Practically everyone has an opinion about South Florida’s real estate market. Craig A. Werley supports his views with years of diverse experience.
Werley provides real estate consulting for builders, bankers, developers, and government bodies looking for a detailed assessment of South Florida markets and situations.
Before starting Coral Gables-based Focus Real Estate Advisors, Werley held senior posts at a real estate investment firm and several professional services companies. He was the director of real estate advisory services for PricewaterhouseCoopers LLP in Florida. He also is a commercial and residential broker with Focus Properties Group.
Business Monday interviewed Werley in his offices and he emailed responses to questions about Miami’s fast-moving real-estate scene.
Q. Data suggest South Florida still has a large inventory of residential foreclosures to work through. Do you think the sale of foreclosed homes by lenders will derail or disrupt the real estate market’s recovery?
The sale of the remaining inventory of foreclosed homes by lenders should not derail or disrupt the real estate market recovery in South Florida, assuming there is no major relapse of the general economy into another recession. The pace of new home construction may be somewhat slower than in past expansion cycles until this inventory is back down to normal historic levels.
Population in-migration and job growth have historically been the lifeblood of our real estate market and the housing market in particular. Growth in these fundamental market drivers has resumed and is expected to continue to expand in the foreseeable future. Also, recognizing the opportunity to reduce write-offs, bankers will take advantage of upward trending prices and will pace release of REO [bank-owned real estate] properties accordingly.
Additionally, published foreclosure statistics may be substantially overstated, due to the frequency of multiple lis-pendens claims on individual properties.
Q. What is driving the big interest among institutional investors and developers in building apartment projects these days? Do you think demand for apartment housing in South Florida will remain strong?
Basically demand/supply conditions and investment return potentials exceeding current opportunities in other real-estate sectors represent the driving forces. This question also makes me recall Warren Buffett speaking about his philosophy of investing in essential products and services: A place to live is about as essential as it gets!
Yes, demand for rental apartment housing in South Florida will continue to expand and remain strong for many years to come, because of the impacts of this economic cycle on the general population’s perception of home ownership, the extent of households displaced by foreclosures or suffering the financial stress of underwater mortgages.
Another factor and perhaps the most significant that is generating and will sustain rental demand is lifestyle preference and the desire for relocation flexibility among the Y-Generation and youngest segment of Echo-Boomers who represent the greatest volume of new household formations now and over the next 10 years.
Another notable factor supporting an extended period of opportunity for rental project development is the deficiency in institutional grade rental apartment properties in South Florida resulting from the massive extent of condo conversions during the last cycle.
Currently, major institutional grade rental apartment properties represent only about 10 percent of Miami-Dade County’s total multifamily rental housing inventory compared to 20 percent in 2000.
Q. A lot of developers have been eyeing new condominium projects in South Florida. Is the market getting ahead of itself?
It all comes back to supply and demand. At this point in time, it is too early to say that the market is getting ahead of itself in terms of fully committed new development. That is not to say that the inevitable historic cycle of ‘over-building’ will not occur; it’s more a question of when and the extent of the pain.
The ultimate controlling factor is the availability and flow of equity capital and financing. Following the once-in-a-lifetime cycle we’ve just been through with a simultaneous credit market and housing bubble burst, hopefully the next overbuilding cycle is tempered by investors and lenders keeping a sharp eye on feasibility at the project level.
Q. Which neighborhoods of Miami-Dade County are generally doing well in the recovery and which are lagging? Will the laggards likely pick up soon?
Generally, the beaches, bayfront and established upper-end inland communities such as Coral Gables, South Miami, Pinecrest and Doral are proving to be most resilient in terms of pricing and inventory depletion.
The downtown area, of course, is the most unique recovery story given the fact that the majority of existing residential inventory was built during the last development cycle with recovery driven by an international buyer market unique to Miami and the corresponding availability of housing and urban lifestyle environment attracting young working-age households employed in the downtown area as well as college and graduate students.
Neighborhoods experiencing the weakest recovery tend to be low-income areas hit hardest by employment cuts in construction, service and public sectors. The pace of recovery in these areas is not likely to pick up soon, since general recovery in employment opportunities is lagging expansion in higher paying employment sectors such as business and professional services, medical and education fields.
Q. A lot of South Florida homeowners are still underwater with their mortgages. How do you see that affecting the ongoing recovery in the local housing market?
Homeowners still underwater with their mortgages will have a relatively limited impact on the recovery of the local housing market. To the extent that most households with underwater mortgages have been able to stay current on their mortgages, the only segment of this group that impacts the market are those who wish to move or upgrade their housing but cannot do so without equity from their existing property or are not willing to accept a loss on sale of their existing property.