BCCconstruction

Inside the Condo Boom; Is Bust to Come?

In this compelling review of the area’s high-rise history and analysis of the condo marketplace’s current boom, Miami condo development guru Peter Zalewski provides insights and forecasts for what lies ahead. He reviews the 71 new condo towers proposed for Greater Downtown Miami during this cycle in this article, which recaps his keynote address to the BHA in January 2015.

PeterZalewskiatBHAJanuaryMeeting

Peter Zalewski talks about the current boom, and how it’s different than the last, at the January Brickell Homeowners Association meeting.

Greater Downtown Miami is in the midst of its latest condo construction boom with more than 70 new towers and nearly 19,200 units announced for the area since 2011.

Based on this latest round of developments slated to built in the next few years, the total supply of Greater Downtown Miami condos is projected to grow by about 57 percent to create a market of nearly 53,000 units in an area bordered by the Rickenbacker Causeway north to the Julia Tuttle Causeway, and Interstate 95 east to Biscayne Bay.

As significant as the latest development boom seems, the total number of proposed units for this cycle is still about 14 percent less than the 22,200 condos created in Greater Downtown Miami during the 2003-to-2010 cycle, according to analysis of Miami-Dade County records.

For context, developers built about 11,500 condo units in all of Greater Downtown Miami from the 1960s through 2002.

Despite the significant number of new condo units proposed to be added to Greater Downtown Miami during this current cycle, the risk of another market-wide crash of the magnitude of the 2003 cycle still appears to be somewhat moderate as of the beginning of 2015.

Along with fundamental changes, such as 50 percent buyer presale deposits instituted after the last cycle, the primary reason for the cautiously optimistic outlook is technological advances since the last time around. This includes widespread use of social media, nearly real-time property records and websites such as CraneSpotters.com that now provide prospective buyers, lenders and even developers with more transparency about the overall market conditions in Greater Downtown Miami on a nearly immediate basis. (For disclosure, my firm operates CraneSpotters.com.)

This is not to say that all new condo projects being proposed will be successful during this cycle, but rather that participants in the Greater Downtown Miami market appear better suited to anticipate and endure any dramatic price changes that occur for an extended period of time.

The advantage that the Greater Downtown Miami market now enjoys is the fact that many of the condo units – both new and existing – that have been acquired since the bottom of the last cycle in 2009 have been purchased with cash.

The lack of financing used to acquire Greater Downtown Miami condos in recent years suggests that the current owners have a better chance of withstanding any dramatic market fluctuation.

During the last Greater Downtown Miami condo boom, a significant number of new and existing units were p

urchased with small down payments made by buyers who relied on large mortgages from conventional and unconventional lenders to acquire their desired properties. Once the Greater Downtown Miami condo market began to drop in 2007, many buyers opted to walk away from or were foreclosed out of their units, contributing to a further decrease in prices.

The lack of financing used to purchase condos during this current cycle makes it appear that owners have the financial wherewithal to ride out any potential price volatility and ultimately decide independently when the best time is to buy or sell units in Greater Downtown Miami.

As a result of the prevalence of cash buyers in the market, the rapid increase in condo resale prices in Greater Downtown Miami from the bottom of the last cycle in 2009 when resales averaged less than $225 per square foot suggests that the 2014 average resale transaction price of more than $400 per square foot could rise even higher if financing becomes more readily available to prospective purchasers who are currently priced out.

It is obviously impossible to predict the future of the condo market but a few immediate issues are likely to pose challenges for Greater Downtown Miami in the short term.

Greater Downtown Miami’s international appeal coupled with a weak U.S. dollar are key reasons why the market rebounded from the real estate crash of 2007 faster than many had anticipated.

As the global economy slows and the U.S. dollar strengthens to its highest level in more than a decade, concerns are growing that foreign buyers could be challenged financially in the future to acquire Greater Downtown Miami condo units with the same veracity as in previous years.

Another issue that is expected to surface in the near term is what impact the number of new condominium towers and apartment buildings currently being built in Greater Downtown Miami will have on today’s record high rental rates.

Some industry watchers have suggested that foreign buyers could increasingly look to sell off their Greater Downtown Miami units to take advantage of the strength of the dollar and have expressed concerns about the number of new units proposed for South Florida during this current cycle.

The unanswered question going forward is whether domestic buyers — armed with strong dollars — will suddenly become more actively involved in the Greater Downtown Miami condo market at a time when foreign investors look increasingly weak.

Peter Zalewski is a contributor to the Miami Herald and a real estate columnist for The Real Deal. Zalewski founded the Condo Vultures® brand – a consulting firm and a real estate company – in 2006 to capitalize on the South Florida condo crash of 2007. Since 2011, Zalewski has focused his efforts on tracking the South Florida preconstruction condo market with the website CraneSpotters.com. Zalewski also leads weekly bus and boat tours of South Florida’s most active pre-construction condo markets.