Marc Singer, who runs a $1.5 billion wealth management company based in Coral Gables, has of late been giving his clients some investment advice that may sound surprising: Get out of South Florida real estate.
His reasoning for easing out of the region’s famously hot market? Climate change — more specifically, the threat of rising seas.
“Vulnerable real estate is real estate that could go underwater — literally, not figuratively,” said Singer, founding partner of Coral Gables-based Singer Xenos Wealth Management.
Singer’s advice, which he first shared publicly with a national real estate blog last month, is a contrarian view that clearly won’t endear him to South Florida developers and real estate agents. The industry has pushed back against recent studies suggesting the risk of sea-rise has already cooled things off a bit — though the impact can be hard to tease out with property values still on the rise amid booming foreign investment.
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Singer cautions he’s not telling clients to immediately sell all South Florida property and head to Georgia tomorrow. He’s now recommending a “50 percent rule,” meaning they should aim to keep half of their assets outside of vulnerable markets.
He hopes this will help his clients avoid a dip in the market he considers imminent. He’s predicting a 30 percent drop in property value in the next few years, which he called a “reasonable correction” — even with any effects from sea-rise concerns.
That initial trigger is more likely to stem from other causes like oversupply of luxury condominiums in the market, he said, but buyers’ concerns may also be stoked by the rising cost of hurricane and flood insurance or the tax toll of hundreds of millions of dollars that local governments will spend to keep communities dry.
Either way, he doesn’t expect dropped prices to bounce back.
“The catalyst may be a real estate correction due to economic cycles, but because of the fear of rising seawater it might not come back up,” he said. “The recovery may be impaired by the stigma of sea rise.”
If it all kicks in, Singer said, “the 50 percent rule might become the 40 percent rule.”
Real estate is a multibillion-dollar industry in South Florida and one of the economy’s most important engines. The region also has a long history of boom-and-bust cycles, with values most recently plunging during the subprime mortage crisis in 2008. That downturn was severe in fast-growing Florida but also hammered markets across the nation.
But when it comes to sea rise, South Florida is particularly vulnerable. Predictions show South Florida is due for one to two feet of sea level rise by 2060, endangering more than $14 billion of real estate, according to Climate Central.
For now, Singer appears to be a rare voice pointing to sea rise risks as a reason to rethink putting big bucks into more vulnerable South Florida commercial real estate, warehouses, hotels or even private homes. Real estate agents, whose livelihood depends on demand, remain confident in the market. And some wealth management colleagues describe a business environment that’s “status quo,” pointing out that foreign investors are far less likely to ask about sea rise risk when moving their money to the U.S.
“It doesn’t factor in,” said Richard DeNapoli, chief trust officer from Coral Gables Trust. His firm helps international clients move their money to the U.S., and they never ask him about sea level rise risk in South Florida.
“I wouldn’t deter any clients investing long term by the water,” he said.
But others say there is a growing awareness of the potential costs of dealing with risks.
Although most of his clients are homeowners concerned about the value of their property, Singer also handles portfolios for institutional investors, organizations like investment banks or hedge funds that pool money to make big investments on behalf of their members.
Wayne Pathman, a Miami land use attorney who chairs the city’s sea level rise committee, tells the story of a lender that had questions about his client’s decision to buy commercial property in Miami Beach. They asked what the city is doing to protect itself from rising seas, he said, and what his client planned to do to protect the property.
“This is clearly on their list of emerging questions as part of their due diligence,” Singer said. “Most real estate institutional investors are all about the numbers. And if the numbers reflect a built-in decline in value, that’s going to affect their interest in how a property will perform.”
Others say they are confident enough in the ability of governments and engineers to solve the problem that they don’t shoo their clients away from buying up coastal property.
Jay Steinman, a Miami real estate attorney with Duane Morris, said his domestic real estate development and investment clients ask him about sea rise more often than his international clients, but their concerns haven’t lessened their enthusiasm for a slice of the thriving South Florida real estate market.
“It’s not going to stop investment,” he said.
They said right now, nobody is actively altering their investment strategies to avoid South Florida because of sea rise, although that day may come eventually.
Lawrence Carter, who handles mergers and acquisitions for investment banks with Global Healthcare Advisors, said he’s waiting on a signal from the insurance industry before he expects to see prices change due to sea rise fears.
“They do better than anyone I know at managing risk,” he said.
Singer acknowledges that sea rise risk isn’t a popular topic in his industry, at least not yet. He expects to revisit his 50 percent rule every year as new studies and market trend reports come out.
“There’s always buyers and sellers under any conditions,” he said. “Nobody is buying property for 50 years. You can kick the can down the road for a good while.”