Developers in this latest South Florida preconstruction condo boom have reached the halfway point on their way to matching the total number of new units created during the tricounty region’s last real estate boom-and-bust cycle that began in 2003.
Less than 18 months after the first new condo tower was constructed in South Florida since the devastating real estate crash of 2007, a surge in proposed projects in the last six months means more than 24,500 units — and counting — have now been announced east of Interstate 95 in Miami-Dade, Broward and Palm Beach counties, according to CraneSpotters.com.
By comparison, developers created nearly 49,000 units in coastal South Florida during the last condo cycle from 2003 to 2010, according to an analysis of government records.
In this current preconstruction boom, Miami-Dade accounts for 79 percent — or nearly 19,500 condos — of the newly proposed units slated to be developed in South Florida. Palm Beach is second with 11 percent — or 2,725 proposed units — and Broward is third with about 10 percent — or 2,350 proposed units —in coastal South Florida, according to the data.
On a market-by-market basis, Greater Downtown Miami accounts for 44 proposed towers with more than 13,300 condo units slated to be developed. West Palm Beach ranks second with 11 towers and more than 1,800 newly proposed condo units, and Sunny Isles Beach ranks third with a dozen proposed towers and nearly 1,650 new condos.
Rounding out the top five most active preconstruction condo markets are the Hollywood/Hallandale Beach area at No. 4 with 13 proposed towers and more than 1,630 new condo units proposed and the Bal Harbour/Surfside/Bay Harbor Islands area at No. 5 with 23 proposed condo buildings and nearly 1,175 new units.
For what it is worth, the Miami Beach condo market ranks No. 6 with 20 buildings and more than 1,125 newly proposed units.
Despite the surge in newly proposed condo projects in the last half of 2013, the overall South Florida preconstruction market still appears to be fundamentally sound.
Unlike the last boom-and-bust cycle, the same bank financing that was so easy to obtain a decade ago remains a serious challenge to secure for most newly proposed condo towers.
By some accounts, lenders have provided less than $2 billion in financing to developers of new condo towers in coastal South Florida. This total represents a small percentage of the more than $10 billion in condo construction financing provided during the last real estate cycle.
As a result of the financing obstacles, developers are forced to ask preconstruction buyers to commit to a series of upfront deposit payments that add up to about 50 percent of the contracted purchase price of a unit.
Developers are now using a super-majority of the presale buyer deposits to construct the proposed towers. As of December 2013, four towers with nearly 250 units have been completed and an additional 43 towers with more than 6,000 units are currently under construction.
This 50-percent deposit structure is a major change from the last condo boom where preconstruction deposits averaged about 20 percent, industry watchers said.
Besides the larger buyer deposits, another key difference in today’s market compared to the last condo boom is the lower number of units being proposed for each tower. Developers on average are proposing about one-third fewer units per project in this latest South Florida condo boom.
During the previous real estate boom, developers created 245 towers with an average of nearly 200 units per condo building in South Florida between 2003 and 2010. In this latest boom that began in 2011, developers are now proposing more than 180 towers with an average of 135 units per condo building.
Developers are proposing fewer units as they focus their design and marketing efforts on attracting wealthy individuals who want boutique-type projects that are designed by world-famous architects to feature expansive floor plans and superior amenities.
Boutique projects also translate in fewer new condo units expected to come onto the market in the future, providing some assurance that South Florida may yet be able to avoid another boom-and-bust cycle.
It is against this backdrop the Related Group —South Florida’s most prolific vertical developer of residential units — announced plans earlier this month to build a mixed-use complex to be called One Brickell that is to feature three towers and 1,200 condos on the south bank of the Miami River in Greater Downtown Miami.
Ironically, the newly proposed One Brickell project is slated to go up across the street from the last three-tower condo complex — the nearly 1,800-unit ICON Brickell — that the Related Group developed — and ultimately relinquished control of to its lenders — during the last real estate cycle in South Florida.
The proposed One Brickell project is also slated to be developed across the street from the nearly completed 192-unit MyBrickell condo tower being constructed by the Related Group.
With presales launched in 2011, the MyBrickell project is the Related Group’s first new condo tower to be developed in Greater Downtown Miami since handing over more than 870 units with more than one million square feet of sellable space in the ICON Brickell to its lenders in May 2010.
The unanswered question going forward for the state of the South Florida preconstruction market is whether condo developers will continue to build more boutique projects with fewer condo units or reverse course in favor of mega-projects featuring thousands of units.
Peter Zalewski is a principal with the Miami real estate consultancy Condo Vultures. Zalewski, a licensed Florida real estate professional since 1995 and founder of CVR Realty and Condo Vultures Realty LLC, advises developers, lenders and institutional investors. Zalewski also runs the preconstruction condo project website CraneSpotters.com in conjunction with the Miami Association Of Realtors.