Nobody sees the split in South Florida’s economy more clearly than Jose Goyanes, a businessman who owns two stores next door to each other in downtown Miami.
One is a beauty supply shop that caters to Latin American tourists. Business is down 30 percent since foreign currencies began to plummet more than two years ago, Goyanes said. Foot traffic has all but evaporated along Flagler Street, a lifeline for many downtown businesses.
“You don’t see it much anymore, but customers would come in here with a suitcase, buy a bunch of stuff and then fly back home,” Goyanes said.
His other business is an old-school, wood-and-brass barbershop next door called Churchill’s where lawyers, judges and office workers stop in for a $25 haircut or a hot shave.
“The barbershop is strictly locals, so we’re not feeling the downturn,” said Goyanes, who sports a prodigious Robert DeNiro-style beard.
When Latin America sneezes, Miami catches a cold. So what happens when South Florida’s vital economic partner comes down with something really nasty?
No one is predicting a recession in Miami. But after years of steady growth, 2016 could see a definite slowdown for the local economy.
Start with the plight of our foreign cousins. A strong dollar has slowed the flow of money into Miami from Europe and South America. Economies on both continents and in China are stumbling as the U.S. stock market pinballs wildly.
And closer to home, Miami-Dade County’s unemployment rate has flatlined in the last year after falling steadily since 2011.
Goyanes’ story tells it all. Local businesses that depend on money from abroad are bracing for a rough year. Industries that rely on locals expect stronger growth.
“I’ve seen this maybe three times [before] where we completely lost the Latin American consumer due to the strength of the dollar,” said Goyanes, who’s owned businesses in the area for 21 years and sits on the board of the Downtown Development Authority. “If the dollar is strong, they’re not going to come here and spend unless they’re super-wealthy.”
Businesses that rely on foreigners spending money in Miami shouldn’t expect them back in big numbers in 2016.
A recent report by the International Monetary Fund predicts that growth in Latin America and the Caribbean will be negative in 2016 — the first time the region has seen two straight years of losses since a disastrous debt crisis in 1982 and the subsequent “lost decade” of economic stagnation.
That’s bad news for a lot of local industries, including tourism, retail, trade and banking — but none more than luxury real estate.
Real estate: Condos soften
Slow sales for multi-million penthouses may spark schadenfreude in locals feeling priced out of the housing market. Miami is one of the least affordable places to buy or rent a home in the U.S. But the cranes and contracts spawned by luxury condo projects do have an upside: they keep an army of construction workers, engineers, architects, lawyers and accountants on the job.
The construction industry alone accounts for more than 113,000 jobs in South Florida.
Real estate brokers aren’t shy about admitting that 2016 will be rough. Foreign buyers have fueled the luxury boom. But a strong dollar is making local real estate tougher for foreigners to afford. And a new federal crackdown on deals done through shell companies could also scare away buyers who want to stay in the shadows — at least until the anti-money laundering initiative expires in August.
“We’re going to see a slowdown [for condos] in 2016 across the board,” said Philip Spiegelman of condo marketing and brokerage firm ISG.
In Miami-Dade and Broward, foreigners spent nearly $6 billion on residential real estate in 2015, according to the Miami Association of Realtors. The majority came from countries where currencies are now struggling against the dollar including Venezuela, Brazil, Argentina, Colombia and Canada.
“We used to be able to close a deal with a foreign buyer in two visits,” Spiegelman said. “But a lot of times now it takes four or five visits. It’s taking a lot longer to get to that ‘yes’ ... So there’s no doubt that the new construction market is going to slow in 2016. The smart developers are not going to rush their products to market.”
Condo resales have stayed flat as a whole with resales for $1 million plus homes falling nearly 15 percent in the third quarter of 2015.
Spiegelman said his firm is looking to broaden its offerings in anticipation of tough times.
“We’re going to be selling everything from $100,000 apartments in Tampa to $5 million penthouses on Miami Beach,” Spiegelman said. “That’s how we can stay competitive.”
There are nearly 130 condo towers with 12,500 units under construction in Miami-Dade, Broward and Palm Beach east of Interstate-95, according to CraneSpotters.com. Another 95 towers with 12,700 units have been approved to start building.
It’s looking more and more likely that developers will move slowly on those projects — or shelve them altogether.
“I don’t think much is going to get built this year if it hasn’t gotten out of the ground already,” said Kevin Maloney, who runs luxury developer Property Markets Group. “There are very few lenders out there lending on condo deals. We all know the market has slowed.”
PMG has projects rising or just completed in Aventura, Sunny Isles Beach and Brickell, as well as New York City.
But Maloney said he plans to move slowly on another tower that hasn’t started construction yet at 300 Biscayne Blvd, Miami.
“We may not launch the condos there until 2017, maybe not even until 2018, depending on the market,” he said.
All that inaction could be a good thing. Skyrocketing construction prices are finally starting to drop. Contractors who had more work than they knew what to do with during the boom are now looking for jobs, developers say.
“Really a down year is what this market needs,” Maloney said. “It’s going to firm up prices.”
And not all sectors of real estate will see a slowdown in 2016. Tight inventory means single-family home prices and sales continue to soar across South Florida. Miami-Dade is on track to break its annual record for single-family home sales in 2015, according to the latest available data.
Commercial real estate has also seen big money deals, including the $370 million purchase of an entire block on Lincoln Road by a Spanish billionaire. A Maryland-based investment group also made big bets on two struggling local malls, dropping $87.5 million on CocoWalk in Coconut Grove and $110 million on the Shops at Sunset Place in South Miami.
“Miami’s still very hot in terms of commercial real estate,” said broker Tere Blanca of Blanca Commercial Real Estate. “Global companies have seen Latin America go through these cycles before and they know it will come out eventually. They want to be based in Miami.”
Alan Kleber, managing director at brokerage JLL, agreed.
“Investors chase yields and because of what’s happening on the residential side, those yields are going to be in commercial,” he said.
Kleber said increased commercial building could help pick up some, but not all, of the slack left behind by the residential downturn.
Partnerships between private developers and public entities could also spur construction activity, said Albert Dotson, a lawyer at Bilzin Sumberg.
“We saw during the recession that many private companies turned to government work to help out,” Dotson said.
Also on the horizon are a much-touted but still-stalled Bay Link public transit connection between Miami Beach and downtown Miami and a possible rail link to the planned American Dream Miami mega-mall project near Miami Lakes.
Employment: Miami slows, Florida strengthens
An overall slowdown for Miami may be coming, but experts aren’t predicting a crash. Despite stock market woes and slowing growth, the U.S. remains the best performing of the major economies, as evidenced by the Federal Reserve’s decision to finally nudge up interest rates.
Solid national trends should continue to fuel local businesses.
Richard Behar, who runs a children’s clothing manufacturer in Miami, said demand from other parts of the U.S. remains strong.
“Our biggest sellers have been a junior ranger outfit that we sell to a lot of national parks across the country and a boat captain outfit that we sell to a cruise line,” Behar said.
At this point, the recession seems like a distant memory for many businesses. The unemployment rate hit a peak of 12 percent in Miami-Dade during the height of the recession. It has since plummeted by half.
But 2015 did see Miami-Dade’s jobless rate hover flat at roughly 6 percent, bucking a statewide trend of growth. The stagnation may not have been all bad news: in part it was the result of job seekers who’d given up on finding work getting back into the labor force
Yet economists also noted that Miami’s key industries of tourism, construction, trade and retail softened during the fourth quarter of 2015.
“No doubt there was a slowdown and I would attribute much of it to what was happening in Latin America,” said Manuel Lasaga, president of the Miami-based economic consultancy StratInfo and a professor at Florida International University.
Trade numbers are also falling almost across the board, according to Ken Roberts of trade-tracking firm WorldCity.
Through the first eleven months of 2015, South Florida’s trade was down with its three biggest trading partners after an 18 percent drop in trade with Brazil, 13 percent drop with Colombia and 2 percent drop with China, Roberts found.
Trade and logistics account for roughly one in five locals jobs.
The overall fourth-quarter jobs slowdown in Miami-Dade wasn’t evident in Broward and Florida as a whole. Miami-Dade saw jobs grow by 1.5 percent in 2015, compared to 2.4 percent in Palm Beach, 3.1 percent in Broward and 2.9 percent in Florida, according to research conducted by JLL.
New people and businesses moving into the state helped drive the growth as Florida’s population surpassed New York’s for the first time. The rest of the state isn’t as dependent on Latin America as Miami.
Tourism: Two kinds of visitors
That reliance on visitors from south of the equator could hurt the local tourism industry this year.
“When the dollar gets stronger, it is more expensive for Latin Americans to travel here,” said Francisco Levine, CEO of Atton Hotels, a Chilean company that plans to open its first U.S. location in Brickell this year. “But the fundamentals of the market are still strong. There is more to do in Miami than ever before. It is becoming a much more complete destination.”
Indeed 2015 was a banner year for local tourism.
Overnight visitors numbered 15.1 million in Miami-Dade for the year that ended in August, up 5.4 percent from the same period during the previous year and a new record, according to the latest statistics from the Greater Miami Convention & Visitors Bureau.
Tourists from South America accounted for about 25 percent of total visitors, down slightly year over year. But visitors from Europe and the U.S. were up. Domestic travelers accounted for roughly half of the total.
Cheap oil in the U.S. is making it much easier for Americans to travel to South Florida, helping staunch the flow of losses from Latin America and potentially buoying the tourism industry through 2016.
“One of Miami’s strengths is that it’s a double market,” Levine said. “You have domestic and international visitors who want to come here.”
Banking: A rocky road
South Florida’s banking industry is also linked to the fortunes of Latin America.
“We’ll probably see some deposits leave our local banks because clients will need to pull that money into their businesses in Latin America,” said Eddy Arriola, chairman and CEO of Miami-based Apollo Bank. “It’s also a good time for clients to invest down there because the prices are so low. We’re hearing that there’s a fire-sale in commercial real estate in Brazil . . . But at the same time uncertainty in Latin America is always good for our industry. As things get bad down there, there’s more reason for people to bring money into the U.S.”
Arriola said he was more concerned about potential “ripple effects” from the Latin American crisis.
“Local banks lend to local small businesses and many of them rely on Latin America,” he said. “So if they suffer we could be hit indirectly.”
Some Miami banks did see unexpected turmoil in 2015. Miami-based TotalBank laid off at least 58 workers late last year before president and CEO Luis de la Aguilera and other top managers left for U.S. Century Bank. And BankUnited, South Florida’s largest locally headquartered bank, announced that it would stop making residential retail mortgages because the business wasn’t profitable enough.
Richard Helber, president and CEO of Miramar-based Tropical Financial Credit Union, said he expects “modest, not robust growth” in 2015.
“I think what will hold us back is a lot of apprehension on the part of consumers,” Helber said. “They don’t know what way the stock market is going to go. If someone just lost 10 percent of their 401k, that could dampen their willingness to borrow money.”
Healthcare: Funding in danger
Healthcare experts are also expecting modest growth. The healthcare industry employs roughly 225,000 people in South Florida. Baptist Health South Florida is the county’s biggest private employer. The University of Miami Hospital, Mount Sinai Medical Center, and Miami Childrens Hospital are also near the top of the list.
The Affordable Care Act has allowed previously uninsured Floridians to seek more medical services, generating business for many providers and insurance companies. South Florida led the nation in sign-ups last year.
“We had a good year in 2015 and we’re expecting the same in 2016,” said Steven Sonenreich, president and CEO of Mount Sinai.
But he added that local hospitals are at risk of losing funding due to a coming reduction in federal money that compensates hospitals for caring for the uninsured. Gov. Rick Scott’s opposition to expanding Medicaid is also a problem, he said.
A report released last month by Florida Legal Services found that Miami-Dade hospitals have the most to lose if state leaders can’t reach a compromise.
“We’re looking at a loss of funding in excess of $10 million a year,” Sonenreich said. “That’s significant to our operations [because] our overall budget is $560 million.”
Higher medical costs could put a strain on South Florida’s middle class. The region drew poor but improving marks on the size of its gap between haves and have-nots in a recent Brookings Institution study.
Jorge Pérez —the mega-developer whose Related Group builds everything from affordable housing to an ultra-luxury, Armani-designed condo — said South Florida needs to attract big companies that are more resistant to economic cycles.
“If we’ve failed at one thing in Miami,” Pérez said “it’s to attract the type of employers who will create a middle-class with good-paying jobs that will fire up the economy.”
The Beacon Council, Miami-Dade’s economic development arm, has led a push to attract and develop companies that pay middle-class salaries.
Larry Williams, the council’s CEO and president, said he doesn’t think South Florida will succeed just by luring Fortune 500 companies to relocate. Williams pointed to the success that cities such as Seattle have had in growing multinational companies from scratch. Encouraging education and entrepreneurship are key ingredients, he said.
“We do have to be out recruiting companies of size and going for the big and medium-sized companies,” Williams said. “But in addition to that we need to be thinking about how to grow up our businesses here as well. Ryder grew up here, Burger King grew up here, Perry Ellis grew up here. We need to encourage that, too.”