Gone are the buyers sleeping overnight in front of makeshift sales offices for a crack at an apartment, any apartment, in almost any one of the hot new condo buildings in Miami — two or three years before they were to be built.
An optimistic lot, brokers and developers generally feel that Miami is better off without the pre-construction frenzy that drove the real estate market to dizzying heights at hair-raising velocity — and came to a screeching halt last winter.
But, of course, they need to shift their marketing strategies.
“We’re back to a market that was normal for me in the ’70s, ’80s and ’90s,” says Nick Grassi, marketing agent for Carpa Development. “Six and eight units a month is a normal rate [for sales in a new development] — not 30 to 50. Developers have to tailor their product, rethink it.”
Buy a condo, get 7 percent interest
Carpa launched the Capital at Brickell, a luxury condominium with two towers of 53 and 57 stories and almost 50,000 square feet of upscale retail space, downtown in December of last year.
The firm has 180 hard contracts, but the project has 864 units to sell.
“We’re starting to do some incentive programs,” says Grassi. With three years left before the project will be complete, Carpa will give pre-construction buyers 7 percent interest on the 20 percent deposit they put on a contract. “It’s better than a CD,” adds Grassi. “A hedge against inflation.”
Other buildings are offering cash back at closing or a $10,000 free interior design consultation; anything not to bring list prices down.
Also, builders are giving brokers incentives to encourage them to bring customers around. “If they do multiple sales,” notes Grassi, “they get a higher commission rate — or cars, clothes or gift certificates.”
Not long ago, says broker Paolo Scattarreggia, principal of Miami Lodge Realty, an active player in pre-construction sales, “you had to use your connections and beg developers to get a unit. If you go to a sales center now they welcome you with a red carpet.”
The flipper — an investor who intends to unload his unit before closing on it — is disappearing, says Scattarreggia.
Making it worth the wait
Still, buying pre-construction continues to makes sense for anyone willing to wait for the home they actually want to use, because they can buy at a discount. “The logic in buying pre-construction,” Scattarreggia observes, “is not only that the market goes up, but also the developer sells at the beginning at a lower price than the last units.”
A good number of speculators who bought pre-construction in the last couple of years will have a hard time selling their units before closing on them, or after closing for that matter, in a saturated condominium market. Those who cannot afford to carry the apartments once the monthly expenses kick in might have to walk away from their deposits.
“The people who bought pre-construction with a need to flip prior to closing were fools,” says Jeff Morr, owner of Majestic Properties, an exclusive broker for luxury condominiums, including Canyon Ranch Living in Miami Beach.
But, Morr feels, as do most professionals, that investors will fare well as long as they’re willing and able to wait. “The bottom line,” adds Morr, “is that people who bought pre-construction two or three years ago in Miami typically paid less than current cost. They bought in buildings for $300 to $400 a square foot that would cost $500 a foot for a developer to do now. I’ve always advised buyers in pre-construction to hold at least two years.”
Morr figures that of the many thousands of pre-construction buyers waiting for their properties to be completed, 90 percent will close. “The developers will end up selling the ones that don’t close for more money,” he says.
Dismantling the sales trailer
Underfinanced projects planned during the pre-construction boom will have to close up shop. “I know of four projects in the last six months,” says Walid Wahab, principal of Wahab Construction, a high-end builder, “that have dismantled the sales trailer and given back the deposits. It’s always the inexperienced developers.”
Less savvy and less financially secure builders, says Wahab, “put up a sales center, make money with the deposits, then go out at the same time to negotiate the financing, finish the drawings and get construction bids. Then when the construction comes in at twice what they expected, they realize they undersold the units.”
Indeed, construction costs have doubled in the last year and a half, going from approximately $100 per square foot to $200 per square foot. The market downturn could have a palliative effect here, too, from a developer’s point of view. “Maybe the slowdown will put some people out of work and construction costs will go down,” says Grassi.
The only projects getting a green light these days will be built by large, established firms. Smaller builders find themselves facing a catch-22.
According to Scattarreggia, “Banks are reluctant to lend money and require a higher number of units to be pre-sold. They used to want 50 percent of the building. Now they want 60 percent to 70 percent.” In other words, banks want increased pre-sale requirements while pre-sales are in decline.
Scattarreggia suggests a wave of rental building could result. “If the developer says he’s building a rental,” he says, “the bank doesn’t request pre-sales. The rental market is growing and the bank might consider that a good option. You can build the rental, and when the market is strong you can upgrade the units and sell as condos.”
Taking pre-con units off the market
Some developers who opened sales during the height of the pre-con craze have taken their units off the market, preferring to wait until the buildings are finished to show them. Ben Klein just completed Space 01, a 54-unit loft-style condominium in North Bay Village on an island off the Kennedy Causeway that connects Miami Beach with downtown. Space 01 sold 50 percent of its units in pre-construction.
“The market started to slow down,” recalls Klein. “When we were in the middle of construction there was no benefit for us to sell because we weren’t getting the pre-construction pricing and we weren’t getting the benefit of showing someone a finished product. Bringing somebody to a building that’s three-quarters finished is not too exciting from a sales standpoint.”
Klein says he’s confident his units will do well now that they are completed, selling for under $500 a square foot, compared to the luxury product in South Beach, which sells for an average of $800 a square foot just a five-minute drive from Space 01.
Plus, the process is less trying than during the pre-con days. “In a slowing market, people that walk in through your door are serious buyers,” Klein says. “That has added value. You’re not wasting your time.”
Brokers get a perk, too, even while they need to work a lot harder. “A broker now gets paid within 30 days or 60 days,” says Klein, “compared to pre-construction where you’ve got to wait three years to get your complete brokerage fee.”
Price slip ahead?
So far, despite increased inventory, prices have not slipped. “Everybody’s waiting for January, February and March,” says Klein, “when Florida has its busiest time in real estate. Summer is really slow here. I think they’re going to give it one more shot — see if there are still buyers in the marketplace. Come April and May, if there isn’t a great season, I think prices will come down.”
Klein is asking substantially more for completed units over those sold in pre-construction, despite a slower market. “People are asking me if I’m bringing down prices to what they were pre-construction,” he says. “The answer is no. Not yet.”