Barry Johnson, the exuberant CEO of the Greater Miami Chamber of Commerce, sums it up in a sentence, “Miami is in the middle of a real estate Renaissance that is coming back with a vengeance, following the downturn in our economy and the bubble burst.” Driving around Miami these days it is hard to contradict him; the city has weathered the storm better than most other cities in the country, construction sites are popping up everywhere and the landscape looks and feels anything but still. Despite the bullishness displayed by most developers though, some observers think that there is more than one reason for cautious optimism. Cranespotters.com, a website that monitors condo preconstruction projects across the tri-county region, reports 50 new projects totaling nearly 17,000 units currently being carried out in greater downtown alone.
Last March, Miami’s Urban Development Review Board approved as many as 1,300 new residential units in one single afternoon; enough to raise concerns even in the least skeptical of locals about the possible repercussions on the economy and the quality of the finished product that will be introduced in the market.
The city has just dug itself out of the harshest housing bubble bursts in recorded history, which saw the prices of condos take up to a 60% plunge or more in some cases, and while most downtown developers are acting as though they have cast all fears aside and are ready to move forward with full confidence, the spectrum of a possible relapse is still hovering around.
Industry expert Peter Zalewski recalls what happened during the previous crash. “When the market collapsed, towers that had just been completed and that had cost developers $300-350 per sq ft to build were selling at $80 per sq ft. At that time, Europeans flocked to Miami attracted by the perspective of great deals, though they came with the old world mentality and felt there was something strange, something that did not make sense. So they got stuck into wavering and missed the opportunity. The same happened with New Yorkers, though for different reasons, whereas Latin Americans came in strong and raked up as much as they could. Countries like Brazil, Venezuela, and Argentina dominated the market at that time”.
Zalewski explains that what stopped Wall Street buyers was the so-called “successor developer liability”, according to which if one individual owns too many condos in a building, namely 7 units or more, the association can deem him to be the developer and if anything should happen to the building, he automatically steps into the place of the original developer. He continues, “Because of this attempt to protect the individual buyer vis-à-vis the bulk buyer, each time the Wall Street people were trying to cut a deal they stepped into the legal hurdles associated with it, and ultimately they could not get it past the committee. In the end, close to 9,000 units were traded in bulk”.
And he concludes, “On July of 2010 a moratorium was put in place on the successor developer liability that effectively stopped it, and as soon as that happened Wall Street came down and tried to buy whatever was still unsold but by then the Latin buyers had chipped away the vast majority of what was available. Wall Street buyers wanted 50% of the buildings so that they could control their investment by exerting some sort of control over the association, but the fact that Latin buyers had already bought such a large amount of units prevented them from doing that”.
During the recession and throughout the first semester of 2013, the state of Florida recorded the highest overall foreclosure rate in the US, so this new condo boom may indeed be the breath of fresh air Miami needed. But with the wounds and bruises still fresh on the skins of many, such a high pace of growth may not be enough to dispel residual fears of a backlash.
A man who shows a great deal of confidence in the future of South Florida’s property market is Ron Shuffield, President of Esslingen-Wooten-Maxwell Realtors (EWM). Tennessee-born Shuffield came to the Sunshine State a week after college and like many others decided to make Miami his home. He has lived in Florida for the past 40 years, most of which working in real estate.
The company he runs is a Berkshire Hathaway affiliate and the exclusive South Florida representative of London-based Christie’s International Real Estate. In addition to its residential division, it has a commercial and a new development division, a mortgage brokerage company, and a title insurance company. “We are totally integrated, a sort of one-stop-shop”.
EWM has been the leader in the sale of Miami homes and condominiums priced in excess of $1 million for a number of years. “We currently are involved in a transaction exceeding $1 million every 17 hours, 365 days per year”, notes Shuffield. “Our cutting-edge digital marketing technology has allowed us to lead our market in sales to buyers and sellers throughout the world. Our social media outlets; Facebook, Twitter, blogs, etc. have allowed us to develop and strengthen strategic relationships throughout the world”. While real estate brokerage is still a very localized business, we also have built strong alliances throughout the world through the 27,000 associates affiliated with Christie’s in 45 countries. Through EWM’s exclusive global relationships, there isn’t a corner of the globe where we don’t have relationships. EWM has ten offices across Miami-Dade and Broward counties, where our associates are moving toward $3 billion in annual real estate service transactions. In April of this year, we celebrated our 50th anniversary”. EWM’s 800 associates and staff members are actively involved in the community, lending their support to over 150 charitable organizations.
Miami’s natural beauty and unparalleled quality of life are regarded as its two key assets from the point of view of residential buyers, and Shuffield confirms it, “One-third of all real estate sales in Miami today are made to foreign buyers. Not just main or second homes, but also third, fourth homes, etc. It usually starts with a holiday; that is usually enough for people to fall in love with our city and decide to invest in real estate. Our geographic location is unique as we basically have a half billion people leaving South of Miami and another half-billion living north of Miami. Being at the center of it gives us so many added opportunities that other communities do not have. For example, you can fly to Caracas in roughly the same time it takes you to go to New York, around 2 and a half hours”.
For the past two years, Christie’s has ranked Miami as one of the top 10 luxury destinations in the world. Shuffield explains that one of the key reasons behind Miami’s global appeal is the great value of its real estate. “Vis-à-vis London, which averages $3,200/sq foot for a downtown London flat, a Miami condo is currently selling for $440/sq foot on average. Therefore, on a per-square-foot basis, London is over 7 times more expensive, which means you can theoretically purchase seven Downtown Miami/Brickell Avenue condos for the price of one nice flat in London”.
Currently, the four biggest real estate buyers in Miami are Brazil, Venezuela, Argentina, and Colombia and that has been the case for a number of years, due to the permanent instability in the region, which has turned South Florida into a major recipient of flight capitals from the Latin American region. Also, one must not forget that 60% of Miami-Dade’s permanent population is of Hispanic background. As competition increases, however, both at home and vis-à-vis other emerging destinations around the globe, developers are beginning to realize that market diversification is no longer an option, nor one they can afford to postpone.
Shuffield explains that Miami was originally built as a single-family home community, but due to the ongoing expansion and diversification of its population, around 2003, the pendulum began swinging towards condominiums as the preferred type of housing.
As a result, Miami–Dade County today features a unique assortment of sleek condominium buildings and distinctive single-family homes. Shuffield notes, “Right now, single-family homes represent 43% of all residential transactions, while the remaining 57% is condos “.
With reference to the current pace of growth, industry expert Peter Zalewski explains why the market is far from immune to the risk of overheating again. “A condo market is considered healthy it if has up to six months of inventory, and Miami right now has nearly three times as much. The period 1960-2002 registered around 11,500 condos built downtown, in the space of 60 blocks. From 2003 to 2010, we added another 22,200 and in the current boom, they are proposing close to 18,000 condo units. If you consider that these numbers are bound to get higher and higher, you realize what the market is shaping up to be like in the coming years”.
What is the right pace of development then, and what lies ahead for one of Miami’s key industries? Taking for granted that the last boom and bust has taken a major toll on developers across the board, one wonders, how they are thinking and acting this time around. Have they become weaker as a result and their confidence is only skin deep, or have they grown stronger from it, and thus become more skilled at anticipating and, if need be, at effectively maneuvering out of future problems? For now, “The cranes are back again and in a big way” to cite GMCVB’s President Bill Talbert, and that sign of vitality is the boost the city needed after so much doom and gloom.
According to the Association, the state of Florida ranks No1 in the country in terms of property sales to foreigners, nearly doubling California’s figures.
According to Shuffield, “25% of all international sales recorded in the country are in Florida, and within this figure 55% of our foreign buyers are British. The bulk of British purchases is in Central Florida, where Brits also have a large tourist following. Even though international buyers in Miami are predominantly from South and Central America, British, as well as other European buyers in Miami are very visible”.
At present, nearly 80% of condos are being built in Miami-Dade County, 52% of which in downtown Miami. Asked to give his opinion on the subject, Shuffield warns on the risk of flooding the market with too many condos at once, most notably in greater downtown as, he observes, “it would produce a net imbalance in supply and demand, that could cause prices to stagnate or even drop. No one wants this”.
Miami-Dade County is approximately 60% foreign-born as it is the place where foreigners feel most comfortable. European buyers tend to gravitate around the barrier island, Miami Beach, while Downtown Miami is mainly a magnet for Latin Americans who buy with the intention to rent. Heading north the numbers fall, with only 12% of condos going up in Broward County and 9% in Palm Beach County.
The gap is hardly surprising, given Miami’s greater efforts, and success, at branding itself internationally. After all, it is its growing reputation as a top-notch business, shopping, and leisure destination that has fueled the remarkable recovery of its real estate industry. Teresa Kinney, the energetic CEO of the Miami Association of Realtors (MIAMI) provides us with additional figures that give us a greater insight into it, “2014 marks our third consecutive year of record sales and our second year of double-digit price appreciation. In 2013, over 30,000 homes and condos were sold in Miami-Dade County, representing an 8 percent growth over the previous year. More specifically, sales of single-family homes grew by 12.5 percent while condo sales grew by 4.6 percent. The current median sale price for single-family homes is $243,000, which represents an 8 percent increase year on year, while for condos it is $193,000, equal to a yearly increase of 10.3 percent. This is our market’s best performance ever.
Kinney recalls what happened during the last recession, “From 2008 to 2011 people gradually adjusted to the fact that their properties were no longer worth what they were before the crisis, so the market started moving again and by 2011 we hit our record number of sales ever. That same trend continued during 2012 and 2013, and to this day we have kept the same pace. The good news is that, despite all this growth, our current prices are at the same levels as 2003, which makes our market particularly appealing to foreign buyers. All in all, Miami offers such a wide range of locations, choices, and lifestyles compared to other cities around the world that buyers cannot go wrong”.
She concludes: “2014 marks the 94th anniversary of the Miami Association of Realtors. Over 20 years, we have grown from 5,000 members to more than 35,000 primary and secondary members today, making us by far the largest local Realtor association in the country”.