Nearly seven years ago, at the height of the Great Recession, naysayers were predicting that it would take about 20 years to absorb the glut of new construction in South Florida. For at least that long, they predicted, South Florida would wallow in economic misery, its nascent popularity as a premier global destination fading into oblivion.
The point was hard to argue. South Florida was facing a staggering rate of foreclosures, which was higher than nearly every jurisdiction in the United States. The hospitality industry — a mainstay of the local economy — was in shambles. And the local job market was tanking.
But South Florida proved to be much more resilient than predicted.
With several Latin American economies (namely Brazil's) booming, and Chinese investors looking for investment alternatives to traditional U.S. markets, South Florida's depressed real estate market was a foreign investor's dream. Gone were the days when condo contracts were flipped numerous times before the building was even built.
Instead, foreign investors set up shop in South Florida, swooping up distressed properties in lots. As prerecession inventories dried up, developers began building. And before long, South Florida was back in business.
But with several Latin American economies (namely Brazil's) flailing, and Chinese investors reeling from their home stock market's recent crash, the naysayers are at it once again, predicting the imminent demise of South Florida's economy.
In actuality, South Florida is in the midst of a perfect storm, which will further fuel its rise as a global epicenter. According to the 2015 Knight Frank Wealth Report, Miami now ranks among the top 10 global centers for investment. To underscore the point, Miami currently ranks in sixth place, seven spots ahead of No. 13, Geneva (long-renowned for being one of the world's major financial centers), and just a few spots behind Nos. 1 and 2, London and New York respectively. As the report explains, "these are the cities where the wealthy congregate, work, invest, are educated and spend their leisure time."
Continuous Investment Appeal
South Florida has long benefited from financial and political instability around the world. At the first sign of trouble, the wealthy typically look abroad for economic high ground. For Latin Americans, this high ground traditionally has been South Florida given its geographical proximity and cultural similarities.
For Brazilians, some of whom have been coming to South Florida for years, and even calling South Florida their second home, the region will remain a safe haven when compared to the instability of its Brazilian counterparts.
South Florida has the potential to see a similar effect from the Chinese stock market crash. Notwithstanding the recent rise in real estate prices, South Florida real estate still provides a better value than New York, Los Angeles and San Francisco, which traditionally have attracted the bulk of Chinese investment in the United States.
Rise of International Banking and Private Equity
During the recession, foreign investors descended on South Florida in droves. When they came, they brought their families, businesses and money. As foreign money began flowing through South Florida, foreign banks scrambled to beef up their presence. And private equity, once mostly the province of New York, made Brickell its home. A hangover from the recession period, South Florida's sophisticated financial center is incredibly adept at catering to international investors.
Miami, long known as a real estate and hospitality mecca, has seen unprecedented growth in these sectors but also faces the emergence of new key areas including technology and venture capital. Miami presents a great value compared to the more traditional U.S. markets, with real estate prices generally a third of New York's. This creates a much lower barrier of entry, which is a major draw for the many high-net worth individuals and firms looking to expand into the next major market. In fact, according to the Kauffman Report, Miami now ranks as the second-fastest growing city in the United States for startups.
Miami is also uniquely positioned to capitalize on the changes happening in Cuba. Its proximity to the island as well as the number of Cuban immigrants who reside here make Miami the center for everything Cuba. Time will tell what meaningful impacts the current economic and political changes will have on Cuba and the United States, but there is no doubt that Miami will be at the forefront.
With the right ecosystem in place, and growing, the sky really is the limit for Miami. We have only seen a small glimpse of what is in store and look forward to building a stronger economy — and community — in the future.
Jose M. Ferrer and Javier F. Avino are partners at Miami-based Bilzin Sumberg and co-chairs of the firm’s International Group.