The Real Deal Miami

Melo Group unfazed by newly reduced condo deposits in downtown Miami

Developer paid $7.6 million in commission advances to 120 agents at party last week

October 20, 2015 03:00PM
By Peter Zalewski

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Aerial rendering of Aria on the Bay and Peter Zalewski

Not all condo developers in Greater Downtown Miami are opting to reduce deposit requirements — which is a safeguard instituted after the 2007 market crash to cut down on speculation — to stimulate preconstruction unit sales at their planned projects during this current real estate cycle.

A fortnight after the Related Group, South Florida’s most prolific vertical residential developer, quietly revealed that purchasers in the upcoming winter buying season would only have to put down 30-percent deposits — rather than the industry norm of 50 percent — at one of the firm’s new Brickell Avenue Area condo projects, another powerhouse high-rise builder, the Melo Group, is sticking with its original presale requirements. It is even paying out millions in commission advances to real estate brokers as scheduled. (For disclosure, my firm has consulted for the Melo Group.)

The Melo Group — which started this South Florida condo boom in 2011 with the construction of the first new tower in Greater Downtown Miami since the last crash — is standing firm at 50-percent deposits at its new 53-story Aria On The Bay condo tower with 648 units being built on a site overlooking Margaret Pace Park in the Edgewater neighborhood.

“We are going to continue to require a 50 percent deposit,” said Martin Melo of the Melo Group. “That is not a big issue for people who have the money to invest. Our pace of contracts continues to be strong thanks to our relation between location, views, quality and price. Now that we have begun construction, we are beginning to pay brokers 50 percent of their commission at the time of contract.”

The Melo Group hosted a party last Wednesday in which more than 120 brokers were paid nearly $7.6 million in commission advances on finalized presale unit contracts entered into by buyers from 33 countries from as far away as Austria, China and Turkey.

Using a combination of its own money, buyer deposits and a $95 million construction loan to fund the development, the Melo Group plans to pay additional commissions to brokers in the future as the construction of the Aria On The Bay project progresses toward a scheduled completion in the fourth quarter of 2017.

The Aria On The Bay project would be the third new condo tower — preceded by the 23 Biscayne Bay with 96 units completed in 2012, and the Bay House with 165 units finished in 2015 — to be developed by the Melo Group in Greater Downtown Miami during this cycle.

Since 2011, developers have announced plans to build at least 71 new condo towers with nearly 21,450 units as of Monday in the Greater Downtown Miami area that stretches from the Julia Tuttle Causeway south to the Rickenbacker Causeway, and Biscayne Bay west to Interstate 95, according to the preconstruction condo projects website (For disclosure, my firm operates the website.)

The Related Group’s sudden move to reduce deposits at its Brickell Heights project amidst growing competition follows similar contract adjustments implemented by the developers of the new Brickell City Centre and the Echo Brickell currently under construction in Greater Downtown Miami.

Industry watchers contend the reduced deposits at a growing number of new condo projects should be viewed as a sign of presale success during this cycle.

According to the argument, only those Greater Downtown Miami projects that have sold a majority of the planned units to buyers who put down 50 percent deposits have the financial flexibility to relax presale requirements and raise prices on the remaining unsold condos while still being able to construct the new towers as originally announced.

It is worth noting that none of the major condo developers in Greater Downtown Miami have yet to launch new projects with presale deposit requirements that are below 50 percent of the contracted purchase price.

Up until this point in the current cycle, condo developers in coastal Miami-Dade County have generally adhered to 50 percent deposit requirements given that international buyers — who are primarily from Latin America — are accustomed to this payment structure back in their home countries.

To the north in the markets of Broward and Palm Beach counties, developers have generally attempted to collect 50 percent deposits before eventually conceding, and accepting as little as 25 percent from customers who tend to reside in the United States and prefer lower deposits.

Domestic buyers who have a low tolerance for hefty presale deposits have become increasingly important to the South Florida preconstruction condo market as the global economy has weakened and the dollar has strengthened against most foreign currencies since the summer of 2014.

The unanswered question going forward is whether developers in Greater Downtown Miami can continue to require 50 percent deposits from buyers if competitors suddenly revise their presale strategies to be better aligned with the new looser requirements that have been recently reset by the Related Group.

Peter Zalewski is a principal with the Miami real estate consultancy Condo Vultures. Zalewski, a licensed Florida real estate professional since 1995 and founder of CVR Realty and Condo Vultures Realty LLC, advises developers, lenders and institutional investors. Zalewski also runs the preconstruction condo project website in conjunction with the Miami Association of Realtors