Business Monday

Real Estate/Ahead of the Deal: Current Greater Downtown Miami condo boom exceeds last cycle by 830 units

Peter Zalewski
Peter Zalewski .

The pipeline of new condos announced for Greater Downtown Miami during this real-estate cycle is now 830 units more than the total number created during the last boom of 2003.

As of the week of Nov. 16, developers have announced 78 new condo towers with more than 23,000 units in Greater Downtown Miami since this current cycle began in 2011, according to the preconstruction condo project website CraneSpotters.com.

(Full disclosure: My firm operates the website.)

Currently, eight new condo towers with more than 1,900 units have been completed, and 23 more projects with nearly 6,650 units are under construction in Greater Downtown Miami.

An additional 47 new condo towers with nearly 14,500 units are currently in the presale or planning phase of development in Greater Downtown Miami.

For what it is worth, the Miami Downtown Development Authority — a public-private agency that promotes economic investment — puts the “total potential pipeline” of new Greater Downtown Miami condo units at more than 25,500 but includes dormant projects carried over from the “previous cycle,” according to a September 2015 report.

Either way, a substantial number of new condos are slated to ultimately be built in Greater Downtown Miami in the upcoming years.

By comparison, developers during the previous cycle that spanned from 2003 to 2010 created 84 new condo towers with more than 22,200 units in the Greater Downtown Miami market, which stretches from the Julia Tuttle Causeway south to the Rickenbacker Causeway, and Biscayne Bay west to Interstate 95, according to an analysis of Miami-Dade County records.

A number of other projects were also announced back then but never ultimately got built after the market peaked in 2006.

Before concluding that another 2007-like crash is imminent for Greater Downtown Miami during this cycle, it is important to remember there are no guarantees that all of the units in the current pipeline will be built during this cycle, especially given changing market conditions.

In the past 17 months, the dollar has strengthened significantly against the currencies used by most foreign investors — a key segment of the buyer pool for condos — as the global economy has slowed.

Added to this, the asking prices for new condo units are rapidly rising, in part due to the increased construction costs.

Topping it off, the supply of new and existing condo units available for purchase in Greater Downtown Miami is growing almost continuously, creating the prospects for downward pressure on future asking prices.

During Greater Downtown Miami’s previous condo cycle, developers required 20 percent deposits from many prospective buyers who ultimately turned out to be profit-oriented speculators.

Once the market began to deteriorate in 2007, many speculators attempted to renegotiate their original deals before simply forgoing their deposits instead of taking ownership of units that were valued at less than the contracted presale price.

In the end, distressed buyers were able to purchase blocks of condos at discounted prices from struggling owners or lenders eager to sell.

To minimize the chances of a repeat scenario during this current cycle, developers adopted a South American model for condo presales that requires buyer deposits of 50 percent of the contracted purchase price.

Developers contend that higher deposits limit the number of speculators, thereby avoiding the devastating financial effects of the last cycle.

Up until recently, the high deposit requirement for preconstruction condos in Greater Downtown Miami had held firm with most developers adhering to the new industry standard.

As sales have slowed in recent months, some developers have begun to relax their deposit requirements on projects that are already under construction and reportedly heavily sold.

The move is noteworthy as it could foreshadow a new standard for lower deposit requirements in the future for projects just being launched in Greater Downtown Miami.

It is unclear, though, whether a new tower with lower deposit requirements could actually get built in this current climate given Greater Downtown Miami’s recent past.

As it stands today, the Greater Downtown Miami condo market appears to be in a much better situation than it was near the peak of the last cycle.

A decade ago in 2005, low deposits combined with limited research about the pipeline of new Greater Downtown Miami condos fueled purchases by overly optimistic investors.

During this cycle, investors and developers alike are thought to be making more informed decisions due to the high buyer deposits and real-time research that closely tracks the Greater Downtown Miami market.

It is against this backdrop that eight unrelated developers have up until this point of the cycle decided to revise their original plans away from building a combined 1,850 additional condo units in the Greater Downtown Miami market.

The unanswered question going forward is whether developers and buyers alike have learned — and remember — enough from the last Greater Downtown Miami condo boom-bust cycle to avoid a repeat of history.

Peter Zalewski is a principal with the Miami real-estate consultancy Condo Vultures. Zalewski, a licensed Florida real-estate professional since 1995 and founder of CVR Realty and Condo Vultures Realty LLC, advises developers, lenders and institutional investors. Zalewski also runs the preconstruction condo project website CraneSpotters.com in conjunction with the Miami Association Of Realtors.

Condo cycle comparison (2003 vs. 2011)

This is a comparison of the new Greater Downtown Miami condo towers created or announced during the real estate cycles of 2003 and 2011. The Greater Downtown Miami market is defined as Biscayne Bay west to Interstate 95, and the Julia Tuttle Causeway south to the Rickenbacker Causeway.

Market And Submarkets

2003 cycle (created)

2011 cycle (announced)

New towers

New floors

New units

Share of total new units

New towers

New floors

New units

Share of total new units

▪ Greater Downtown Miami (Julia Tuttle

south to Rickenbacker Cswy.)

84

2,622

22,202

100%

78

3,318

23,033

100%

▪ Biscayne Boulevard corridor (Julia Tuttle

south to MacArthur Cswy.)

29

606

5,214

23.5%

28

1,129

8,575

37.2%

▪ Central Business District (MacArthur Cswy.

south to Miami River)

18

794

6,933

31.2%

17

798

3,817

16.6%

▪ Brickell Ave. area (Miami River

south to Rickenbacker Cswy.)

37

1,222

10,055

45.3%

33

1,391

10,641

46.2%

SOURCE: CRANESPOTTERS.COM

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