The Real Deal Miami

Construction costs worry developers in South Florida

Panelists at TRD real estate forum warn about "800-pound gorilla in the room"

October 24, 2014 09:45AM
By Francisco Alvarado

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From left: Richard LeFrak, Stephen Owens, Edgardo Defortuna, Don Peebles, Ron Krongold and Nitin Motwani

From left: Richard LeFrak, Stephen Owens, Edgardo Defortuna, Don Peebles, Ron Krongold and Nitin Motwani

Property prices aren’t likely to level off any time soon. But rising construction costs could dampen the market, according to several high-profile developers who sized up the latest boom in Miami during a panel discussion at The Real Deal’s annual South Florida Real Estate Forum & Showcase.

“The cost of construction is the 800-pound gorilla in the room no one likes to talk about,” said Stephen Owens, president of Swire Properties, which is developing Brickell City Centre. “The challenge today is finding qualified contractors at a reasonable price.”

Owens, one of six developers who spoke at the event, said the cost of construction in Miami is seeing double-digit increases. “We lost about 30,000 construction workers during the recession,” Owens added.

Don Peebles, who broke into the Miami market in the 1990s by developing the first African-American-owned hotel in Miami Beach, agreed. “It’s difficult getting people to honor their commitment to build at the price they originally quoted,” Peebles said

Peebles did tell moderator Peter Zalweski, founder of Cranespotters.com, that he doesn’t see real estate prices in Miami peaking anytime soon. He noted that buyers are paying up to $3,000-a-square-foot for ultra-luxury units at his Miami Beach condominium project, Bath Club Estates. “The buyers setting the prices are New Yorkers,” he said. “They are not bargain shoppers.”

New York developer Richard LeFrak, whom Peebles described as the “Warren Buffett of real estate,” told the standing room only crowd he’s been bullish in south Florida since 2009, when he and a group of investors bought BankUnited and all of its real estate assets. The Manhattan real estate mogul also picked up the former Gannsevort Hotel at 2399 Collins Avenue in March and has rechristened it 1 Hotel & Homes South Beach.

LeFrak feels strongly enough about 1 Hotel & Homes – and Miami Beach in general – that he is keeping one of the penthouse units for either himself or his children.

“What woke me up is when I saw the aggressive behavior of foreign buyers in Miami,” he said. “I saw an opportunity to pick up additional assets.”

  • jake

    If the cost of construction goes up then so does the cost of the building and unit. Therefore buyers pay more and developers collect the same fee. You have to be kidding me if you think that construction cost will stay the same while sales price goes up. GREEDY developers. The price of construction has been cheap for a long time down here and right now it is leveling back to where it should be.

  • jason

    There is no lack of construction or of workers. Labor prices is barely driving the construction price. It’s not like Peter or any of these developers would understand. Price of steel, concrete, drywall keep going up about 6% every 6 months. That is what is driving the construction cost. There are more than plenty of contractors that could build any of these properties. What the developers are not saying is that they are extremely cheap and want to go after the cheapest possible person and contractors are offering going rates now and aren’t trying to beat other peoples prices anymore.

  • terry

    Its simple. Construction goes up because of materials/labor then so does the price of the unit. Its funny they don’t care to mention how the price of land has double in two years but the price of construction might of gone up 10-15%. They are so full of Sh&t !

    • HiTerry

      30k sf of land going from 3m to 6m in value in comparison to 300k sq ft of construction costs going from 60m to 70m – hmmmmm you do the math.

      • Terry

        HiTerry,

        Your numbers are completely wrong. Don’t try to prove a point with made up numbers

  • it is what it is

    Florida developers are full of shit and greed. including Related and fortune. Stop praising these guys like they are doing something amazing, they don’t know where the market is heading they don’t know how construction costs keep going up and they are gambling on the 2 year hype Miami received from foreigners. They are now realizing that the international buyers are not there anymore and things slowed down, so now that means cater to Actual Miami residents which means they can not charge the crazy prices they are selling these condos for. how many luxury condos are needed here every developer has the same mind different deisgn.

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