Surging South Florida condo demand pushing multifamily developers to pivot

It was the “right time, right place” for PMG when it decided to convert a planned multifamily tower into condos in downtown Miami about two years ago. 

Ryan Shear, managing partner at PMG, said that demand for condos drove the company’s decision to convert the under-construction Society Biscayne rental tower into The Elser Hotel & Residences about two years ago. 

“The biggest amenity of what is now called the Elser was that there was very little standing inventory [at the time],” Shear said. Buyers wanted to purchase a condo in the moment, not one delivering three, four or five years from then. “That was a huge driver for us.” 

PMG was the first developer to jump on the trend in 2022, and others have recently changed their plans from rental buildings to condos across South Florida because of challenges in the multifamily market. Most, if not all of the converted projects will offer owners short-term rental flexibility, a growing trend in Miami. 

“Financing multifamily deals is increasingly difficult,” said Holland & Knight partner Shawn Amuial, referring to the slowdown in rent growth and the “rapid increase in interest rates.” 

That, combined with the surge in insurance and construction costs, mean many apartment projects no longer make sense. 

Test case

Earlier this year, Hollywood developer Chip Abele announced plans to convert the existing Circ Residences apartment tower into condos. Abele’s GCF Development completed the 25-story, 386-unit tower at 1776 Polk Street in 2019. The firm tapped Craig Studnicky’s ISG World to handle sales and marketing of the condos. 

Studnicky said that since February, the developer secured the state’s approval for the condo docs and has converted some of the existing tenants into buyers. Units range in price from about $400,000 to $1.2 million, “a really popular price point,” he said. 

Studnicky said Circ and other existing multifamily rental buildings completed before 2020 are in a better position than newer towers because they were constructed before inflation, supply chain issues and construction costs surged. 

“Now that rents have plateaued, there are other multifamily developers considering the exact same thing that Circ is doing,” he said. “The multifamily business isn’t what it was two years ago.” 

Demand for these units is partially fueled by the fact that South Florida is facing a shortage of condos that are fewer than 10 years old, he said. Older buildings are more expensive to maintain, more difficult to insure and facing deadlines starting at the end of this year under the state’s new condo safety laws. 

“Selling and selling and selling”

Developers Henry Pino from Alta Development and Raimundo Onetto from Alta Developers both launched sales of condo projects that they initially designed as apartment buildings. 

Pino, previously a principal at Onetto and his partners’ development firm, launched sales last year of the 283-unit River District 14 project. The 16-story project is planned for the 1.3-acre site at 1451 Northwest 14th Street in Miami. Forman Capital provided the developer with a $68 million construction loan for the project in May. It will consist of two buildings on top of a shared parking podium.

When sales launched, Pino said that the project was geared toward investors and end-users working in the area, including the nearby Miami Health District.

Unit prices range from $490,000 to $780,000, he said last month. Pino’s experience as a condo developer led him to change his plans because the current high interest rates would not “make sense” for a multifamily development, he said. 

Cassia, an Alta Developers project planned for the site at 4011 Salzedo Avenue in Coral Gables, has a similar story. Onetto, CEO of Alta Developers, said in April that he changed his plans last year as a result of high rates and costs, and “the condo projects keep selling and selling and selling.” 

Prices there started in the $700,000s. The condos will be delivered finished and furnished by RH, the home furnishings firm previously called Restoration Hardware, and owners will be able to rent their units out with little to no restrictions. 

Converting a planned project is much easier than doing that for one already under construction — especially if the building will be a condo-hotel, which the short-term rental condo projects typically are. 

“If you haven’t put a shovel in the ground, then changing the design is less difficult than if you are about to get a TCO,” attorney Amuial said. 

Lenders are also getting comfortable with these conversions, he added. 

PMG’s conversion was “tricky,” Shear said. It took a lot of time and money to convert what was Society Biscayne into the Elser. 

“Especially if you want to do daily rentals, it’s a ton of work because there is a lot of code compliance, you have to take apartments and make them into hotel product,” he said.
“It is not an easy process by any stretch of the imagination.” 

At the time, little competition existed for the Elser. The building is about 95 percent sold two years after opening. 

“The best thing we had going for us is there was not a lot of standing inventory,” he said. “That’s not the case now.” 

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