The South Florida condo roller coaster has begun its latest climb after five years of a turbulent nosedive that left many owners — and lenders — feeling uneasy.
Developers are proposing nearly 55 new condo projects with more than 10,000 units, and counting for the coast of the tricounty South Florida region that includes Greater Downtown Miami, Fort Lauderdale and West Palm Beach.
As was the case during the last wave of condo construction in South Florida, Miami-Dade County is leading the latest boom, with nearly 40 projects proposed with more than 7,900 units slated to be built in Aventura, Bal Harbour, Greater Downtown Miami, Key Biscayne, Miami Beach, and Sunny Isles Beach.
Broward County ranks second based on at least 11 condo projects with nearly 1,600 units proposed for Fort Lauderdale beach, Hallandale Beach and Hollywood.
Palm Beach County ranks third with at least five condo projects and more than 700 units proposed for Gulf Stream, Juno Beach and West Palm Beach.
Expectations are the number of proposed condo units could become even greater in the upcoming months as prospective developers — both domestic and international — scour Miami-Dade, Broward and Palm Beach counties in search of previously approved projects that were shelved during the South Florida real estate crash that began in 2007.
No one knows how soon — or even if — the demand for new condos in South Florida will expand beyond the realm of previously approved projects into areas that have not yet been designated for future condo development.
It is also unclear how many of the proposed condo projects to date could actually be built as construction financing remains such a challenge that developers are requiring buyer deposit commitments of between 30 and 80 percent.
For comparison, many developers collected no more than 20 percent deposits during the last South Florida condo boom.
Despite the higher deposit amounts, at least one new tower — the 23 Biscayne Bay condo in Greater Downtown Miami – has already been developed and an additional 11 towers are under construction with completion scheduled for as soon as 2014.
The expected delivery date for the current proposed condo towers is crucial as it reflects the time period at which the unsold condo units from the last South Florida boom-and-bust cycle are projected to be sold out.
As of the second quarter of 2012, buyers have purchased about 93 percent of the nearly 49,000 new condos created in the largest coastal markets during the most recent South Florida real estate boom that began in 2003.
At the current sales pace of nearly 150 units per month, the 3,400 unsold new condos could be acquired in the first half of 2014.
The unsold inventory total does not include the more than 1,800 new condos in coastal South Florida that were built during the boom but later sold in bulk transactions to investors who are still renting out the units until the opportune time to unload at a premium.
Some developers are hedging their efforts by proposing rental towers – at least 5,000 new units and counting – for coastal South Florida to capitalize on the rising rents in the region until the units can be sold.
During the last South Florida real estate boom, many rental complexes were converted into condominium projects to capitalize on strong buyer demand. Nothing material has changed to stop this phenomenon from occurring again.
The early stages of the newest condo boom suggest that the new towers are not meant to appeal to the masses but instead to cater to niches, especially ultra-luxury buyers and investors.
Developers of ultra-luxury projects are focused on attracting end users and second-home buyers with state-of-the-art towers that include generous floor plans, distinct views and noteworthy features such as personal swimming pools, automobile elevators and spacious backyard-like balconies.
Builders of the investor-oriented condo towers are designing units to be small with modest finishes, basic amenities, and minimal parking to keep the purchase prices and monthly maintenance fees low. Luxury is not a factor as the investors buying this niche of condo product have no intention of residing in the units but rather leasing out the residences to tenants at rich rental rates.
Going forward, there are no guarantees the wave of newly proposed condo towers will ultimately be constructed during South Florida’s latest growth phase.
All participants can hope for is that the adrenaline rush from the last drop has made an impression on today’s investors, developers, and lenders playing in the South Florida condo market.
Peter Zalewski is a principal with the Greater Downtown Miami-based real estate consultancy Condo Vultures. Zalewski, who has had a Florida real estate license since 1995, works as a consultant for private equity groups and institutional investors.
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