Peter Zalewski is a real estate market consultant, non-practicing licensed real estate broker and columnist for The Real Deal who now answers reader questions about the South Florida real estate market in a new weekly Friday column. Questions and comments can be sent to [email protected] The TRD editors will choose which submissions will be addressed.
Question: Of the high-profile vacant development sites being marketed in Greater Downtown Miami (the Epic East parcel, the Midtown Miami site, etc.), which one has the highest probability of succeeding as a high-rise condo? Will whomever ends up with these properties be too late in the cycle whenever they get around to starting construction?
Greater Downtown Miami is in the midst of another condo construction boom, which in turn is bolstering prices for developable land in the 60-block stretch from the Julia Tuttle to Rickenbacker causeways.
The current Greater Downtown Miami land boom, in which asking prices for desirable sites seem to start at $100 million, is a stark contrast to a few years ago, when opportunistic inventors assigned a negative value to land.
Up until 2011, many of the institutional investors shied away from developable land in Greater Downtown Miami, as such property could not generate immediate revenue and came with expenses for property taxes and maintenance. At the time, Greater Downtown Miami was working through an oversupply of developer-owned condo units that were still unsold from the last boom.
Fast forward to the present, where less than 375 developer units are unsold from a total of more than 22,200 condos created in Greater Downtown Miami through the first quarter of 2014.
Added to this, the average sales price for these developer units in Greater Downtown Miami has increased from less than $300 per square foot at the bottom of the market in 2009 to nearly $450 per square foot in the first quarter of 2014, according to an analysis of Miami-Dade County records.
A key factor in the turnaround occurred in July 2010, when the Florida Legislature put in place a short-term moratorium on the “successor-developer liability” policy that up until then had hindered Wall Street investors from completing bulk condo transactions in South Florida. The temporary stop to the “successor-developer liability” language immediately provided institutional investors with the legal assurance needed to pick off much of the unsold developer condo inventory from the last building boom.
As inventory is absorbed, veteran and newbie developers from around the world have increasingly been parachuting into Greater Downtown Miami to purchase land on which to they plan to build new condo towers. The out-of-town investors argue that locals are too dazed by the last crash to recognize the changing market conditions in the area and its role in the international community.
Sensing the opportunity to finally be able to unload their developable dirt at prices that recently seemed impossible to achieve, a number of large landowners are testing the market for potential record sale prices in Greater Downtown Miami. Several marquee development sites are on the market at prices that start in the $100 million range.
For example, the vacant site immediately east of the Epic Hotel & Residences mixed-use condo project on the north bank of the Miami River in Greater Downtown Miami is formally listed for sale, with bids reportedly coming in at more than $100 million.
The same goes for nearly 18 acres of developable land on the east side of the Midtown Miami complex at Northeast 36th Street and North Miami Avenue that has a reported asking price of $200 million.
The 14-acre site that once housed the Miami Herald at Northeast 14th Street and Biscayne Bay is reportedly in play after the property’s owner – the Genting Group, which paid more than $200 million for the site – contacted the Related Group – South Florida’s most prolific residential high-rise developer – about a possible partnership.
It is unclear if these condo development sites – and other sites not listed here but rumored to be for sale – will ultimately trade, as the Greater Downtown Miami market already has nearly 60 new condo towers with more than 17,400 units announced as of Thursday, according to the preconstruction condo projects website CraneSpotters.com.
(For disclosure purposes, my firm operates the website.)
Added to this, the Greater Downtown Miami condo resale market has about 13 months of inventory available, as nearly 2,150 units are listed for purchase. Buyers acquired an average of about 166 condo resales monthly between January and May of this year, according to the Southeast Florida MLXchange.
Assuming the developable sites in Greater Downtown Miami that are reportedly for sale do eventually transact, the success of each potential project will be determined, in part, by the amount paid for the land and the timing in which the new condo projects can begin selling units.
Many builders attempt to limit their land investments to no more than 20 percent of the development cost. High land costs mean that developers must achieve more expensive condo unit prices to make their project financially viable.
Even with acceptable prices – not that today’s values are particularly attractive – for land, developers must also maneuver market conditions that can change rapidly in Greater Downtown Miami.
As of Thursday, a pair of condo towers with nearly 300 units was completed in Greater Downtown Miami and an additional 12 towers with nearly 3,700 units are under construction. Added to that, 14 towers with 5,050 units are “shovel ready,” with planning and zoning approval in place, while 31 towers with more than 8,350 units are said to be seeking the necessary clearance to build.
The unanswered question going forward is whether individual buyers have a strong enough appetite for even more preconstruction condos in Greater Downtown Miami to justify the strong asking prices currently being sought by suddenly bullish land owners.
Thought Of The Week:
The Bravo cable TV network debuted its “Million Dollar Listing Miami” reality program on Wednesday at a time when the South Florida luxury condo market is flooded with luxury condos priced above $1 million.
The program sets out to document the starts and stops of South Florida’s high-end real estate market from the perspective of a trio of luxury brokers who are billed as being above average at generating sales – and drama.
It should be insightful to get a glimpse at how these Bravo brokers will work to generate full-price offers and potentially even bidding wars at a time when the South Florida luxury condo market has more than 12 months of inventory currently available.
A healthy real estate market is said to have about six months of inventory available. More months of inventory suggests a buyer’s market and fewer months of supply indicate a seller’s market.
About 1,630 South Florida condos are presently on the resale market with a minimum asking price of $1 million. In the first five months of this year, buyers purchased about 702 condos – an average of 140 per month – that were listed for at least $1 million, according to the Southeast Florida MLXchange.
On the bright side for the Bravo brokers, Miami Beach now has less than 11 months of luxury condos on the resale market.
In a market where less than 160 luxury units transacted between January and May of this year, only 328 condos are currently on the resale market for at least $1 million in Miami Beach.
Peter Zalewski is real estate columnist for The Real Deal who founded Condo Vultures LLC, a consultancy and publishing company, as well as Condo Vultures Realty LLC and CVR Realty brokerages and the Condo Ratings Agency, an analytics firm. The Condo Ratings Agency operates CraneSpotters.com, a preconstruction condo projects website, in conjunction with the Miami Association of Realtors.