Condo construction financing spigot opens in South Florida

Peter Zalewski
Peter Zalewski

Question: You previously mentioned an increase in preconstruction lending is occurring for high-profile South Florida condo projects like the Surf Club Four Seasons Private Residences in Surfside. Since then, it was reported that the Blackstone Group is also funding the planned Biscayne Beach condo tower with a $120 million loan in the Edgewater area of Greater Downtown Miami. Is this the beginning of a wave of large preconstruction loans for South Florida condo developments?

Lenders have been expressing privately for months that the condo construction financing spigot for new South Florida towers would begin to open in the second half of this year.

Based on series of construction loans for luxury waterfront projects that have been provided in recent months, it is clear that financing is beginning to flow once again for new condo towers in South Florida.

Overall, lenders have provided nearly $3.3 billion in financing to developers who have announced nearly 260 new condo towers with more than 35,600 units east of I-95 in the tri-county South Florida region of Miami-Dade, Broward and Palm Beach counties, according to an analysis of government records by researchers at the preconstruction condo projects website

(For disclosure purposes, my firm operates the website.)

The financing – for either construction or land – has been provided for 122 towers and 14,100 units throughout South Florida.

In Miami-Dade County, lenders have given out nearly $3 billion in financing for more than 80 new condo towers with nearly 11,000 units.

Nearly two dozen Broward County condo towers with about 1,700 units have obtained some form of financing totaling more than $230 million.

In Palm Beach County, some 17 new condo towers with nearly 1,550 announced units have secured about $67.5 million in financing.

The largest loans to date by amount are $332 million for the Oceana Bal Harbour in Bal Harbour in April 2014, $300 million for the Faena House in Miami Beach in January 2014 and $290 million for the Surf Club Four Seasons Private Residences in Sunny Isles Beach in August 2014, according to an analysis of government records.

Rounding out the top five largest loans for new condo projects are a pair of new condo towers in Sunny Isles Beach, with the Porsche Design Tower obtaining $213 million in financing in September 2013 and the Mansions at Acqualina getting a $160 million loan in February 2013.

At this point in the cycle, it seems unlikely the total amount of construction financing will surpass the more than $10 billion in loans provided for condo towers from the previous boom, when nearly 49,000 units were created in South Florida’s seven largest coastal markets.

During the 2003 condo boom, lead lenders often provided construction loans for about 70 percent of the development cost to projects that presold half of their units to buyers, who committed to 20 percent deposits. As the market soured last time, many of the buyers opted to forgo their presale deposits rather than complete a purchase for units that seemed overpriced at the time.

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The decision by buyers to lose their deposits forced lenders to restructure their deals with developers at a loss or take back units in new condo towers with the hope of selling the units at prices that were lower than the original purchase contracts.

In the latest boom, it seems more likely that lenders will step up their construction financing for only those condo towers that achieve a high number of presales – rumored to be in the range of 70 percent – based on deposits from buyers of at least 50 percent of the preconstruction purchase price.

The new condo construction financing approach means buyers and developers have as much – if not more – at risk in new projects as the lenders.

The unanswered question going forward is whether competition will spur some lenders to ease their construction financing criteria for planned towers that are not luxurious or located on the water in South Florida.

Thought Of The Week: New Condo Developments Expected In Nontraditional Areas

The odds are improving that new condo development could soon be cropping up in a nontraditional north-south corridor between I-95 east to Biscayne Boulevard in Miami-Dade County and Federal Highway in Broward and Palm Beach counties.

Developers received encouraging news this week with the revelation that “preliminary work” had begun on the planned $2.5 billion All Aboard Florida passenger train system slated to operate on the Florida East Coast Railway tracks stretching from Greater Downtown Miami to Orlando, according to the Miami Herald.

Plans call for the All Aboard Florida passenger rail service to reportedly be offered in phases.

The first phase is envisioned as a route from Greater Downtown Miami to Downtown Fort Lauderdale to Downtown West Palm Beach beginning in 2016. Under the plan, the second phase would have the passenger train service traveling to Orlando beginning in 2017.

As part of the return of passenger rail service east of I-95, the Tri-Rail system – which currently operates passenger service west of I-95 – has proposed adding a Coastal Link commuter service to the same tracks of All Aboard Florida but offer frequent stops in almost every major downtown in the tri-county region of South Florida.

The timing could not be better for developers.

With land costs on the rise, developers are increasingly looking for alternative cheaper locations away from the coast where condo towers can be built that appeal to buyers who do not want to – or cannot – pay luxury prices and commit to 50 percent deposits at the time of entering into presale contracts.

It is thought that for some developers, a new passenger rail service that connects Greater Downtown Miami to Downtown West Palm Beach could be a future draw for individual buyers and investors who would prefer to lessen their dependency on an automobile while living and working east of I-95.

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 The TRD editors will choose which submissions will be addressed.