Defying Gravity: Miami Condos Soar Again
During the height of the housing boom, some likened the feverish flipping game in Miami's condominium market to a circus. The circus is back, and more high-flying than ever.
At a recent party to launch a new project from New York-based developer PMG, acrobats swung over the crowd, and in gravity-defying flourish, poured champagne into the glasses of wide-eyed investors.
"It's exactly what we want. We wanted a little bit of show and a lot of flash," said Kevin Maloney, president of PMG, who re-entered the Miami market in 2010 to purchase some of the remaining beachfront and bayside construction sites.
Condominium development in greater Miami seems to defy not just gravity but reason. Cranes swing above the city from every angle, just as they did during the housing bubble in 2006.
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During the boom, 49,000 units were built, as investor-flippers used easy mortgage money to swap properties and push prices. When it all came crashing down, the lights went out in Miami, literally. Tall buildings stood dark at night, as banks took back properties and projects. Most thought it was all over for a good long time.
But somehow there are just 2,400 unsold units left, barely a year's worth at the current sales pace. Prices are up nearly 25 percent from a year ago, according to the Miami Area Association of Realtors.
How did it happen? Foreign, all-cash buyers like Venezuelans, Russians, Chinese, Canadians, and Brazilians. They were either looking for a safe-haven to park their money or were taking advantage of a weak dollar. Whatever the reason, they came, they saw, they bought.
"It's mind boggling. I'm perplexed as to how all this can go forward this quickly," said Peter Zalewski of CondoVultures.
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He has been qualifying and quantifying the South Florida real estate market for over a decade, and said this time around there is less short term risk because the buyers have a real purpose. "The foreign buyer is deciding to take some chips off the table and park it up here and sort of put it away into a condo in Miami. If they use it or they don't use it, who cares, at least it's stable."
These cash-heavy buyers are allowing developers to require anywhere from 20 to 80 percent down, which appeases bank and private lenders alike.
"It's much smaller inventory, which is holding the price point, and further, the deposit structure is much more beneficial to the developer at this point, so we're back," said PMG's Maloney.
Maloney has sold 100 of the 190 units he plans to build in his "Echo" development and that is without even breaking ground. The rest he hopes to entice with flash and fantasy, which is exactly what Miami is all about.
"I believe in the future," said Argentinean Antonio Aguirre at the Echo party. "The prices are going to come up faster, so today is a great time to buy."
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At Marina Palms Yacht Club and Residences in North Miami's Aventura, broken-down boat slips frame two new condo sites, one of which has the concrete beginnings of a first floor that has been standing idle for six years, since the developers went bankrupt.
"There's an enormous demand. We actually didn't think the demand would be as strong as it is today," said Neil Fairman, of Miami-based The Plaza Group, the project's developer.
The Plaza Group, along with the DevStar group, are getting ready to put up two 25-story towers with a combined 468 units, starting in the $600,000s. The project will include a full-service, 112-slip marina. Half the units in the first tower sold in just the past two months. Fairman said he already has financing proposed from both banks and private hedge funds.
"There's a lot more scrutiny, they're going to scrutinize the buyers a great deal, they're going to scrutinize the developer's track record. They want people with experience, they want people with hard deposits," Fairman noted.
South Florida's coastal markets have 103 towers proposed with nearly 15,000 units. One tower has been completed, 16 more are under construction, and six towers have filed the paperwork to get started with construction, according to CondoVultures. In addition, there are 10,000 rental units in development on former condo sites. Banks are more willing to finance rental apartments, but once complete, these too will likely become condo conversions.
Right now, rents are strong, which is good for apartment and condo investors as well, but as more condo's come on line, the concern is that rents will weaken. Then the question is, do owners rethink their positions and try to get out? Zalewski said that is a real possibility and likely why the developers are working so quickly now.
"You need to rush the market. You need to be first, so that when it craps out, and it will, you are able to take your chips off the table and you're not the one left dealing with the bank," said Zalewski.
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But for now anyway, the red flags are just blending in with the rest of the Miami fanfare. Builders and buyers are rushing in again, perhaps more wisely, but just as fervently as before.
"It doesn't get any better," said Ecuadorian investor Guillermo Freile, one eye toward the acrobat overhead. "I travel all over the world, and I want to come back to Miami."
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