Developers leery about depth of buyers for Broward condos
Question: Broward County has more than 4,000 coastal units announced during this boom. How many units can Broward County developers realistically build until there is a glut? Also, when – if ever – will foreign buyers embrace Broward County?
Condo developers do not appear to have a lot of optimism about selling preconstruction units in the Broward County market despite its population accounting for nearly one-third of the 5.8 million residents living in the tri-county South Florida region, according to U.S. Census Bureau statistics.
To date, developers have announced less than 50 new condo towers with fewer than 4,150 units on sites located east of I-95 in Broward County, according to the preconstruction condo projects website CraneSpotters.com.
(For disclosure purposes, my firm operates the website.)
By comparison, developers created more than 70 new condo towers with nearly 11,000 units in coastal Broward County during the last South Florida real estate boom.
During this latest condo boom, the new coastal projects in Broward County are slated to be developed in the markets of Hollywood-Hallandale Beach, with 19 towers and nearly 3,000 units; Fort Lauderdale, with 15 towers and less than 800 units; Pompano Beach, with 11 towers and less than 375 units; and Hillsboro Beach, with one project featuring 18 units.
Overall, Broward County accounts for less than 12 percent of all new condo units announced in South Florida during this latest boom that began in 2011.
Compare this to Miami-Dade County – which accounts for 45 percent of the South Florida population. Developers in Miami-Dade County have announced nearly 175 new condo towers with about 27,650 units on sites located east of I-95.
Miami-Dade County accounts for nearly 80 percent of the new condos announced for coastal South Florida.
Palm Beach County, which represents about 24 percent of the South Florida population, is slated to be home to about 35 new condo towers with nearly 3,000 units. Palm Beach County accounts for less than 9 percent of South Florida’s preconstruction condo units announced to date.
Broward County’s inability to attract its fair share of new condo developments has little to do with the income of its residents compared to other counties in South Florida.
The median household income for Broward County is more than $51,600, compared to less than $43,500 in Miami-Dade County, $52,800 in Palm Beach County and $47,300 for all of Florida.
Added to this, the homeownership rate of residents of Broward County – where prices and equity are on the rise – is more than 67 percent compared to 57 percent in Miami-Dade County, nearly 72 percent in Palm Beach County and 68 percent throughout the state.
It is also worth noting that Broward County’s poverty level is less than 14 percent, compared to more than 19 percent in Miami-Dade County, about 14 percent in Palm Beach County and nearly 16 percent in Florida.
Given the notable economic indicators compared to the rest of the tri-county region, an important factor that seems to be contributing to the limited scale of new condo development in Broward is the county’s inability to attract a large share of the foreign investors with cash who are buying up preconstruction units in South Florida.
Consider that less than 32 percent of the residents of Broward County were born in a foreign country, even though nearly 38 percent of the residents speak a language other than English at home, according to the U.S. Census Bureau.
It is a similar situation in Palm Beach County, where new condo developments are also limited. Some 22 percent of the residents of Palm Beach County were born abroad and about 28 percent of the residents speak a language other than English at home.
Compare this with Miami-Dade County, where 51 percent of the residents were born outside the U.S. and 72 percent speak a language other than English at home.
The cultural affinity issue is critical in this current South Florida preconstruction condo market, as developers are reliant on buyers putting down 50 percent deposits instead of the 20 percent deposits collected during the last boom.
The 50 percent deposit, which is new to domestic buyers, is a common way of funding the construction of new condo towers overseas, especially in Latin America.
Domestic buyers are said to be apprehensive to commit to prepay half of the contracted purchase price for a preconstruction unit, as typically only 10 percent of the money is required to be kept in an escrow account.
As a result, foreign buyers are fueling the preconstruction condo boom in South Florida, while domestic buyers watch with amazement.
In attempt to attract domestic buyers to the announced preconstruction condo projects, some developers in Broward and Palm Beach counties are asking for deposits of only 30 percent and 25 percent, respectively.
The unanswered question going forward is whether foreign buyers of preconstruction condo units will begin to look north more seriously as presale prices rise in Miami-Dade County and preconstruction deposits fall in Broward County.
Thought Of The Week: Condo Construction Spigot Begins To Open?
Lenders are said to be preparing to open the spigot on condo construction financing in South Florida during the second half of 2014.
In what may prove to be the first sign of a more flexible market for condo construction financing, the Surf Club Four Seasons Private Residences in Surfside obtained a $290 million loan from Blackstone’s BREDS II Loan Holdings of New York to develop the five-building condo and hotel project with 285 units on Collins Avenue fronting the Atlantic Ocean.
The Surf Club’s newly obtained financing ranks as one of the highest construction loans obtained to date for a new condo tower in coastal South Florida, ahead of the $214 million loan for the Porsche Design Tower, $160 million for the Mansions At Acqualina, $140 million for Brickell City Centre and $105 million for Echo Aventura.
Oceana Bal Harbour has the largest condo construction loan to date at $332 million, edging out the $300 million loan for the Faena House project in Miami Beach.
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 weekly Friday column. Questions and comments can be sent to email@example.com. The TRD editors will choose which submissions will be addressed.