The good times may be rolling again for South Florida’s real estate industry, but survivors of the last bust warned Tuesday that there may be too much exuberance over the latest boom.
Panelists gathered for a real estate forum at a luxury hotel ticked off a series of cautionary notes that harkened back to the last time housing prices soared too high: developers launching construction without the reserves to handle a drop in sales; lending plans based on price increases; and a stream of condo projects chasing cash not from local buyers but from foreign investors.
“If we learned anything, we learned we didn’t learn much,” said Russell Galbut, managing partner of Crescent Heights, a high-rise developer out of Miami. “What I see in the Miami market is a lot of people coming together at the same time to build. It think it could possibly bring about the same things that we had in the past, which is an overdevelopment of projects.”
Galbut addressed more than 200 people gathered at Miami’s Four Seasons Hotel for a event by the Urban Land Institute titled: “Miami Condo Market Symposium: Embracing Boom and Bust Cycles.” The warnings peppered throughout the talks touched on a central fear behind the current spike in property values and sales — namely, is the market getting ahead of itself once again?
Bullish panelists pointed to reasons why this cycle should be different than the last: lenders nearly ruined by the bust now insist on significant cash deposits before backing projects; novice developers being locked out of financing circles; and Miami’s emergence as a choice destination for the wealthy throughout Europe and Latin America.
“Miami, up until a couple of years ago, was essentially the poster child for distressed real estate in the U.S.,” said Jonathan Miller, president of Miller Samuel, an appraisal firm that analyzes housing trends for Miami and other markets. “Miami has successfully rebranded itself as a luxury housing market and in a very short period of time.”
He said between 60 percent and 70 percent of local condo sales involve all-cash deals — about the double the national rate. Miller and others cited Miami’s growing appeal as a cosmopolitan city, thanks in part to expanding retail and cultural options downtown.
“We have reinvented ourselves,” said Alicia Cervera, managing partner of Cervera Real Estate. “One of the wonderful results of our building boom, the last one, is we in fact built a tremendous city. We have new neighborhoods, and concentrations of neighborhoods.”
Foreign investors helped swamp Miami’s real estate during the last boom, as high-rise developers set up sales centers throughout Latin America and pitched their projects as cheap ways into a red-hot housing market. Buyers, both foreign and domestic, signed pre-construction contracts for condo units with plans to sell them before the buildings even opened. Developers and banks felt confident that the required 20 percent deposits would be enough to force the original buyers to close even if prices disappointed.
But when real estate values dropped sharply, buyers surrendered their deposits rather than pay more for units than they could sell them for. The resulting domino effect sent prices plunging throughout the market as developers were suddenly left with no revenue to pay back construction loans. Miami emerged as one of the most troubled housing markets in the country.