The end of Miami’s residential market boom
A third of the units in some newly built high-rises are back on the market, though most are listed for more than their owners paid in the pre-construction phase. At the current sales pace, it would take 29 months to sell the 3,397 condominiums available in the downtown area, according to South Florida development tracker CraneSpotters.com.
With the U.S. dollar strong, South American investors who piled into the downtown Miami market after the real estate crash are now trying to unload their recently built condos, adding inventory to an area where 8,000 units are under construction and nine towers were completed since the end of 2013. Some are offering homes at a loss as demand cools. Condo purchases from January through April slid 25 percent from a year earlier, while the average price fell 6 percent on a per-square-foot basis, CraneSpotters data show.
Investors have much more at stake than the speculators who walked away from deals in last decade’s crash and left the market with thousands of unsold homes. In the latest construction boom, projects required cash deposits of as much as 60 percent, and contracts had stiff cancellation penalties.
Because owners of condos in new towers signed contracts over the course of a couple years, it’s difficult to know how many made purchases at prices above today’s values, said William Hardin, a professor of finance and real estate at Florida International University in Miami.
“The people who bought at the beginning are probably below where the market is today, but some bought later, at higher prices,” he said.
After several price cuts, one Brazilian owner at Related Group’s new Icon Bay tower is offering his two-bedroom condo for $539,000, 7 percent less than he paid in July. It’s now one of 100 listings in the 299-unit building.
“We are now the most affordable unit in Icon,” said listing agent Anthony Giuffrida of Elite International Realty. “To sell it quick, you have to put it at the right price.”
Sellers need to be patient because the worst time to sell is right after a building opens, especially in “decorator-ready” projects where owners must install flooring and finishes and “elevators are overused, there is construction traffic, etc.,” said Jorge Perez, founder of Miami-based Related Group, one of South Florida’s most prolific developers. So far, only a couple Icon Bay owners have sold units without making a profit — probably due to personal financial circumstances, he said.
“When this happens, pricing is affected, particularly in a market that is not booming,” Perez wrote in an e-mail. “Miami’s market has slowed down (but is definitely still active) and sellers need to have the necessary patience to let the project mature and the market to rebound as it has always done in the past.”
The strong rental market is giving many would-be sellers the opportunity to cover their costs. But there’s also a flood of new, professionally managed apartments under construction. And apartment vacancies in the downtown Miami area rose to 11.8 percent in the first quarter, double the rate two years earlier, according to property-data provider Reis Inc.
“The ticking time bomb is based on rental rates,” said Peter Zalewski, owner of CraneSpotters. “When some of the foreign investors sitting on the sidelines have to dig into their pockets and subsidize renters, that’s the fuse that will lead to a correction.
At Faena House, the new Miami Beach tower known for its billionaire residents, those with units on the market include Apollo Global Management LLC founder Leon Black, investor Ken Griffin and former Saks Inc. Chief Executive Officer Stephen Sadove, who recently lowered his asking price by almost 11 percent to $12.95 million.
Some sellers still will make a profit after cutting their prices, said Mark Zilbert, managing broker at the Miami office of Brown Harris Stevens. The exchange rate provides a buffer for some foreign investors. In the past three years, the Brazilian real has fallen 43 percent against the U.S. dollar, and the Venezuelan bolivar declined 37 percent.
Many owners are viewing the new towers with a sense of disappointment because they may not look as fabulous as they did in renderings, and prices haven’t risen as much as they expected, Zilbert said.
“There’s always a glitzy selling process that happens, and they believe it,” he said. “They don’t think about the economy — they think about the building and how wonderful it will be.”
While some new towers have a large number of condos being flipped by their owners, an inventory glut will be mitigated by minimal competition from developers, who have a majority of their units under contract, data from Miami’s Downtown Development Authority show.
“The inventory under construction is manageably pre-sold, and the pipeline of new projects in reservations and contracts is shrinking,” according to an authority report prepared by Integra Realty Resources Inc. analysts. “Investors, bankers and developers are rightfully approaching the market with caution, and a heightened sense of the need for better due diligence.”
Of 14 new Miami towers from downtown to Sunny Isles, the share of resale listings ranged from about 7 percent at MyBrickell tower to about 40 percent at 400 Sunny Isles, according to a report this month by Andrew Stearns, founder of StatFunding.com, which provides residential mortgages for foreign nationals. A healthy building should have no more than about 10 percent of its units up for resale at any given time, Zalewski said.
“The concern is we’re in a price-discovery phase, and the prices people are trying to get for their condos is a lot higher than the market will bear,” Stearns said. “That may signal a coming price correction.”