The colossal construction cranes that formerly dotted the South Florida skylines have mainly vanished in recent years. But they’re set to return — and with a vengeance.
This latest condominium boom, however, will be distinct from previous construction cycles.
Unlike previous condo booms fueled by foreign investors, the present luxury condo market is fueled by wealthy local buyers, many of whom are new arrivals from out of state. Foreign investors are still in the mix, with condos designed for home-sharing becoming their favourite option, according to industry insiders.
Following the drop in condo sales caused by the rise of the US currency and the construction halt caused by Covid-19, this is a nice housing trend. As a result, the timing for a robust condo development cycle to support cities’ tax rolls and produce plenty of business for architects and construction companies could not be better.
People from the Northeast and the West Coast are continuing to move to South Florida, resulting in rich year-round residents spending a lot of money in the area. Meanwhile, condos owned by investors that are used for home-sharing should bring in additional visitor revenue.
“One of the key differences in this cycle is that it follows businesses migrating here,” said Nicholas Pérez, VP of Miami-based Related Group, which plans to sell approximately 2,500 condo units in South Florida over the next year. “We didn’t have corporations like Goldman Sachs and Blackstone coming here during the previous cycle.” It’s all coming together now that the new personnel have arrived.”
When compared to previous condo cycles, David Arditi, a founding partner of Aria Development in Miami, was shocked at how strong demand has been.
In May, he began accepting bookings for the 448-unit 501 First in downtown Miami. By August, the project had been fully reserved and was ready to go to contract. He claimed that sales were nearly four times faster than Aria Development’s YotelPad Miami, which began sales in 2018 and is expected to be completed in late 2021. Short-term rentals are permitted in both projects.
“There’s a lot of significant enthusiasm if you offer the proper product that meets purchasers’ expectations,” Arditi added. “And domestic interest from the Northeast and the West Coast is higher than it has been in the past.”
According to Vanessa Grout, CEO of real estate for Oko Group in Miami, who helped generate $195 million in preconstruction deals at Missoni Baia in Edgewater and Una Residences in Brickell in the past year, many people who previously lived overseas are now domestic residents and remain a major source of condo transactions. Without ever initiating a marketing effort, Oko’s 23-unit Aman Hotel & Residences in Miami Beach sold out this year. Grout hasn’t seen such a high amount of sales in years.
According to Craig Studnicky, principal of Miami-based brokerage ISG World, the condo cycle in South Florida from 2002 to 2007 produced around 59,000 units, which was much too robust and resulted in a market crash. He went on to say that a lot of the activity was fueled by hazardous loans and speculation.
The condo cycle, which began in 2012, resulted in the construction of around 19,000 units, the majority of which were sold with 50 percent down payments and to foreign buyers. Only 4.5 percent of those units are still on the market, he said, owing to domestic purchasers taking up the pace after Latin American buyers mostly pulled off.
According to ISG World, just 2,505 condo units are now under development in coastal South Florida. That number, according to Studnicky, will continue to climb.
Some developers are holding off on starting projects until resale condo values rise, because they don’t want new condominiums to compete with less costly ones in relatively new structures, according to Studnicky. More of those developers will move forward on new projects as resale inventory decreases and prices rise.
“If domestic buyer demand holds steady, we don’t need 11 new buildings; we need 111 new buildings,” Studnicky explained. “With [a shortage of] condo inventory, we’ve hit a brick block.”
Two types of projects
Over the last year, the bulk of new condominiums proposed in South Florida have been luxury apartments with relatively large units or smaller units with friendlier short-term rental regulations.
Both categories are being worked on by the Related Group. According to Related President Jon Paul Pérez, Baccarat Residences in Miami, which focuses on luxury and larger units, has over 50% reservations after 60 days. Buyers are evenly split between the domestic market and Latin America, a significant change from the previous cycle, when Latin America accounted for 90% of buyers in its Miami projects.
Nicholas and Jon Paul Pérez at the Related Group’s new headquarters in Coconut Grove
Related’s District 225 in downtown Miami includes smaller condos starting at $350,000 and is partnering with Airbnb to make short-term rentals easier for buyers. The majority of buyers, according to Pérez, are investors.
Tourist-friendly areas, such as Wynwood and Miami’s downtown, are ideal for short-term rentals, according to Pérez. He stated that beachfront locations are frequently preferable for luxury condos that appeal to wealthy buyers, because development expenditures result in price points that are out of reach for many investors.
According to Ed Jahn, senior VP of Kolter Urban in Delray Beach, buyers from the West Coast have come up in greater numbers than normal for the beachfront Selene Oceanfront Residences in Fort Lauderdale and most of Kolter Urban’s Florida condominiums this year. Selene’s sales began in April, and 100 of the 196 units had been booked. The larger ones, with prices ranging from $800,000 to $1.2 million, are in high demand.
“Previously, we might have seen one or two people from those states per year, and they’d be second homeowners,” Jahn said. “Now they’re relocating their primary residence here, which is a significant change.”
However, according to Peggy Olin, CEO of OneWorld Properties, there is high demand for condo units in downtown locations priced between $350,000 and $750,000, because this is the price range that appeals to international investors and a large number of working professionals who are migrating here. She noted that granting permission for short-term rentals allows her to make more income.
“It’s all about the unit’s financial value, not the price per square foot,” Olin explained. “They will buy it if you offer them a living solution in the form of a good two-bedroom unit that is efficient and in a terrific location.”
Local empty-nesters looking to sell huge homes in order to live in large condo apartments, according to Carlos Melo, co-principal of Miami-based Melo Group. Aria Reserve’s 391-unit first tower in Edgewater has 30 percent of its units reserved since sales began in June.
Unlike the previous cycle, when the Related Group required 50% deposits on practically all of its projects, it now only requires 40% deposits.
The 20 percent down model popular in the early 2000s isn’t making a comeback. Melo Group, on the other hand, will accept 30% deposits from local buyers.
“We believe the banks will recognise that these are genuine buyers and that 30% is sufficient,” said co-principal Martin Melo.
Not much for working-class buyers
While the median sales price for condos in South Florida is in the mid-$200,000s, most new units will not be that expensive. As a result, working-class folks wanting to purchase a new condo within their budget will be disappointed.
According to Studnicky of ISG World, condos built in Brickell between 2012 and 2020 averaged $620 per square foot, while new construction costs $1,000 per square foot. Furthermore, the average price per square foot in downtown Miami increased from $800 to $1,200.
“A few streets west of Biscayne Boulevard, pricing north of $1,000 per square foot is a pipe dream,” said Peter Zalewski, principal of Miami-based Condo Vultures. “I don’t think the market can withstand the amount of new skyscrapers and pricing if [the condo collapse in] Surfside is taken out of the equation. However, no one can predict what the government and insurance companies will do with older structures.”
Some purchasers have avoided older buildings after the collapse of the Champlain Towers South condo in June, while newer structures may be out of their price range.
According to Related’s Jon Paul Pérez, building new condominiums in the $200,000s is difficult due to the high costs of land and construction. However, according to him, the company’s Related Urban branch, which specializes on affordable housing, may build some for-sale units on property it owns at worker-level pricing. Several local governments have given Related Urban land leases for mixed-income housing projects.
Developers target new areas
Most of the usual condo building hotspots, such as Brickell, downtown Miami, and Miami Beach, are attracting new developments once again, but some new districts are also gaining traction.
According to Ugo Colombo, CEO of Miami-based CMC Group, Coconut Grove is poised for new condo development. The area offers excellent schools and a desirable lifestyle, making it ideal for a premium project with larger units. Onda Residences in Bay Harbor Islands, which Colombo is developing alongside Morabito Properties, follows a similar model.
“I don’t believe there will be a lot of condo construction,” Colombo added. “Financing isn’t as simple as it once was. Banks are more cautious when it comes to their standards. There is no reason for Latin American purchasers to put down 50% deposits.”
According to Chris Leavitt, executive director of luxury sales at Douglas Elliman, who helped sell out the Bristol Palm Beach at record prices and has nearly sold out all units at La Clara, there is high demand for new condominiums in the West Palm Beach neighborhood. Due to the lack of condo construction in Palm Beach, a condo just across the bridge in West Palm Beach is highly coveted.
According to Leavitt, the flood of financial services businesses opening offices in West Palm Beach would drive up demand for downtown condos.
He stated, “There is a tremendous need for luxury towers with lots of amenities that aren’t at waterfront pricing.” “We are in the early stages of a boom in West Palm Beach.”
According to OneWorld Properties’ Olin, there is a demand for flats priced for working professionals in downtown Fort Lauderdale.
In the aftermath of the collapse in Surfside, Zalewski anticipates a flurry of activity in Broward County, owing to the termination and rebuilding of older coastal buildings in Hallandale Beach and Hollywood.
In addition to its Miami projects, the Related Group is building the Solimar condo in Pompano Beach, with plans for a second condo nearby, and it’s planning coastal residences in Hillsboro Beach and near Currie Park on Flagler Drive in West Palm Beach. According to Jon Paul Pérez.
“The demand for condos is really robust, and we’ve positioned ourselves to benefit from this new cycle,” he said.
JOCK FISTICK / SOUTH FLORIDA BUSINESS JOURNAL