At a busy intersection in North Miami, construction of the 382-unit Manor Biscayne apartment project is underway. So far, the eight-story building is a gray shell with gaping holes for windows and doors, flanked by a pair of cranes.
Construction has reached the top floor, and interior finishes are expected to be installed next year, when the project is slated to be completed. Yet Manor Biscayne’s general contractor, Kaufman Lynn Construction, has already ordered cabinets and quartz countertops from Vietnam and China to avoid delivery delays. The purchase allows a roughly 20 percent cost saving for the countertops compared to buying them in the U.S., but it adds to Kaufman Lynn’s planning tasks.
“It’s not like you can drive down the street to a manufacturer’s plant and look to see that they are actually in manufacture,” said Chris Long, president of Delray Beach-based Kaufman Lynn. “It is a lot more intensive to manage these products and those deliveries. … It adds to the amount of attention it takes.”
Kaufman Lynn isn’t the only firm poring over items big and small. Over the past five years, general contractors have been carefully planning projects, often finding workarounds on an issue just for market conditions to change and create new headwinds. For one, the pandemic-induced supply chain bottleneck put a squeeze on concrete, making the material difficult to come by as well as causing delivery delays and raising costs. The concrete market calmed, but general contractors are now getting slammed with higher insurance premiums, according to experts.
“The difficult thing about construction is there are so many variables,” said Peter Dyga, CEO of Associated Builders and Contractors’ Florida East Coast chapter. “Some of them have a more positive impact, and some of them have a more negative impact.”
“The difficult thing about construction is there are so many variables. Some of them have a more positive impact, and some of them have a more negative impact.”
PETER DYGA, CEO OF ASSOCIATED BUILDERS AND CONTRACTORS’ FLORIDA EAST COAST CHAPTER
Indeed, a paradox is playing out in South Florida. The tri-county region is still riding a high wave from an influx of businesses and residents over the past four years, prompting demand for apartments, offices and condos. At the same time, over-development in some cases, a demand slowdown and elevated interest rates also are leaving their mark on South Florida.
Over the past five years, general contractors pulled 87,228 permits in the city of Miami, at a total project cost of $14.9 billion, according to The Real Deal’s analysis of city records from June 1, 2019, to June 5, 2024.
Hollywood-based John Moriarty & Associates of Florida took the top spot, with $1.1 billion of work across 23 projects. This includes South Florida’s first supertall, the 1,049-foot Waldorf Astoria Hotel & Residences in downtown Miami, and the 75-story, 355-unit Baccarat Residences condo tower in Brickell. Both are under construction.
Melo Group, a Miami-based development firm that’s led by the Melo family and has its own general contracting division, took the No. 2 spot, with $725.4 million in total project costs across 12 developments, TRD’s data analysis shows. In Miami’s Edgewater neighborhood, Melo is building the pair of 62-story, waterfront Aria Reserve towers with 383 condos.
The third most productive general contractor was Miami-based Coastal Construction, which worked on 15 projects with a total cost of $558.6 million. In March, the firm started building a 41-story tower with 399 apartments, 187,000 square feet of commercial space and some retail space in Edgewater.
Insurance: ‘Always a surprise’
Melo is seizing on downtown Miami’s multifamily market. It completed the pair of 52-story Downtown 5th towers with 1,042 units in 2021, and last year finished the 57-story, 560-unit Downtown 1st.
Now, as Melo is readying to jump on its planned 54-story, 824-unit Downtown 6th tower, the firm is getting hit with skyrocketing insurance costs — again.
“For some of [the policies], it’s 20 percent more, and in other ones like 50 percent more [than last year]. The portions that are more affected are wind and liability,” said Carlos Melo, company co-owner. “Other [policies] are very similar to last year.”
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For years, Florida’s insurance market has been dogged by increasing premiums. Construction insurance includes liability policies, which cover on-site injuries, post-construction claims of building defects and builders risk. Builders risk may include flood and wind coverage, though sometimes these policies are separate. The biggest premium increases are for liability, flood and wind policies, according to general contractors.
At issue: Some carriers are stepping away from Florida, wary of covering the high-risk state following hefty payouts for hurricane damage. This leaves less competition among providers, allowing those left to hike premiums. In addition, insurers have argued that they are getting slammed by increased legal costs due to litigation filed against them.
Despite higher premiums, policies are coming with less favorable terms. Deductibles are now starting at $250,000, or 10 times more than in 2022, said Long of Kaufman Lynn. The firm ranked 11th in TRD’s analysis, with nine projects at a total cost of $197.2 million.
The insurance hikes have made it difficult to budget for projects. “When they give you the price” for the premiums, Melo said, “it’s always a surprise.”
Condos vs. apartments
From 2020 through 2022, a tidal wave of new residents came to South Florida, prompting developers to seize on the record demand and ensuing rent hikes by planning new apartment projects.
This year, some developers changed their tune.
“We have seen a shift away from the multifamily rental product to a condominium,” said Tom C. Murphy, co-president of Coastal Construction. “Developers are continuing to get sales on their high-end condos.”
Developers expected South Florida to dodge the sting of higher construction costs due to the multifamily market bonanza, but it turned out not to be the case. New supply and a hefty pipeline — a record 23,863 apartments are expected to be finished by year-end — have tempered demand and led rents to plateau and in some cases even decline
Yet condos remain in vogue. Alta Development last year switched its original plan for a 283-unit rental building near the Miami River to condos, citing elevated interest rates and strong unit pre-sales. In July, Jaxi Builders started construction of the 16-story project, called River District 14. With nearly $140 million in total project costs, Jaxi ranked 18th in TRD’s analysis.
Switching from rentals to condos comes with a slew of changes and project tweaks. But those issues pale in comparison to another worry general contractors have: the unknown.
Uncertainty is a certainty
The wars in Ukraine and the Middle East, as well as the U.S. presidential election, are unsettling for the industry.
“You are having cocktails, and you are talking about, ‘Well, what if this happens?’ … A lot of people have geopolitical issues on their mind, about how it could destabilize our economy,” said Dyga, of ABC Florida East Coast.
The U.S. dollar for years has been the global currency for trade, which is why contractors are keeping an eye on Russia and China’s efforts to de-dollarize the international economy. Elections also come with uncertainty about a new administration’s economic plan, prompting some developers to hit pause.
“When these things get to be a little more heightened, I think they are at the forefront of people’s minds,” Dyga said. “Predictability is a big thing in this industry.”
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