While Las Vegas is starting to garner headlines for cancelled condo projects as the market softens, Miami looks to be following a similar downward trajectory.
Several new projects that were slated to rise in a city that has seen hyperactive condo building will not see the light of day because of factors such as rising construction costs and Florida’s increasing hurricanes, which have delayed projects and made it difficult to find financing and insurance.
Among the cancelled projects representative of the market downturn is 1390 Brickell Bay, a 49-story, 364-unit condo tower which was slated to go up near Brickell Avenue. The developer pulled the plug last month.
The project was undertaken by a 25-year-old developer, Kenneth Baboun of the BBB Group. In keeping with the boom-time mentality, the Mexican native moved to Miami in 2003, and launched the project with a lavish groundbreaking party even though he hadn’t built a high-rise tower before.
Baboun said last month he was abandoning the project due to construction costs that were 20 percent higher than expected, an inability to get financing, and hurricane-related delays, the Miami Herald reported. “The market changed so fast, the rules have changed drastically,” he told the paper.
He isn’t alone. Other projects that have been scuttled include a project called ICE by developer Michael Gold, Westside Lofts by developer Robert Thorne, and a heavily marketed development called Mission Bell by veteran developer Armando Codina.
Some observers say there is evidence that buyer demand is starting to weaken for condos in Miami. The volume of sales of existing condos declined by 9.6 percent in South Florida between 2004 and 2005, Michael Y. Cannon, managing director of Integra Realty Resources-South Florida, a market analyst, told the New York Times last month.
While there won’t be a crash on the scale of the tech stock bubble’s collapse in 2000, John Landrum, COO of the Related Group of Florida, says South Florida is definitely due for a correction. “There will be a correction in prices because 20 percent price increases are unsustainable,” he said. “Everything is a cycle. If interest rates climb above 8 percent there will be somewhat of a slowdown.”
Cannon told The Real Deal a slowdown was already under way.
“We are starting to see a leveling off in the volume of transactions,” Cannon said. “Some of the sales companies are reporting it’s taking longer to sell a condo. There could be more supply than demand if lenders and investors who create these projects are not prudent.”
Citywide, developers were proposing more than 61,000 new condominium units as of the middle of 2005 — eight times the number built during the past decade, the Herald reported at the time. The projects included the tallest residential building south of Manhattan, rising 74 stories.
A report from last month in the Herald cited a smaller number of projects in the works, however: 15,080 units under construction in the city, compared with 11,241 built in the entire past 10 years. But that figure doesn’t count the more than 28,000 units approved to go up in the city.
One potential red flag has come in the form of real-estate speculators, who buy units at the first offering and flip or try to resell their units for much higher prices. Because some speculators may put down a deposit but can’t actually afford to close on their apartments, banks are now asking for 20 percent down payment, said Eddie Shapiro, CEO of Nest Seekers International, a brokerage company based in New York.
One estimate, by real estate analyst Lew Goodkin, pegged investors as buying at least 60 percent of new condos during the boom and one in five single-family homes. Cannon said the number may be harder to ascertain.
“We don’t know how many of the buyers are speculating and have no intention of closing or can’t afford to close. The jury is out,” he said.
Still, despite the fact that the boom is over, there is clearly evidence supporting the case that real estate in South Florida will remain strong. Experts predict prices will still go up by 5 percent to 10 percent this year, according to the Herald.
With 6,000 new permanent residents moving to Miami-Dade and Broward counties each month, Florida’s population is projected to surpass that of New York by 2011, according to some estimates. Land is scarce and will continue to grow more so. Because of land scarcity, condos comprise 58 percent of homes in Miami-Dade county.
It’s not just retirees and aging baby boomers from the Northeast who are moving south or buying second homes in South Florida. Younger New Yorkers tired of cold winters are buying apartments there. The area is also a magnet for wealthy South Americans and Europeans in search of year-round or winter sun and fun.
“Especially for the younger demographic, 25 to 40, you can have this incredible outdoor lifestyle down here. You can sit outside at a cafeacute; on Lincoln Road and eat a great pasta dish for $12,” said Kevin Small, director of branding and creative marketing for Alpha Vision, which markets new condo projects.
Brokers say while prices have escalated in the past several years, Miami prices are only just catching up to other top-tier cities such as Boston, Chicago, or San Francisco. “Miami has moved from a second-tier city to a first-tier city. What we are doing is getting some correction from the past’s lower prices,” said Mike Pappas, president of the Keyes Company, a brokerage firm. “We are getting tremendous price appreciation but we are still a bargain.
“A 1,000-square-foot condo with oceanfront views you can buy for $500 a square foot,” he said. “The price range is still $300 to $500 a square foot for condos in South Florida, and in the super-luxury market, it is starting to hit $700 a square foot.”
Much of the new high-rise development is occurring in downtown Miami, on or near Biscayne Bay. Units being built downtown are selling well, brokers say. One-bedroom condos average around $350,000.
Developers hope this area will eventually evolve into a mini-Manhattan, with improved, upscale retail businesses, trendy restaurants and a $50 million performing arts center that is slated for opening in 2006.
Increasingly, condos in Miami are also offering ground-floor retail stores as an added attraction. While South Beach has relatively good retail stores as well as many restaurants, nightclubs, and beaches within walking or taxi distance, convenient retail is something that downtown Miami and the Biscayne corridor lacks in comparison, say, with New York.
“The attraction of New York is that everything is at your fingertips. In downtown Miami there is retail around, but it is not immediate,” said Small. “Retail is limited presently where a lot of buildings are going up and it is something that will need to change. You need more retail that is appropriate for the buyers of the new apartments.”
Las Vegas condos scuttled by rising costs
By Stuart W. Elliott
The Related Companies, New York City’s biggest residential development firm, is among the major players feeling the heat from the Las Vegas condo fallout, where some projects are being scuttled amidst rising construction costs.
Cancelled projects include the Icon Las Vegas, developed by Related Las Vegas — a partnership between the Related Companies and the Related Group of Florida. The project included two 48-story towers to be completed in 2007 and 2008. The project was cancelled partly as a result of a rise in labor and material costs, according to a recent story in the New York Times.
Another Related project, Las Ramblas, which boasts actor George Clooney as a co-developer, was planned as 11 towers mostly occupied by condos. But the project may expand its hotel and casino components and cut back on the number of condos, the Wall Street Journal reported.
And Ivana Trump — former model, author, self-help guru, and ex-Mrs. The Donald — had given her name to what was hailed as the tallest residential tower west of the Mississippi River. But the 82-story, 923-foot tower is now for sale by developer Victor Altomare, though Altomare said the project will continue in its current design regardless of the owner, according to published reports.
Developers have also cancelled at least four other buildings in the last year, partly as a result of a 30 percent increase in labor and materials costs, and dozens more may follow, according to the Times. Scuttled projects include Aqua Blue, which was to contain a Michael Jordan health club, and a development called Krystal Sands.