Question: Developable land in the Edgewater neighborhood of Greater Downtown Miami continues to be traded at significant profits for the sellers. Do you think that market has maxed out in terms of land appreciation, or will it be a while before the pricing of land flattens or even reverses course?
The days of purchasing cheap land for vertical condo developments in the suddenly hot Edgewater neighborhood located east of Biscayne Boulevard between Northeast 17th Terrace and Northeast 36th Street have passed for the foreseeable future.
The single-family homes and two-story apartment buildings in desperate need of renovation that dominate the Edgewater neighborhood are rapidly being razed by developers focused on assembling sites for new condo towers.
Developers are betting that preconstruction buyers will forgo the increasingly congested and expensive Brickell Avenue Area for new Edgewater condos that are slightly cheaper despite offering views of Biscayne Bay.
Today, developers looking to purchase developable land on which to build new condo towers in Edgewater are faced with asking prices that are two, three and even four times higher than the levels that were achievable just a few years back.
Consider that some four years ago in October 2010, the developer of the 23 Biscayne Bay condo tower – the first new project built since the 2007 South Florida real estate market crash – paid $1.35 million for the site where the 18-story building with 96 units was ultimately constructed in May 2012.
The cost of the land – which is located one property west of Biscayne Bay – for that condo project averaged less than $14,100 per residential unit, according to Miami-Dade County records.
In March 2013, the developer of the planned 51-story, 399-unit Biscayne Beach condo tower paid $29.1 million for the waterfront site where the high-rise is now under construction.
The cost of the land for the Biscayne Beach project – which front Biscayne Bay – works out to nearly $73,000 per residential unit.
More recently, Russian mining oligarch Oleg Baybakov paid about $40 million to assemble nearly an entire block of land that fronts Biscayne Boulevard on Northeast 26th Street in the Edgewater neighborhood.
Baybakov’s group has not yet announced what will be built on the site that currently features a combination of vacant land and a series of antiquated apartment buildings.
Needless to say, the high prices being paid for land in the Edgewater neighborhood are prompting existing owners to put their properties up for resale. Some owners have taken to razing their houses and apartment buildings in hopes of achieving even higher prices from those developers who want to quickly launch their new condo projects.
At least four development sites are currently listed for sale in the Edgewater neighborhood at prices ranging from $1.5 million to $7.9 million, according to data from the Southeast Florida MLXchange.
A host of owners of other properties not listed on the MLXchange have posted signage on their respective sites announcing their land is for sale.
For developers contemplating new condo projects in the Edgewater neighborhood, the competition for buyers is likely to only intensify, as 14 new towers with nearly 3,800 units have already been announced for the area as of Wednesday, according to the preconstruction condo projects website CraneSpotters.com.
(For disclosure purposes, my firm operates the website.)
The Edgewater neighborhood represents 21 percent of the nearly 18,500 new condo units announced for Greater Downtown Miami.
The only submarket with a larger share of the new condos announced for Greater Downtown Miami is the stretch of South Miami Avenue in the Brickell Avenue Area where developers have announced plans to develop 16 new towers with more than 5,300 units.
The unanswered question going forward is whether sellers of developable land in Edgewater will have to negotiate on price in the months ahead due to the growing concerns about a possible saturation of new condo units in this trendy neighborhood.
Thought Of The Week: Elephant In The Room For Residential Real Estate Market
No one seems to be talking about the total number of new rental units that have been announced for the tri-county South Florida region since this real estate cycle began in 2011.
It is worth raising this issue as the Related Group – South Florida’s most prolific vertical residential developer –announced plans to build an additional 1,100 new apartment units in the tri-county region, according to the Daily Business Review.
With the announcement, Related now has “about 4,700 apartments in the development pipeline and scheduled for delivery or groundbreaking by the end of next year,” according to the newspaper.
At a time when Related is building thousands of new rental units – in addition to thousands of new condo units – in South Florida, so too are a number of small and large real estate developers focused on cashing in on record lease prices and the willingness of lenders to finance apartment projects in the tri-county region.
After searching for some statistics to better understand the magnitude of the new apartment projects announced, it quickly becomes clear that accurate and timely research on the South Florida rental market is not readily available.
This apparently unavailable research should raise some questions for the vertical residential market, as today’s rental towers can easily be converted into tomorrow’s condominium units within a matter of months.
Surely, many people can still remember how condo conversions impacted South Florida’s last boom-and-bust cycle.
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 firstname.lastname@example.org. The TRD editors will choose which submissions will be addressed.