The Real Deal Miami

Clogged Miami condo pipeline creates shadow market

By Jennifer LeClaire | December 18, 2008 11:33AM

A surge of condo developments in Miami promised to light up the city’s
skyline. But thousands of condos are sitting dark — and casting a
shadow.

Indeed, a massive shadow market has emerged around the approximately
38,000 new condos that have either been completed or are currently
being finished in Miami-Dade County.

A shadow market, what could be called a secondary market born of grim
necessity, is made up of condos and single-family homes that developers
and investors intended to sell but have been forced to rent instead.
The county’s multiple listing service shows 25,116 condos for sale
here, offering plenty of potential inventory.

“The Miami market has come full circle from the pinnacle of the boom at
the end of 2005 to where it is today: crashing hard,” said Jack McCabe,
CEO of McCabe Research & Consulting in Deerfield Beach. “Right now,
we have a 42-month supply of condos — and that doesn’t include the
condos that have yet to be finished.”

With so much inventory and so few takers, the market now features
bargain sale prices on foreclosed properties for buyers who can
successfully navigate the battered credit markets. But the shadow
market could cause more buildings to light up at night.

Savvy developers are restructuring their financing and repositioning
their projects as apartment rentals, according to Michael Internoscia,
president of PlumPads, a Miami-based real estate firm that specializes
in shadow markets.

“The developers that aren’t more aggressively reaching out to brokers
have their head in the sand,” Internoscia said. “The buyers who have
been through ups and downs are actively trying to rent their units.”

While developers got aggressive with buyer incentives earlier this year — some offered to pay the first 12 months of condo maintenance fees,
others touted free cars and other wild specials — the incentives trend
has slowed. That’s another factor driving the shadow market.

“Incentives may be slowing for a few reasons,” said Matthew Zifrony, a
real estate attorney in the office of Tripp Scott. “Some
developers weren’t able to follow through on their promises, the more
desperate developers have either sold all of their units or lost their
properties to foreclosures, and regulators began looking into some of
the incentives that the developers were offering.”

So it’s back to the rental market. Internoscia said homeowners that
have gone through foreclosure still need a roof over their heads — and
most of them can’t qualify for a new loan.

“People who lost their home are finding tremendous value and tremendous
condominiums that are priced well-below market value,” Internoscia
said. “So folks are taking advantage of that, living in beautiful
high-rise buildings.”

The low values, high vacancies and more inventory coming to market,
should halt developers from breaking ground on new projects in Miami,
McCabe said.

“It would be financial suicide for any developer to move ahead with a new project at this point.”