South Beach’s penthouse boom

Jul.July 06, 2012 04:30 PM

The $25 million purchase of triplex penthouse at South Beach’s Continuum in May was the most ever paid for a Miami-area condo. That record may not stand for long, though, as dwindling inventory and a continued influx of foreign cash are driving South Beach penthouses to never-before-seen levels.

“It’s like any business — supply and demand,” said Jill Hertzberg, who, along with partner Jill Eber, leads Coldwell Bankers’ The Jills brokerage in Miami Beach. “There’s a very limited supply of penthouses, and if you’re a penthouse person, that’s the only floor you’re looking at.”

Broker Julian Johnston of Sterling Equity Realty was the selling agent on the $25 million deal, representing the Italian buyer in what was an off-market transaction.

The Jills handled another, $16.25 million in the same building in May.

Another SoBe unit, Penthouse 2 at the nearby Icon South Beach, recently went into contract for $20 million, as The Real Deal reported.

The Jills are also listing a penthouse at Icon for $14.9 million.

Just what’s driving this boom, aside from sheer economics? The continued strength of foreign buyers and a renewed interest from Americans, brokers say.

And for high-net-worth buyers, condos are easier to maintain, according to Kevin Tomlinson, vice president at One Sotheby’s International Realty in Miami Beach.

“I just think that Miami has emerged on the radar for second, third and fourth-home buyers, and these people are very, very, very wealthy,” Tomlinson said. “That’s the type of property they’re looking for in every market — because if it’s the second, third or fourth home, it’s logical that they would want a condo.”

Another factor is a favorable tax structure in the United States, and particularly in Florida, compared to some foreign buyers’ home markets.

“This is a safe haven,” Eber said. “For foreign buyers concerned about taxes going up to 75 percent” — as the French president Francois Hollande is proposing for earnings above $1 million euros — “this is the safest place to come to. And for American buyers, Florida has no state income tax, and it’s also a homestead, which is huge when you have substantial wealth.”  (The homestead exemption grants property tax breaks for full-time Florida residents, among other legal protections.)

And despite the prices, they still represent relative bargains over comparable properties in cities like New York or Rio de Janeiro.

“It’s still an opportunity compared to New York City or Hong Kong, or the middle of Paris or Brazil,” Hertzberg told The Real Deal. “They look out their windows and see the ocean, and, for the square footage they’re getting, the price is still a value.”

Just how much the prices of the last remaining SoBe penthouses can rise is unclear.

“There were some critics who thought that South Beach had bottomed out a few years ago, and now I think it’s sort of proving that it had the shortest downtime of any of the major submarkets down here,” said Peter Zalewski, founder of brokerage and consultancy Condo Vultures. “The real question to ask is not whether we will continue to see units transact for major prices, but whether or not the buyers will be able to achieve any appreciation when they look to sell down the line.

But for your typical fourth-home buyer, these penthouses are a question of prestige, not value, according to Franck Dossa, principal broker at Condhotel.

“It’s like a fine painting — do you see the prices of Picassos going down?” he said. “They buy it for the prestige. They want to be in a penthouse, and at this level, one million or five million [extra] will not make a big difference for them.”

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