The Real Deal Miami

Condo bubble talk seems premature – for now

Most of South Florida's proposed developments have not received approvals yet

May 28, 2014 12:00PM
By Peter Zalewski

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23 Biscayne Bay rendering (inset: Peter Zalewski)

23 Biscayne Bay rendering (inset: Peter Zalewski)

Although developers are already proposing more than 33,000 new condo units east of I-95 in South Florida, talk of another bubble seems premature at this point of the growth cycle for Miami-Dade, Broward and Palm Beach counties.

Granted, developers have already proposed to build more than 67 percent of the 49,000 condo units created east of I-95 in South Florida’s seven largest markets during the last growth cycle that began in 2003 and crashed in 2007, according to CraneSpotters.com. (For disclosure purposes, my firm operates the website.) Sure, Greater Downtown Miami is slated to be home to 59 new condo towers with nearly 17,400 units in this current cycle, compared to 84 towers and 22,200 units created during the last boom. And Sunny Isles Beach is poised to get 14 new condo towers with more than 1,800 units in a 1.02-square-mile barrier island market where developers created 28 towers with more than 6,200 units during the last boom.

Despite these statistics, at this point it is difficult to imagine another bubble the size of the 2007 crash forming in the overall South Florida preconstruction condo market.

This is not to say some South Florida submarkets will be exempt from problems, however.

Before labeling me a sellout or writing in the The Real Deal’s comments section that I am shill for the developers, consider the number of condo towers that are actually under construction or completed in South Florida.

Through Monday, developers have only completed five towers totaling less than 450 units – representing about 1.3 percent of the proposed units – since this new boom began in 2011. An additional 67 towers with less than 7,525 units – about 22.7 percent of the total proposed units – are currently under construction in South Florida.

All told, less than one out of every four condo units proposed for South Florida is under construction or completed some three years since this growth cycle began with the Melo Group’s 23 Biscayne Bay project in the Edgewater neighborhood of Greater Downtown Miami.

A little more than one out of every four new condo units proposed for South Florida has obtained the necessary government approvals to build when the developers do give the go-ahead to begin construction. This means about 9,700 proposed units are ready to go if and when the developers can obtain an adequate number of presales to launch their respective projects.

The other two out of every four new condo units slated to be developed in South Florida have not obtained the governmental clearance to build at this time. This means developers of proposed projects that do not yet have the government’s approval are faced with weeks and months of planning and zoning meetings ahead of them before construction can even begin.

No one knows what the preconstruction condo market conditions – or even the state of the resale market – will be at the time that all of these projects finally get approval to go vertical.

Besides the timing issue, projects launching presales in the months ahead are sure to be faced with increased skepticism, given the market’s bad memories of the last South Florida boom-and-bust cycle and the challenges associated with securing nonrefundable 50 percent deposits from preconstruction buyers.

Piled onto that, the condo construction financing that is available for developers in need of cash seems to flow only to those South Florida projects that are oversold and hardly need the money.

The unanswered question going forward is whether the deposit schedules and construction financing terms for today’s preconstruction condo projects will remain as stringent in the future as they currently are.

Peter Zalewski is real estate columnist for The Real Deal who founded Condo Vultures LLC, a consultancy and publishing company, as well as Condo Vultures Realty LLC and CVR Realty brokerages and the Condo Ratings Agency, an analytics firm. The Condo Ratings Agency operates CraneSpotters.com, a preconstruction condo projects website, in conjunction with the Miami Association of Realtors.

  • norm “subprime” flesicherr

    zzalewski… used ta think you was a motamouth who overcharged people for information they was too dumb to realize they could pull off the webz themselves, but now i realize ya commentary and presentations are vital to the mahket, you ah the mirra that folks in the biz should be lookin inta.

    • Worried

      I hear construction costs are over 300/sf with land and other costs that must be over 450-500/sf. The early presales where well below this on a net net basis. Can developers preform on these numbers. Land and construction are increasing. Will they ever get off the ground. Crainspot them numbers.

      • Really???

        Construction cost are way bellow $300/sf. Most projects with a little less bells and whistles could be sold for $300/sf and still make a profit. The Cassa Brickell and Brickell Ten projects are a great example where they will be starting at $300/sf.

  • Really???

    A step in the right direction Mr. Zalewski. I understand the desire to simply compare number of condos this time to the last boom. But I think that also misses the larger demographic shift that has happened since then. During the last boom not only were we building 22,200 condos but we were also building thousands of single family homes way out suburbia. Fast forward to today and the whole urban revival has taken root throughout America and now urban living is in vogue. People want to live where they can live/work/play in close proximity. With less development in the suburbs that gives people less options. If you look around at the neighborhoods just outside of downtown prices are skyrocketing. The Roads, Upper East Side, Belle Meade, etc.

    Now compare that to the last crash. You had thousands of empty condos in a neighborhood that wasn’t really that desirable. So as a result the simply kept dropping rents to convince people to move it. So you had people who moving into brand new condos for $1300. Today this is where people want to be and because we’ve built so little in the suburbs prices have gone up there as well. So let’s say today your in Kendall paying $1500 because you cant afford the $1800 in a more urban location. If the market get’s oversupplied downtown as soon as they start to drop rents a little bit the guys from kendall are going to move in. And this time you’re not going to have to drop rents that much because downtown is now a lot more desirable than the suburbs and the suburbs are already paying more money.

    So while they may be building a lot of units like in the last boom, I don’t think that accounts in the correction of the severe lack of inventory downtown in relation to the suburbs created by the shift in desire for urban living.

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