Buyers spend $1.9 billion on new South Florida condos during this cycle

Buyers have paid nearly $1.9 billion to acquire fewer than 1,750 new condo units created east of Interstate 95 in the tri-county South Florida region during this current real-estate cycle that began in 2011.

To date, the newly completed condos in Miami-Dade, Broward and Palm Beach counties have sold for an average price of about $1.08 million per unit, with individual deals ranging from $148,000 to $17.5 million as of May 19, according to the first publicly released analysis of clerk of the court records for South Florida preconstruction transactions during this cycle.

As part of the report, records show that property deeds have been recorded for nearly 69 percent of the 2,515 new condo units created within the last four years in South Florida.

It is important to note that this analysis excludes preconstruction condo projects that are currently marketed for presale but have not yet been completed.

On a price-per-square-foot basis, the new South Florida condos have sold at an average of more than $760 with individual transactions occurring from less than $195 to nearly $4,175, according to government records.

Drilling down into the specifics by county, the average transaction price per square foot for a new condo is less than $835 in Miami-Dade, $455 in Broward and more than $605 in Palm Beach, respectively.

In Miami-Dade, buyers have purchased less than 1,440 units with more than 1.9 million square feet for a combined $1.6 billion, representing more than 80 percent of the overall gross sales by total dollars recorded during this cycle.

In Broward, more than 215 new condo units with nearly 350,000 square feet of sellable space has sold for about $159 million.

In Palm Beach, buyers have spent more than $100 million to acquire fewer than 85 units. For clarification, the Palm Beach price-per-square-foot average reflects only those units for which the purchase prices and saleable space amounts are available from government records.

The dramatic swings by county in the number of new condo transactions and the average price per square foot reflects the significant participation by foreign investors in the preconstruction market early on in the cycle.

Dating back to 2011, international investors were attracted to South Florida for a combination of reasons, including low real-estate prices, rising rental rates being paid to landlords and high foreign-currency exchange rates against the dollar.

To capitalize on these trends in the aftermath of the South Florida real-estate crash, developers — primarily in Miami-Dade — adopted a deposit model common in Latin America that required buyers to commit to prepaying 50 percent of the contracted purchase price for condo units even before the projects are completed.

The sizable presale deposits were considered to be an effective safeguard to limit the number of speculators — the alleged culprits blamed for causing the last crash — participating in the preconstruction condo market this time around in South Florida.

The 50-percent-deposit approach also provided developers with the funds necessary to build units at a time when FDIC-backed lenders were resistant to financing the construction of new towers in the tri-county region.

The biggest concern for developers about the so-called South American presale model was that domestic buyers — who traditionally put down small deposits and obtain large loans for the balance of the purchase price for residential real estate — would resist buying preconstruction condo units in South Florida.

After all, South Florida condo developers had previously required preconstruction buyers to prepay up to 20 percent of the contracted purchase price during the last cycle before the approach proved problematic.

When the tri-county condo prices began to collapse in 2007, many speculators who had contracts for preconstruction units opted to forfeit most — if not all — of their 20 percent presale deposits rather than take ownership of new units that were considered to be overpriced at the time of completion.

It is against this backdrop that developers in this cycle have generally adhered to the new norm of requiring 50 percent preconstruction deposits in Miami-Dade.

By comparison, projects in Broward and Palm Beach — which typically are more dependent upon domestic buyers for preconstruction sales — have tended to require lesser presale deposits even though it means developers could have to invest more of their own money into constructing new condo towers.

As a result, the number of new condos announced for Miami-Dade during this cycle is more than two times greater than the combined number of units planned in Broward and Palm Beach.

Developers have announced plans to build some 31,550 new units in Miami-Dade, 8,550 units in Broward and more than 3,600 units in Palm Beach as of May 19, according to the preconstruction condo projects website CraneSpotters.com. (For disclosure, my firm operates the website.)

The unanswered question going forward is whether the current 50-percent-deposit strategy by developers will still be viable now that international buyers who are hamstrung by weak foreign currencies are said to be less active in the South Florida preconstruction condo market.

This story was originally published May 31, 2015 at 3:00 PM with the headline "Buyers spend $1.9 billion on new South Florida condos during this cycle."