After five years of condo craziness, reality has returned to South Florida. Just ask Harvey Hernandez. “We were living in a marketplace that wasn't real. It's not real to sell a 400-unit project in a weekend,” says Hernandez, president of H&H Development, based in Coral Gables, Fla. “I think we're changing and becoming more real.” So is the South Florida multifamily market. At its 2005 peak, sales of existing condominiums reached 34,820 in the Miami, Fort Lauderdale, and West Palm Beach/Boca Raton markets, according to the Florida Association of Realtors. But by 2006, sales had tumbled more than 20 percent, to 27,328 units.
While condo sales slide, supply continues to rise. In Miami alone, there were nearly 20,000 condos and town-houses on the market in October 2006, and only 720 sales. In Broward County, nearly 20,000 more units were available, with just 821 sales, says Jack McCabe, head of McCabe Research & Consulting in Deerfield Beach, Fla.
For five years in South Florida, “there was unrestrained development on steroids,” McCabe says, as civic leaders and developers wanted Miami “to join the big leagues of internationally renowned cities,” and strove to change the skyline overnight. “Everybody in South Florida was building—attorneys, college kids, doctors,” recalls Hernandez, who founded his company in 2001.
Low interest rates and creative financing fed the frenzy, as new condo developments popped up in the South Florida sky. At the same time, tens of thousands of rental apartments were taken off the market—snapped up by developers planning to convert them into condominiums. Nearly 250 major apartment complexes, encompassing more than 60,000 units, were bought by condo converters and taken off the rental market, McCabe says. Much of the demand was driven by speculators who grabbed up condos and then planned to flip them virtually overnight.
That's no longer the case. “The good news is that a lot of speculators are out of the market, so you have real buyers,” says Bill Thompson, senior vice president of the Miami-based Related Group, a leading builder of luxury condominiums.
Hernandez agrees. “Right now the change in the marketplace acts as a filter. It's gotten rid of all the people who didn't really know what they were doing. Those projects that are happening have something special,” like a hot location, reasonable price, or strong financial backing, he says.
DESPERATELY SEEKING BUYERS? But no one is quite sure who will buy all the available units. In late 2006, there was a 27-month supply of existing condos available in Miami-Dade County and a 24-month supply in Broward County, according to McCabe. By 2008, the Miami market is expected to have another 20,000 units coming online, and dozens of previously announced condo projects already have been canceled.
Thompson says his company is surviving the condo downturn because of the unique aspects of Related Group projects, such as Icon Brickell on Biscayne Bay in Miami, which will have parks on two sides, a nightclub, restaurant, and common interiors designed by Philippe Starck. “People are gravitating to premier properties,” Thompson says. “People buy a lifestyle now, not just a house or a unit.”
The South Florida area also continues to appeal to Latin Americans and Europeans, the Related Group executive says. “It's a reasonable value compared to other world metro waterfront areas.”
“If you have a good location, even in today's market, you probably will be successful,” agrees Gavin Susman, vice president of Sky Development of Aventura, Fla., which recently announced plans to build a 7.4-acre mixed-used development, including lofts and townhouses, in Aventura.
Still, questions remain about the condo market's viability in the coming year. Robert Given, an executive vice president at CB Richard Ellis who focuses primarily on multifamily sales and condo conversions, says the impact of all of the new construction coming on the market still remains to be seen as many buildings are now topping out and will take nine to 12 months to complete. “We're not going to know if people with 20 percent deposits will walk away until then,” he says.