Miami banker ‘nervous’ about short-term residential market

At least one Miami banker is publicly acknowledging outright nervousness about the conditions forming in the South Florida residential real estate market, where inventory is tight, interest rates are low, prices are rapidly rising and more than 27,000 new condo units have been proposed.

Miami native Eddy Arriola, chairman of Apollo Bank, told a standing-room only crowd gathered for the Greater Miami Chamber Of Commerce’s “State of Real Estate” event on March 12 at Jungle Island that he is wary of the short-term conditions forming in South Florida’s residential real estate sector. Apollo Bank is headquartered on South Miami Avenue, where 14 new condo towers totaling nearly 4,700 units are currently proposed in a one-mile stretch.

“I am nervous in a one-to-two-year timeframe, but in 10 years really excited,” Arriola said.

Overall, developers have proposed nearly 50 new condo towers with 13,600 in Greater Downtown Miami, according to the preconstruction condo projects website CraneSpotters.com. (Disclosure: my firm operates this website.)

Arriola’s concerns are based on a number of factors, including a pullback by Brazilian buyers, aggressive prices being paid for developable land and a prolonged period of low interest rates.

The banker, who heads an institution with assets of nearly $265 million at the end of 2013, is concerned that Brazilian investors representing a key buying group for South Florida’s new and preconstruction condos over the last few years are slowing down along with South America’s largest economy.

“There is going to come a day of reckoning whether we want to admit it or not,” Arriola said. “We have to realize that. They may be buying these condos but there is going to come a point where they are going to need to sell those condos because things are drying up in Brazil.”

To reinforce his opinion, Arriola referenced an unnamed Miami attorney who approached Apollo Bank about obtaining financing for Brazilian clients to secure loans on their South Florida real estate that had been purchased with cash.

Previously, the same attorney had told Apollo Bank’s representatives that Brazilian buyers pay with cash and are not interested in taking on debt.

As quickly as the Brazilian buyer market has changed, so has the demand and pricing for developable land in South Florida.

In the last 15 months, buyers have bid up developable land to robust prices in hopes of building new condo towers, apartment complexes and single-family home communities as part of this current growth phase of the residential real estate cycle.

“The key for us is you had better of made your money on the buy,” Arriola said. “If you are coming from Venezuela or outside of the market and you are buying land now, we are not so interested. Hopefully, you bought in 2010, 2011 and 2012. Or you have had some property in your portfolio for a while and you have a very low basis.”

The third factor contributing to Arriola’s outlook on South Florida real estate is his belief that interest rates are likely to “stay low” through 2015.

Low interest rates typically mean more buying power for purchasers and greater exposure for lenders, who have to become more competitive to make money, industry watchers say.

“More important than where interest rates are going is that the consumer and the markets can trust us,” Arriola said. “That is where the Fed is going. I believe that every indication they have is they are going to keep interest rates where they are through 2015, and any ratcheting up will be a lot slower.

“I think that is good if you are a buyer but it is terrible for banks. I hate to tell you but we need to raise interest rates.”

Arriola predicted interest rates will begin to increase in 2016.

The question going forward is what impact – if any – an increase in interest rates in 2016 as Arriola predicted will have on the South Florida condo market, given that many of the 57 new towers currently under construction are scheduled to begin being completed in 2015.

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.