IT WAS NO FUN BEING A CONDO DEVELOPER THREE YEARS AGO. The for-sale market’s meltdown was a heavy weight to bear, as condo developers lost a substantial amount of equity, not to mention hope.

“In the recessionary years, it was horrible coming to the office,” says Jorge Perez, chairman and CEO of ­Miami-based Related Group. “All you’re doing is figuring out how to get out of all these issues. It becomes a very negative thought process.”

But in some ways, the Great Recession was a ­double-edged sword. While it drove a stake through the hearts of many small condo developers, it also presented a golden opportunity for Related and others to take another stab. The downturn offered the chance to purchase well-located sites at rock-bottom prices. It may not have been exciting, Perez describes, but distressed-land acquisitions gave Related and other condo developers the canvas on which to pencil out their next wave of new units.

Case in point: Related’s newly constructed, 27-story MyBrickell in Miami, built on a distressed parcel, is almost completely sold out. Perez might have chosen the perfect place, and time, to break ground.

Boom and Bust

The Florida real estate market is the epitome of boom and bust, as Perez knows all too well. Related lost several projects when the market went bad, some of which the company had just finished building. But while Perez lost money, he didn’t lose his negotiation skills.

“Much to his credit, he negotiated contracts with lenders,” says Jack McCabe, chief executive of Deerfield Beach, Fla.–based McCabe Research & Consulting. “Once they took units back, they allowed him to sell them for a fee and even manage them for a fee. Now, he’s in a position to thrive when many others went under.”

When the South Florida condo market was at its peak, the supply of quality rentals in the area plunged. Condo converters ran rampant; everyone and his brother wanted in on the business. But that was the problem—the deadly combination of too many speculative flippers, and a mortgage industry that lost all of its good sense, made Florida a poster child for the single-family meltdown. Even now, half of Florida’s owners owe more than what they can sell their homes for.

“It’s not a resilient rebounding picture at all,” McCabe says. “It’s not a steady trend line—more like a roller coaster. And when you’re riding the up curve, you can make a lot of money, but if you get caught with inventory when things start going south, it can crush you.”

And that’s exactly what happened in some of the nation’s ­hardest-hit regions. South Florida, for all its excesses, was certainly not alone. “Not a lot of folks survived,” says Malcolm Davies, senior vice president at Los Angeles–based George Smith Partners.

In early 2009, Davies conducted an independent study to calculate the amount of inventory expected in some of the hardest-hit areas. In San Diego, he expected four and a half years’ worth of supply. In Las Vegas, he predicted about six and a half years. And in Miami, he expected an enormous nine and a half years of oversupply.

But sometimes the numbers do lie. “I was totally wrong on ­Miami,” Davies says, adding that San Diego inventory is back to zero, with a couple more years to go for Vegas. “The foreign-buyer market is extremely prevalent in Miami.”

And the foreign-buyer market is exactly what Perez had in mind when he was plotting Related’s comeback.

Foreign Relations

Florida’s condo market, as a whole, hasn’t bounced back very strong. But Miami, specifically, may be more robust than ever.

“If you look at other areas where condos were successful in the past—Orlando, Tampa, West Palm Beach—that market is still very weak,” Perez says.

The second-home market, which drove those areas, has yet to re-emerge. If Perez were depending on healthy U.S. demand for his new projects, he’d still be waiting to break ground. So Related focused the marketing of its new projects on foreign investors, buyers flush with cash that weren’t depending on a mortgage. And Perez calculates that anywhere between 60 percent and 100 percent of the sales price, on average, will be paid before completion of the job.

The MyBrickell property, purchased at distressed prices and begun while construction was at a low ebb, allowed Related to secure competitive labor and materials prices, savings that were passed on to the buyer. And since buyers agreed to pay 50 percent to 80 percent of the total purchase price on schedule during construction, Related didn’t need much traditional construction financing.

The condos sold at $300 per square foot, much lower than the typical cost of building the project. “The South American market was looking at these prices and saying, ‘My God, this is cheaper than we can buy in almost any city in South America,’?” Perez says. “They understood the value proposition.”

Nearly 70 percent of MyBrickell’s sales have been to foreign buyers paying cash. In fact, Related received up to 40 percent of the cost up front from international buyers before construction even began. Almost immediately, 200 units were sold.

The company knew it had a hit on its hands, so it started work on another development nearby, called 1100 Millecento Residences. There was a slight price increase, $325 to $350 per square foot, but, once again, the development was 100 percent sold out soon after opening its doors. And the two developments are like a mini–United Nations: More than 20 countries are represented in the buyer pool.

Smoke and Mirrors?

While McCabe agrees that the foreign market is a smart growth option in South Florida, he’s skeptical in a larger sense. A pool of foreclosure properties owned by Fannie Mae and Freddie Mac for the past 12 months is sitting in limbo, he says, which has decreased inventory and artificially propped up prices. “In some cases in South Florida, we saw prices increase as much as 10 percent over the last year,” he says.

Tens of thousands of foreclosed condos will be sold in the next two to three years, likely at distressed prices. And about 2,500 condos remain in South Florida alone, with many buyers renting units and waiting to sell at a later date. Plus, there are many borrowers who just aren’t making debt payments anymore, McCabe says, because lenders haven’t started the process. Some 130,000 open foreclosure cases remain in South Florida.

Still, about 80 condominium projects are in the early planning stages. “It’s a ridiculous amount,” McCabe says. “If they were built, it would amount to an oversupply in South Florida once again. This is still a very tumultuous marketplace.” The saving grace, of course, is that many banks have pulled back, which will deter a lot, maybe 75 percent, of these projects, McCabe estimates.

West Coast Markets Stir Back to Life

The condo market is waking up on the West Coast, as well. In the San Francisco Bay Area, for instance, developers are actively questioning whether they should build apartments or condos. “What you’re seeing today is the clearing out of inventory,” ­says George Smith’s Davies. “A year ago, it was clear: You’re going to build an apartment building. Today, you might think about doing it as condos, because you have to anticipate what the market might be two or three years from now.”

In a sign of the market’s recovery, Davies recently secured an equity investment of about $13 million for the construction of a 35-unit condo development in San Francisco. On the site currently sits a 51-unit apartment building, which will be demolished. The $27 million development plans to break ground by the second quarter of 2013.

“The market is really coming back—not much, but enough,” says Nat Bosa, president of Burnaby, British Columbia–based Bosa ­Development, which broke ground on the 329-unit Madrone two years ago. The high-rise, located on a waterfront in San Francisco, is up to 300 in sales. “There are always going to be people who want to own their own place.”

Bosa Development also broke ground on a 41-story tower in Seattle in June and is likely to break ground on another high-rise next year. With rents increasing, and strong job growth in San Francisco and Seattle, Bosa believes he’s set up a perfect time frame for delivering product in two or three years. The projects are funded solely by Bosa Development’s own capital, with little worry that they will receive permanent financing from already interested lenders with whom they’ve built consistent, loyal relationships in the past, Bosa says.

The presence of a Canadian condo builder in California isn’t all that uncommon. In fact, about three-quarters of the high-rises in San Diego were done by Canadian builders—a testament to both their strong cash flow and prescient investments.

“They have a special talent for building high-rises, and they have the equity,” says Alan Nevin, a principal at San Diego–based London Group, a real estate consulting firm. “Many of them are building on land they acquired five, six years ago.”

The lack of traditional construction debt and equity for new condo projects signals that the market’s recovery is still in a nascent stage. But even a nascent stage is better than no stage at all.

“Condos are in the middle of the first inning,” says Davies. “If that.”

It’s Fun Again

If developers have learned anything from the downturn, it’s prudence.

“We’re much more conservative financially,” Perez says, pointing out that MyBrickell and Millecento were outliers, not a harbinger of the next gold rush. “I can count the other jobs that have successful sales going up to construction on one hand. This is not back to the good old days. We still have to be very careful in assessing demand.”

International demand is especially difficult to measure: Developers can, at most, get by on analyzing political trends. But Related’s pre-test of the market and deep analysis before the launch helped get MyBrickell and Millecento off the ground.

In the next two to three years, the industry—lenders, buyers, and developers alike—will invariably make some of the same mistakes that led us here. But as demand for Class A urban condo projects picks up, Related is also picking up where it left off, with six projects in the works and another six beginning construction next year.

“That’s why I became a real estate developer, that’s the beauty of what we do,” Perez says. “Now, we’re back to where it’s a pleasure to come back to work. It’s fun again.”