South of Fifth prices head north

After more than three years of stagnation, December 2011 brought a shock wave to the Miami real estate market: A 5,803-square-foot penthouse unit at the Setai South Beach had sold for $21.5 million. The deal set a record for the sale of a condo in Miami-Dade County, and was just the beginning of what would become a boom on South Beach’s highest floors.

Eloy Carmenate

Eloy Carmenate, an agent at One Sotheby’s International Realty, handled the deal, which also set a record for averaging $3,700 per square foot. And for Carmenate, the boom began even earlier — a pair of sales at the W South Beach (just up Collins Avenue from the Setai), each of which sold for around $2,400 per square foot.

While the Setai is located on 20th Street and Collins Avenue, the northern edge of South Beach, it was the area’s southern tip, the so-called South of Fifth neighborhood — appropriately, south of Fifth Street — that would soon see the biggest wave of penthouse activity.

“What’s going on globally and nationally is driving people to purchase hard assets, because their money is paper,” Carmenate said. “I think what happened is people started recognizing South Beach as a value play.”

Carmenate knows a thing or two about South Beach penthouses. In 2008, he sold Miami Heat president (and former New York Knicks coach) Pat Riley a penthouse at the Apogee condominium in South of Fifth for the then-galactic price of $11.75 million. Fast forward to the spring of 2012, and South Beach’s toniest neighborhood grew white-hot, led by what became the largest-ever sale of a Miami condo: the $25 million purchase by an Italian buyer of a penthouse at Continuum. The seller was Alex Birkenstock of the famous Germany shoe company family.

Jill Hertzberg (left) and Jill Eber

A few weeks later, Coldwell Banker’s Jill Eber and Jill Hertzberg — the team known as the Jills — handled the sale of another Continuum penthouse for $16.25 million. And the following month, Icon South Beach’s penthouse 2, listed by Dora Puig, went into contract for more than $20 million. Overall, this year has seen six penthouse sales in South of Fifth, following two in 2011.

Eber and Hertzberg attributed the penthouse boom to a limited supply of unique units. “These are pretty much the trophy properties, and when people come along and find that this is what they have to pay to get these kinds of properties, they’re willing to do it,” Eber said.

But as sales have skyrocketed, thanks to cash-rich Latin Americans (and some Northeasterners), the ultrahigh-end inventory in South of Fifth has plummeted; that’s left brokers to wonder what’s next for the market.

The question, said Philip Spiegelman, coprincipal at Miami-based International Sales Group, is how the new wave of condominiums currently under construction will impact the high-end penthouse market. “What’s going to be interesting is how these kinds of apartments move in the new construction era,” he said. “Will we see the same kind of intense interest and very high prices?”

By new construction, Spiegelman is referring to the next wave of projects in South Florida that are either already under construction or planned for development (see related story on page 8) — as opposed to the “old” new wave of condos, completed after 2003.

Part of the attraction that drove the recent penthouse boom, he said, was the ability for buyers to walk in and take a look at the properties — and sometimes buy them straight away. “It’s an emotional moment,” he said. “They see the fabulous view, they’re standing on the terrace — they can put themselves right there on the spot, and all they have to do is write a check. And these are people with means — they can do that.”

But what will happen to the rest of the area, as the current trophy properties are snatched up?

Existing inventory in South Beach, particularly the few penthouses in buildings like the two-tower Continuum (built in 2002 and 2008) and Apogee and Icon (built in 2009 and 2005, respectively), has fallen drastically since the 2010 nadir, brokers say. And that is leading buyers to continue to pay a premium — on a smaller scale.

“They’re paying more for smaller units,” Carmenate said, pointing to three sales in South Beach, including one he handled at the Setai that went for $2,500 per square foot. “It’s not overpaying. It’s really not the number. People want important space.”

Of course, the aforementioned Pat Riley condo, he said, would easily go for $25 million today.

According to the Jills, the current dearth of penthouse properties will drive buyers farther north — to the edges of Miami Beach and even into Sunny Isles and Bal Harbour. Indeed, the latter saw the purchase over the summer of an assemblage of five units for $24 million. If counted together, that’s the second-largest condo purchase in Miami-Dade County history.

“What you’re seeing now is the market is getting healthy even north of Fifth Street,” Hertzberg said. “But the blue chip is South of Fifth.”