The partnership, announced a year ago, has been fruitful for both parties: FTX has taken a clip of every transaction involving crypto at E11even Hotel & Residences Miami and the Waldorf Astoria Residences Miami, both under-construction apartment towers.
It is unclear how many buyers used FTX to pay their deposits, although PMG and E11even Partners reportedly sold half of the 461 units at the second E11even tower to crypto buyers. Through a spokesperson, PMG said that it and its buyers “currently have no funds being processed by FTX.” All deposits are in escrow.
In Miami’s urban core, Diesel Wynwood and Cipriani Residences are among the projects with FTX partnerships. This summer, FTX even partnered with the developer of a single-family home community in west Broward County called AKAI Estates in Southwest Ranches. A spokesperson for the developer said that “no crypto transactions” ever took place at the project.
“Maybe they’re not looking at that $15 million house anymore, maybe they’re looking at that $5 million house.”
Mendelson and others called PMG’s move a “marketing ploy” since it and other developers don’t directly accept crypto. But if some of those buyers can’t make additional deposits to finally lock in their units — because they’ve lost too much crypto or they simply don’t have enough liquid funds — they may be forced to walk away from the money they already have. has. sit down
“Who are they going to send their payment to?” said Madison Roberts, an agent with Oppenheim Realty. “Developers are not going to accept Bitcoin.”
Fortune International Realty’s Stephan Burke, who has been involved in a number of crypto-related deals with his wife and partner, Carol Cassis, expects their buyers to eventually close on units at Mast Capital’s Cipriani Residences, a planned luxury apartment tower in Brickell. .
“These people have deep crypto pockets,” Burke said. “They can easily continue the scheduled deposits to crypto or they can use cash.”
Mendelson warned that the “FTX contagion” is underway. Liquid Global, a crypto exchange owned by FTX, stopped all withdrawals on Monday. On Wednesday, the lending arm of crypto-brokerage Genesis suspended new loans and redemptions after a surge in withdrawal requests.
“Fortunately, my buyers are OG bitcoiners,” Mendelson said. “If you don’t keep your own digital assets in cold storage, if you don’t have direct access to your coins, it’s a burden. It’s a risk.”
He quoted the saying, “not your keys, not your coins.”
Still, he acknowledged his clients are adjusting their budgets.
“Maybe they’re not looking at that $15 million house anymore, maybe they’re looking at that $5 million house,” he said.
The mysterious crypto-investor who spent the then-equivalent of $22.5 million on a Surfside penthouse last year is now looking to cash in, even if it means losing money. It was listed for as much as $28 million, but in November it returned to the market for $19.9 million.
Aaron Kirman, a top luxury broker in Los Angeles, received three calls in the past week from sellers in the $15 million to $45 million range who were “in a jam” because of the crypto crash, he said during ‘ n Instagram live Tuesday with TRDsaid Hiten Samtani.
As developers distance themselves from FTX and the crypto copper pool, brokers who have worked in the space for years say that longtime holders of crypto will eventually make their way back into the real estate market.
“When markets are unstable [buyers] get emotional and scared,” Roberts said.
Crypto-property transaction volume has slowed since the spring, but the “extreme instability” caused by FTX’s demise will be “bad for everyone,” she added. The price of Bitcoin is down about 65 percent since the end of March.
“No one is buying [real estate] right now,” Roberts said. “And I don’t want them to either.”