Brickell condo scene feels like déjà vu

This story is part of the 'Boom, Bust & Back' series. There is an enhanced version of this story available here.

The tour bus rounded a corner near Brickell Avenue as the guide pointed to a highlight everyone got up early Saturday to see: one of the dozens of condominium towers in the works.

“Think of pre-construction condos as futures contracts,” Peter Zalewski, founder of Condo Vultures and the pre-construction condo website, tells the group. “In New York, you trade stocks. In Chicago, you trade commodities. In Miami, you trade condos.”

Miami’s Brickell Avenue condo market has erupted into such an international sensation, condo cognoscenti Zalewski launched weekend bus tours during Art Basel for investors, Realtors and anyone intrigued enough to plunk down $75 for a fast-paced overview. The tours are so popular, he doubled their frequency to morning and afternoon and recently added a boat trip along Biscayne Bay.

Far from chastened by the last overbuilding fiasco, Miami developers are revving for a rerun. Fueled by cash-rich foreign investors, 47 condo projects are under construction east of I-95 in Miami-Dade, including eight in the Brickell area, and many more are in earlier stages.

The new construction, much of it designed by internationally prominent architects, feature cutting-edge amenities, expansive terraces with outdoor kitchens and private pools.

Prices, towers both soaring

This generation of condos is fetching even higher prices than the last boom, sometimes in the eight-figure range. In tandem, prices on existing condos have rebounded sharply from their lows before hitting a recent plateau as for-sale listings have ballooned.

In the Brickell Avenue ZIP code 33131, the median price of a condo jumped 22 percent to $415,000 in 2013 from a year earlier, according to an analysis by the Miami Herald and the Florida Center for Investigative Reporting. The median condo price is down less than 14 percent from its 2007 peak of $480,000. It has come up 60 percent from its dire 2009 bottom of $260,000.

Despite Miami’s notorious condo crash, when speculators reneged on contracts for pre-construction units amid plummeting values, Brickell condos turned out to be pretty solid investments. The median price in the main Brickell ZIP code is up 44 percent since 2003 and down 14 percent from its peak.

While gut-wrenchingly volatile in price, Brickell condos generated a higher return than a single-family home in ZIP 33146 in stalwart Coral Gables. In 33146, home prices were among South Florida’s most stable during the crash (falling 36 percent from peak to trough) and the median price rose 33 percent since 2003, but is still down 22 percent from the peak.

Canadian snowbird Craig Emond remembers doing the math on the Icon Brickell project in late 2010. He figured the deep-discount price of $298 a square foot was well below the replacement cost for the swank development, most of which Jorge Pérez’s Miami-based Related Group handed back to lenders in a settlement months earlier.

Emond, a Toronto real-estate agent, tried in vain to sway friends and acquaintances to follow him into the project, which is designed by Philippe Starck and boasts an infinity swimming pool as big as a football field. But at the time, Miami real estate looked like an abyss.

Today, Emond’s fifth-floor 1-bedroom, 1-bath apartment in tower two of the project is up about 60 percent from the $293,000 he paid.

“I think without a doubt Miami has become a world-class city, quickly catching up to cities like New York and London,” said Emond, who uses his place for vacation.

A 57th-floor penthouse in Icon Brickell’s tower two, listed for $2 million, is under contract to close this week. The listing agent, José Fernández of Keller Williams Realty in Miami Beach, wouldn’t disclosed the price. But it’s a tidy profit from the $1 million it fetched in July 2011 when the developer’s lenders sold the 3-bedroom, 3-bath unit to a buyer who holds it, like a growing number of Miami property owners, in a Florida limited liability corporation.

Condos spreading north

As Brickell has run short of space, the condo excitement has spread up Biscayne Boulevard through Edgewater, which is well along in its makeover from gritty inner city to a center of new urban trendiness with luxury high-rises capitalizing on the bayfront views and close-in location.

In recent months, Miami’s market for condo resales is showing signs of topping. The median price was up nearly 20 percent in March from a year earlier, according to the Miami Association of Realtors. However, after a long shortage of available listings, a flood of resale units has been coming on the market in recent months, giving buyers more choice and a stronger hand.

Existing condo inventory swelled 33 percent to 10,805 units in March from 8,107 units a year earlier as many condo owners consider selling into the strong market before the new units are delivered, intensifying competition. Condo sales fell 3 percent in March from a year ago, and pending condo sales, which are signed contracts, were down 24 percent from a year earlier.

“In the short term, we’re probably going to see some pressure on prices,” Ron Shuffield, president of EWM Realty in Coral Gables, said of the Brickell condo market.

Tough to find financing

Despite the market rebound, traditional mortgage lenders still take a dim view of condos in Miami and throughout Florida. Fannie Mae has stricter lending guidelines created especially for Florida condos that require, among other things, more equity than for other residential mortgages.

It is easier to get a loan on a second home than on a Florida condo that is a primary residence. And a conventional mortgage for a Miami investment condo? Forget about it.

“It’s federal discrimination in housing,” said Grant Stern, president of Morningside Mortgage. “People who set the regs for condos don’t understand the Florida market.”

Or, perhaps, they do.

Much of the new condo construction going up is far beyond the reach of most Miamians, even if they could get a mortgage, underscoring the widening gap between the haves and have-nots.

The current boom in luxury condos has revived debate over the question of housing affordability. “The city can’t be all millionaires,” Mark Sarnoff, a Miami city commissioner and chairman of the Downtown Development Authority, told a developers conference held in March at the old U.S. Post Office building at 100 NE First Ave. Outside, homeless people began settling in for the night on blankets and flattened cardboard boxes.

Echo Brickell, a 57-story high-end tower soon to break ground at 1451 Brickell Ave., is selling for $1,100 a square foot, according to Property Markets Group, the New York-based developer. Designed by Uruguayan architect Carlos Ott, the condo will offer super-sized units outfitted with the latest smart features and ultra fancy appliances. Some residences will boast soaring 14-foot ceilings and 8-foot-deep terraces.

Gamble pays off

In 2012, when BrickellHouse became one of the first towers to launch in the current cycle, Michael V. Smith, a Realtor, bought a pre-construction unit on the 34th floor at about $400 a square foot. His classmates in Nova University’s masters program in real estate chided him for taking the risk. But it already looks like he got a bargain.

Smith, one of the few Americans to buy at BrickellHouse, agreed to pony up 70 percent of the $439,900 price for the 2-bedroom, 21/2-bath unit over the course of the project’s construction, which is scheduled to finish this summer.

“It was such a time of uncertainty, nothing like today,” said Smith, who plans to live there. “It was a lot of cash, and nobody knew how it was going to play out. I went through with it, despite everyone’s criticism.”

Brickell projects launched more recently are fetching far higher prices per square foot. Related’s Brickell Heights project — which is roughly comparable to BrickellHouse — is selling at well over $500 a square foot.

The latest Brickell units are still less expensive than those in the works in parts of Miami Beach. The sold-out Faena House project at 3201 Collins Avenue drew prominent buyers like Goldman Sachs chairman and CEO Lloyd Blankfein and New York art dealer Larry Gagosian. (New Yorkers accounted for some 80 percent of sales.)

The crème de la crème in Faena — a two-story penthouse listed for $50 million — recently went under contract at a price that “breaks all Miami records,” according to agent Jeffrey Miller of Zilbert International Realty, who brought the buyer.

As in earlier booms, Related is leading the charge in pre-construction condo development in Miami. In December 2013, Related, in partnership with a New York equity fund, paid $104 million for a four-acre site at 444 Brickell Ave., where Brickell meets the Miami River, across from its ill-fated Icon Brickell project.

Pérez named the project One Brickell and announced long-term plans to build more than 1,200 residential units, a five-star hotel with more than 200 rooms with meeting and convention space, 200,000 square feet of office space, and street-level retail on the site.

Cash is king in condos

Nearly all of the demand for the pre-construction condos is coming from cash-rich foreigners willing to advance 50 percent or more of the price during construction. Many are from Venezuela, Argentina, Brazil and Russia looking for a safe place for their money.

Fans of the buyer-deposit financing model claim it will prevent the sort of speculation that led to the crisis last time, when buyers put down small deposits with plans of flipping units. Only time will tell.

Nearly half the units delivered to buyers at Related’s MyBrickell at 31 SE Sixth St., in ZIP code 33131 were listed for sale or rent soon after the building was completed in January, according to an analysis by Zalewski.

No worries, said Carlos Rosso, Related’s head of condo development.

“I don’t think it’s concerning at all. We know the buyers are Latin American guys. Some are renting their units, and some are trying to sell,” Rosso said. “Units are renting very, very fast, and everyone has closed and is moving in. Would we like to see more end users? Of course.”

About one-third of the Brickell-area condos are owner-occupied, with twice that number rented, according to the Downtown Development Authority, a quasi-government economic development group.

Many pre-construction projects are able to gear up quickly because the sites were approved for towers in the last cycle.

Miami developer Alan Ojeda launched The Bond at Brickell at 1080 Brickell Ave., after shelving previous plans for a condo there in 2007.

As with much of the development in Brickell and throughout Miami, international capital is fueling the project. Ojeda had sold the site to a Spanish private equity firm that later became his equity partner in The Bond project.

Developers are counting on the transformative impact of downtown’s centerpiece project, Brickell City Centre by Hong Kong developer Swire Properties. The multi-phased project currently under construction will straddle swaths of ZIPs 33131 and 33130.

Swire had acquired much of the land cheaply. Then, last July, it bid $64 million — widely considered a full price — for the old Northern Trust building at 700 Brickell to round out its project and ensure the site would fit in with its overall vision for the area.

Brickell City Centre, which will include condominiums, serviced apartments, hotel, shopping and office space, and a wellness center encompassing 11 acres, has already been a catalyst for downtown Miami’s conversion into a 24-hour work-live-play center.

Swire’s ambitious undertaking is a popular selling point for other Brickell projects.

At a sales pitch for The Bond, Cervera Real Estate agent Claudine Letz told a group from the bus tour that Brickell City Centre is “definitely going to raise the values on all of Brickell.”

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