Miami dev site prices nosedive

Price per acre dropped to $19M in fourth quarter, after peaking at $40M in second quarter

Newgard’s Harvey Hernandez and Colliers' Mitash Kripalani with Miami’s Edgewater neighborhood
Newgard’s Harvey Hernandez and Colliers' Mitash Kripalani with Miami’s Edgewater neighborhood (Newgard, LinkedIn, Getty)

At this time last year, Miami developer Harvey Hernandez found himself in a tough seller’s market as he competed with out-of-state high-rise builders for land deals in the city.

“It was very difficult to do a deal,” Hernandez said. “Expectations were much higher than we thought land values were. Even if we found something that made sense, the pricing and the conditions were very aggressive. You had to go hard right away and close super fast.”

But over the second half of 2022, Hernandez, CEO of Newgard Development Group, witnessed a remarkable change in attitude from the sellers of development sites. “Now they are willing to negotiate 5 to 10 percent price discounts, and on better terms,” Hernandez said. “They understand the market in general has gotten more challenging.”

Amid a dwindling inventory of suitable sites for condominium and multifamily developments, rising interest rates significantly pushed land prices down during the third and fourth quarters of last year, according to Hernandez and brokers specializing in development site deals. 

Real Capital Analytics data provided by Colliers to The Real Deal show that land prices in Miami’s urban core — which includes Edgewater, Wynwood, the Arts & Entertainment District, downtown and Brickell — plunged after the second quarter of last year. 

The cost of borrowing increased significantly during the second half of last year, resulting in buyers’ pumping the brakes on how much they wanted to spend for developable land, said Collier’s Mitash Kripilani.

Greater Miami Land Sales Summary From

“It put some buyers on the sidelines,” he said. “It just got to the point where a lot of headwinds affected sales, and the price per acre dropped in the second half.” 

In the first half of last year, Miami’s urban core generated $808.8 million in land sales volume, most of it coming in the sizzling second quarter when 11 development sites traded for $607.1 million, according to Colliers’ report

During the second quarter, the price per acre peaked at $39.9 million. 

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Then came the second half of the year. Development site sales volume nosedived by nearly half to $427.7 million, compared to the first six months of 2022, the report shows. 

By the third quarter, when nine development sites sold for a combined $216 million, the price per acre tumbled to $29.5 million. The downward trend continued in the fourth quarter. The price per acre dropped to $19.3 million, a 65 percent decrease compared to the nearly $40 million per acre price in the second quarter. 

In addition to higher interest rates for construction financing, developers are also facing a bump in the cost of construction insurance, said Jaime Sturgis with Fort Lauderdale-based Native Realty. “Insurance skyrocketed in the last 12 months,” he said. “Policy premiums rose by 70 percent, year-over-year. It was a meteoric rise, and now developers are starting to pause.”

Many deals going through the underwriting process last year did not take into account the rise in insurance premiums, Sturgis said. “Between that and interest rates doubling, that changes the outcome of a pro forma and the viability of a project,” he said. “Developers have to reassess whether they should do a mid-rise instead of a high-rise building, and if they should go luxury instead of market-rate.” 

The buyer pool also shrunk in the last six months of 2022, as some developers were waiting for construction financing costs to come down, Sturgis added. 

Some brokers noted that Miami is experiencing a slowdown in land sales because neighborhoods like Edgewater, Brickell and Wynwood are running out of sites primed for development. The few available assemblages that are shovel-ready still command a hefty price, said Alfredo Riascos with Gridline Properties. 

“There is still a tremendous appetite from investors and developers, who are all fighting for those rare sites,” he said. “There’s not a lot of availability at the moment. I don’t see much softening happening in downtown Miami, Wynwood and Edgewater.” 

In the first and second quarters of last year, development sites would fetch an average of 12 offers each, with half the buyers willing to pay all cash with little to no due diligence, said Omar Morales with Miami-based Berkadia. In today’s environment, sellers are seeing less than half a dozen offers on average, with buyers insisting on obtaining site plan approvals before closing, Morales added. 

“I’m seeing sellers being more willing to work with buyers on terms, not so much on price,” Morales said. “The land guys are not in a pinch to sell [at a lower price].” 

Colliers’ Kripilani said the brokerage is seeing some cases where buyers are asking sellers to renegotiate dollar amounts. “They are saying, ‘I may have to reprice this thing,’” Kripliani said. “In some deals, sellers were open to it. And in some, they weren’t.”