Spurred by tight inventory, developers in cities like New York and Miami are demanding, and getting, millions for homes that have yet to be built
By STEFANOS CHEN
Wall Street Journal – Thursday, July 11, 2013
Presales of luxury condos all but disappeared after the housing market went bust, but now many luxury developments are selling out just months after putting a spade in the ground. To persuade people to buy a home sight unseen, developers are getting creative.
One real estate developer hired a drone; another displayed life-size sculptures of polar bears. A third charged potential buyers $100,000 just to take a peek at the floor plans. The common goal: selling something that doesn’t exist.
Spurred by tight inventory and plenty of interest from foreign buyers, real-estate developers in cities such as New York and Miami are reviving the boom-era practice of pitching new buildings months—and even years—ahead of completion. Miami’s Faena House, a planned 18-story tower, is still pouring concrete at the condo’s basement level. Yet the project, part of a newly developed strip that will include a five-star hotel and an arts center by Rem Koolhaas’s OMA design firm, already has 50% of its 47 units under contract, according to Alicia Goldstein of Faena Group. Buyers are required to put down a 50% cash deposit on the apartments, which range from $2.5 million for a one-bedroom to $50 million for the full-floor duplex penthouse.
Marketers of the Porsche Design Tower in Miami, which is scheduled to open in early 2016, created an aura of secrecy. There was so much interest in the building’s planned car elevator, which lifts tenants’ cars directly to their units, that Dezer Development charged interested parties a $100,000 refundable deposit just to see the floor plans. (The ploy got them about 33 buyer commitments before the presale office even opened, says owner Gil Dezer.)
One of the mini models of an apartment unit in the sales center for the Porsche Design Tower in Miami. The combined cost of the miniatures was $250,000, according to the developer.
Once the off-site sales office opened, though, the company felt it needed a better way to help buyers visualize their apartments, which range from $4.8 million for a 4,800-square-foot unit to $32.5 million for a 17,000-square-foot penthouse. “When you start showing duplexes on floor plans, people get confused,” Mr. Dezer says. So they made four replicas of different apartments and the lobby encased in four-by-six-foot glass boxes at a cost of $250,000. The décor and furniture was designed by Michael Wolk Design Associates and was crafted in miniature by MYP Maquetas, a Mexico-based model-making company. Currently 89 of the building’s 132 units have been sold for a total of $535 million, Mr. Dezer says.
The Porsche Design Tower required a 30% down payment, which is lower than usual for Miami. This is because the developer plans to secure lender financing, taking some of the onus off buyers. While buyers can usually finance the balance of their purchase once their unit is completed, veterans say the vast majority of luxury presale buyers pay for their units in cash. The stiff cash requirements means buyers are betting, heavily, that their units will be completed to their liking—and that the development will be a success.
According to Jack McCabe, CEO of McCabe Research & Consulting, an independent real-estate analysis company in South Florida, buyers are only entitled to a fraction of their down payment if the project sours. Litigation can be onerous; many lawsuits from the last housing bust are still pending. The vast majority of new condo buildings after the bust saw individual or class action lawsuits from contract holders trying to recoup their losses, Mr. McCabe says.
Peter Zalewski, founder of the real-estate consultancy Condo Vultures, notes that foreign investors are more used to large cash deposits than U.S. buyers, so the large down-payment requirements are better tolerated. “Right now, it feels like 2003 in South Florida,” he says, recalling the boom years.
Brazilian homebuyers continue to invest, simply changing their strategy
July 02, 2013 12:00PM - The Real Deal South Florida
By Emily Schmall
Brazil’s reversal of fortune has been a boon for South Florida as cash-rich investors put more money into Miami-area bricks and mortar, brokers and real estate observers tell The Real Deal.
Brazil’s stock market has plunged 23 percent this year, rising inflation has further battered the value of the real to a four-year low and a wave of protests have crippled major cities. Miami leads the U.S. in total investment by international home buyers, and its overseas success exposes its thriving real estate market to changing economic realities abroad.
Government rates of up to 16 percent on money taken out of Brazil – meant to stem capital flight – simply mean Brazilian investors are changing their strategy, favoring real estate they can pay for incrementally, such as pre-construction projects, or that pays for itself, like rental properties.
Douglas Elliman’s top producing Miami broker Chad Carroll said Brazilians investors are “signing contracts left and right,” especially for rental properties, which are yielding ever higher returns.
Carroll recently showed clients, a Brazilian couple, a $2 million, four-bedroom condo finished and ready for immediate move in. The couple chose instead to buy two pre-construction units and combine them for roughly the same price. “The payment structure was more feasible, with the increments of deposits due over two years,” Carroll said.
Mayi de la Vega, the founder of One Sotheby’s International Realty, and another of Miami’s top brokers, said that if anything, Brazil’s loss has been Miami’s gain.
“I think directly proportional to this loss of wealth and declines in the stock market, it’s strengthened our real estate locally,” Mayi de la Vega, the founder of One Sotheby’s International Realty, told TRD.
Brazil is the top country of origin for Miami’s international home buyers, who constituted about 6 out of 10 sales last year.
While South Florida has drawn wealthy buyers from around the world, including all of the BRICs – Sunny Isles Beach goes by the moniker “Little Russia” – the Miami Association of Realtors claims Brazilians accounted for the largest share of Miami’s international sales in 2011 and 2012.
However, even if Brazilian sales were to taper off, Miami is well-positioned to benefit from foreign investors elsewhere, de la Vega said.
“I always find that when one country’s weak, another one’s strong. French buyers are desperately trying to take money out of there,” she said.
L.J. Rodriguez, the director of sales at Midtown, a massive residential and retail development in Miami, said that the turmoil of Brazil has fueled a spate of sales, with investors looking for fixed revenue from rents.
“Any potential downturn, we actually see as a positive because they’re going to find ways to hedge against their own economy,” Rodriguez said.
Most Brazilians – 78 percent in 2012 – paid for properties all cash, the association’s statistics show. Nearly half of buyers in 2011 said their intended use of the condo or house was as a vacation home for family and friends. A smaller share, 41.9 percent, gave that answer last year, with more buyers – 6.45 percent from 4 percent – saying they “don’t know.”read more
BY PETER ZALEWSKI, SPECIAL TO THE MIAMI HERALD, Posted on Sunday, 03.24.13
A hypothesis is being bantered around high-level real estate circles that South Florida — a region with a long history of volatility typically triggered by domestic and foreign speculators — may have experienced its last dramatic boom-and-bust cycle.
Miami’s evolution, proponents contend, into an international center for business, arts, education and recreation, combined with a significant public investment in cultural facilities and transportation infrastructure in the last two decades has put South Florida on a path to attract a steady infusion of individual and corporate dollars from around the world for the long-term future.
Proponents credit the decade-long run of the Art Basel event that brings together some of the world’s top artists and collectors every December for exhibits, discussions and social events as the linchpin that introduced the globe’s most elite circles — with excessive investment dollars — to Miami.
This anticipated infusion of international capital, especially for real estate, is considered to be a sort of elixir that could ultimately inoculate South Florida against future real estate volatility.
Proponents refuse to say that prices will not go down in the future in South Florida, but rather that the market would be backstopped by wealthy investors with the capital to deter many of the dramatic swings of the past.
For many South Floridians who suffered through the 2007 market crash, the immediate reaction is to simply disavow the idea as optimistic hyperbole being pitched by developers or real estate professionals looking for business.
After all, South Florida has a long history of real estate booms and busts dating back to at least the 1920s.
Despite shrinking residential inventory in recent quarters, some could argue the tricounty region of Miami-Dade, Broward and Palm Beach — saddled by an unknown amount of shadow distressed real estate — is still in the midst of a bust that began in 2007 after four years of rampant residential development and condo conversions.
Proponents counter that South Florida has experienced a somewhat quick recovery — despite a difficult mortgage market — from a real estate crash that many projected would take a decade to recover from given the oversupply of new and resale residences available some six years ago.
As of the first quarter of 2013, South Florida’s resale inventory represents about 30 percent of the nearly 110,000 single-family houses, condos and townhouses on the market back in the fourth quarter of 2008, according to data from the Southeast Florida MLXchange.
As for the oversupply of new condo units, buyers — primarily from overseas with strong currencies — have acquired about 95 percent of the nearly 49,000 new condos created in South Florida’s seven largest coastal markets from Greater Downtown Miami to Downtown Fort Lauderdale to Downtown West Palm Beach.
With boom-era developer condo inventory on pace to sell out in early 2014, developers are now proposing more than 120 condo towers with nearly 16,400 units — some designed by world-class architects — for South Florida’s coastal region.
Nearly 40 percent of the planned condo units in South Florida are being proposed by developers who come from outside of South Florida from places ranging from New Jersey to California, Argentina to Canada, and Brazil to Malaysia.
It is unclear how many of the proposed towers will ultimately be constructed as the region learned from the previous boom-and-bust cycle. As of March 18 construction has already concluded on one condo project while an additional 16 towers are currently being built in South Florida.
Early on in this current cycle, units in the new condo towers are being purchased by Latin American inventors who are in search of value, wealth preservation, currency advantage and strong rents.
Foreign investment — led by Latin American buyers — accounted for an estimated $5.3 billion in South Florida residential real estate transactions in 2012, according to the Florida Realtors “Profile Of International Home Buyers In Florida” report.
Much like the Hispanic constituency played a crucial role in the 2012 U.S. presidential election, real estate players in South Florida are bullish that Hispanics — especially those originally from Latin America — will emerge as the cornerstone of Miami real estate going forward.
“Right now what we are doing is, we are really pumping cash from Latin America and bringing it to the U.S.,” Carlos Rosso, the president of the new condo development division of the Related Group, recently said about South Florida’s current real estate climate. “There is a transfer of wealth from all of those countries that have done great during the last years with commodity prices up the gazou and real estate prices up in the sky. They have transferred a lot of money into the U.S.
“They feel the U.S. is a secure place, that it is safe, and that they can buy a piece of the beach, the sun, and the lifestyle of Miami.”
It is impossible to argue decisively for or against the hypothesis of no more real estate boom-and-bust cycles for South Florida given that data necessary to prove or disprove the hypothesis will not be available for several decades.
The question going forward is, whether foreign investor preferences and buying power will be consistent and sizable enough to catapult Miami and South Florida into a safe enough place in the market that is immune to real estate booms and busts.read more
MIAMI TODAY – WEEK OF THURSDAY, JAN. 17, 2013 – BY LAURA STACE
“Residential real estate in downtown [Miami] and Brickell is touted to reach pre-dowturn price highs, while experts predict office and retail markets will continue their recovery as 2012 unfolds. Condominium inventory has gone from a glut to a very tight market in terms of supply, said Craig Studnicky, principal of Related ISG. Because of the tightness in the market, he said, he is expecting prices to climb to the 2006 water mark high. Two years ago Brickell and downtown had close to 10,000 units of standing inventory, he said. Now, in Brickell most new condos have been sold, and downtown has fewer that 1,000 remaining units. Related’s projects in Brickell – My Brickell and Millicento – are sold out, he said, with the group’s BrickellHouse 95% sold. [...] He said Swire’s Brickell CityCentre project will make Brickell even more attractive upon completion. [...] Howard Taft, senior managing director of Aztec Group, said retail in Brickell and downtown [Miami] remains strong, with many new tenants – including Trader Joes, Dick’s Sporting Goods and Kohl’s among others – entering the area. [...] Last year rental rates increased over 3%. With the residential market recovering, Mr. Taft said, “Health retail will follow rooftops.” Population growth and job creation in the metro area are fueling the demand for more retail, he said. Mr. Taft predicts 2013 will be a strong year for investment sales in the area, as interest rates are to remain low. He said banks are making construction loans based on return on cost. This, he said, has changed dramatically over the past year, when banks were focused on loan to cost and loan per square foot.”
THE BRICKELL REPORTER – JAN. 2013, EDITION 19 – BY ROBERT WAGENSEIL
“Situated off the main strip of Biscayne Boulevard and neighboring the Design District and Wynwood is Midtown – Miami’s latest frontier in the real estate market that is about to explode. With the latest announcements of the new Zaha tower, Miami Worldcenter, and the All Aboard Florida train station, Midtown Miami is experiencing a new wave of sales while preparing for new projects. Recently, Gold Krown Fidelity purchased the remaining unsold residential inventory of Midtown Miami, consisting of a 538-unit block of condominium and rental apartments. Those remaining units from the condo boom are now selling very quickly, signaling that it is the last of its kind by boasting a large inventory. Two months after announcing the launch of sales of 304 units in 4 Midtown, Gold Krown Financial sold 113 condominium residences, which equates to $40 million. Analysts estimate that of the 22,000 new condos built in Miami during the boom, at least 90% have been sold, making Midtown Miami one of the last of its kind in the market. Midtown Miami has become an instant micro-city, and its retail and residential properties have been met with success. Midtown has also gained popularity among locals, as more than 70% of sales have come from buyers in Florida. With the influx of luxury retailers in the neighboring Design District, the booming art scene in neighboring Wynwood, and the proximity to both highways and pedestrian-friendly avenues, Midtown Miami boasts central proximity and easy accessibility to the vibrant urban lifestyle.”read more
700 Condos Rented Monthly In South Florida In 2011
Published on 9/6/2011, By Peter Zalewski – CondoVultures.com
Tenants rented an average of more than 700 condos per month in the seven largest coastal South Florida markets between January and June of 2011, according to a new report from CondoVultures.com.
At the current pace, the seven largest coastal markets have about four months of available inventory for rent as of Sept. 6, 2011.
In the year 2010, tenants leased an average of 700 residences per month. A year earlier in 2009, renters leased an average pace of 600 residences per month, according to the report based on Florida Realtors association data.
CondoVultures.com has profiled the latest residential real estate trends in the second quarter of 2011 in the seven largest coastal markets in the tricounty South Florida region of Miami-Dade, Broward, and Palm Beach counties.
As of the week of July 21, the Condo Vultures® Market Intelligence Report™ has been publishing a seven-part weekly series analyzing new condo sales trends in Greater Downtown Miami, South Beach, Sunny Isles Beach, Hollywood / Hallandale Beach, Downtown Fort Lauderdale and the Beach, Boca Raton / Deerfield Beach, and the Downtown West Palm Beach market.
In the first half of 2011 in the seven largest coastal South Florida markets, tenants rented an average of: 360 condo units in the Greater Downtown Miami market; 120 condos per month in the South Beach neighborhood of Miami Beach; 60 condos per month in Sunny Isles Beach; 95 condos per month Southeast Broward County’s Hollywood / Hallandale Beach market; 70 condos per month in Downtown Fort Lauderdale and the Beach; 35 condos, townhouses, apartments, and single-family houses in the coastal Boca Raton / Deerfield Beach market; and 60 condos, townhouses, apartments, and single-family houses in the Downtown West Palm Beach market.
As of Sept. 6, 2011, nearly 2,700 residences are currently available for rent in the coastal South Florida market at an average median asking price of $2.05 per square foot per month, according to the report.
An additional 1,500 residences are under contract and waiting to be leased. The average median asking price of these pending deals is $1.66 per square foot per month.
The completed leases do not reflect any deals that that may have been transacted without being marketed on the Multiple Listing Service.
At the end of the first quarter of 2011, more than 42,000 condominium units – some 86 percent of the total new inventory – created near the coast in the tricounty South Florida region during the real estate boom had been sold as of March 31, 2011, according to a recent CondoVultures.com.
The total number of new condos sold includes the more than 8,000 units that were purchased or transferred in bulk transactions to investment groups that plan to one day resell the units at a premium, according to the Condo Vultures® Bulk Deals Database™.
Developers created nearly 250 projects with 49,000 units since 2003 in the seven largest condo markets east of Interstate 95 in Miami-Dade, Broward, and Palm Beach counties during the boom.
In the four decades prior to the boom, developers created nearly 700 condominium projects with more than 76,500 units in the same seven coastal markets of Greater Downtown Miami, South Beach, Sunny Isles Beach, Downtown Fort Lauderdale and the Beach, Hollywood / Hallandale Beach, Downtown West Palm Beach and Palm Beach Island, and Boca Raton / Deerfield Beach, according to a comprehensive study undertaken for the Condo Vultures® Official Condo Buyers Guide™ eBook series.
Condo Vultures® relied on public records and private research to complete this study over the course of the last three years.
The results of this exhaustive researching of deeds, condominium documents, and government files is the basis for a series of seven ebooks titled the Official Condo Buyers Guide™. The guides for Greater Downtown Miami, South Beach, and Sunny Isles Beach are already on available for purchase on Amazon.com.
This information is also the foundation for a new Condo Ratings Agency™ service designed to provide guidance on the financial stability of nearly 1,000 condo projects – old and new – east of Interstate 95 in Miami-Dade, Broward, and Palm Beach counties.
It is important to note there are various stages to a residential real estate transaction in South Florida.
A transaction begins when a property is made available for sale and ends when a title is conveyed from one party to another party as a result of the recording of a deed with the local government.
As part of the process, a property typically goes under contract and into a due diligence phase by which a deal can be canceled.
The CondoVultures.com new condo sales report is based on completed transactions where a deed is recorded and taxes paid as a result of the sale.
Posted on Sun, Aug. 21, 2011
By PETER ZALEWSKI
Developable land suitable for future condominium towers has replaced blocks of units in troubled projects as the primary focus for large investors searching for distressed deals in the Greater Downtown Miami market.
Investment groups have intensified their efforts in 2011 to purchase developable sites — especially land that had previously been earmarked for new towers — in preparation for the next wave of new condominium development in Greater Downtown Miami, even if it may be years away.
In the first seven months of 2011, investments groups have purchased the deed or mortgage to at least 10 condo development sites for nearly $300 million. This year’s activity follows the sale of at least six development sites for $20 million in 2010, according to Miami-Dade County records.
This year’s developable land deals range from the $236 million paid to acquire the waterfront Miami Herald land at 1 Herald Plaza, the $14.8 million deal for the Coral Station At Brickell Way site at 1420 SW 1st Ct., the $14 million purchase of the land where the Brickell Tennis Club operates at 637 S. Miami Ave., to the acquisition of a 78,200-square-foot development site of the once proposed Cima condo at 24 SW 4th St. on the north bank of the Miami River.
In total, nearly 125 development sites exist in a 60-block stretch of Greater Downtown Miami that spans from the Julia Tuttle Causeway south to the Rickenbacker Causeway, Interstate 95 east to Biscayne Bay.
Investor interest is being propelled by intensifying rental, resale and new-sale activity over the last 18 months.
Renters are leasing condos in Greater Downtown Miami at a pace of 360 units per month in 2011, leaving the area with less than two months of available inventory, according to data from the Florida Association of Realtors.
The strong leasing activity has worked to increase the median rental rates for condos by 5 percent to $1.82 per square foot per month as of June 30. An 800-square-foot condo with one bedroom is renting at a median price of nearly $1,500 per month.
Condo resales by quantity per month in Greater Downtown Miami are up 25 percent in the first half of 2011 compared to the year 2010.
In the first six months of 2011, buyers acquired nearly 925 condo resales — a pace of 154 transactions per month at a median price of $197 per square foot.
In 2010, buyers purchased more than 1,475 condo resales — an average of 123 units per month — at a median price of $195 per square foot. In 2009 they bought more than 1,200 condo resales — an average of 100 units per month — at a median price of $191 per square foot.
As of Aug. 15, there are 1,515 condos — about 10 months of inventory at the current resale pace — in Greater Downtown Miami on the resale market at a median asking price of $323 per square foot.
New condo sales are also on the rise in Greater Downtown Miami.
In the last 18 months, individual buyers and equity groups have acquired nearly 5,000 new condos, reducing the number of unsold developer units to less than 2,300 as of June 30.
At the current sales pace of 200 new units transacting per month, Greater Downtown Miami has about 12 months of remaining developer inventory out of the nearly 22,250 units created during the real estate boom that began in 2003.
The unsold new condo total does not include the more than 1,200 units that have changed ownership — either bulk deals or bank repossessions — and are now being marketed for resale on an individual retail basis by the successor owners.
Despite the encouraging activity, obtaining construction financing for new condominium construction is a major issue. For example, the developer of the proposed 23 Biscayne Bay condominium east of Biscayne Boulevard has begun construction of the 18-story tower using his own funds.
To improve their chances of securing construction financing for a new project, developers who want to build now are asking prospective buyers to place deposits — in phases — of between 30 percent and 70 percent prior to the condominium tower being completed. The staggered deposit approach, common in Latin America, assists the developer in funding the construction, thereby lessening the importance of the lenders.
Compare today’s climate to the condo boom of a few years ago when developers normally collected 20 percent deposits from preconstruction buyers. Once a developer obtained preconstruction contracts with 20 percent deposits for half of the units, lender consortiums would typically provide financing for about 70 percent of the development cost.
Given the difficulty that condo construction lenders have experienced since the crash, many financiers are skittish or even defiant about financially backing new projects in South Florida, especially in Greater Downtown Miami.
In June a lending consortium took title through the foreclosure process to the nearly 350 units in the new Paramount Bay condominium tower after a lengthy court battle. The lending consortium of Paramount Bay was owed nearly $221 million on a project where the construction cranes were removed nearly three years earlier in October 2008.
Even with the recent experiences from the real estate crash, an increasing number of equity groups are once again willing to bet their investment dollars that construction of new condominium projects could sometime soon be viable again in Greater Downtown Miami.
The unanswered question is whether preconstruction buyers will make that wager.
© 2011 Miami Herald Media Company. All Rights Reserved.read more
Las ventas de los condominios en Miami aumenta un 50% mientras sectores de la Florida tratan de recuperarse
(Overseas Property Professional Magazine – “OPP”) Las ventas de los condominios de Miami aumentaron casi un 50% en Mayo comparado al mismo mes en 2010; las nuevas figuras demuestran un aumento en la demanda de la ciudad Floridana.
La investigación de la Asociación de Investigacion de Miami demostró que los condominios en el Area Estadística Metropolitana de Miami (MSA) aumentaron un 46% en Mayo desde 972 a 1.420.
En otras áreas las ventas de hogares unifamiliares incrementaron el 20%. En toda la Florida, las ventas aumentaron el 17% – 8.388 para los condominios 3% para los hogares unifamiliares unas 17.228, según la Asociación Nacional de Agentes Inmobiliarios.
“El funcionamiento actual del mercado de Miami está excediendo las expectativas a medida que continuamos viendo el crecimiento de demanda en las propiedades locales y los niveles más altos de ventas desde los años del auge,” dijo a Gato H. Levine, el actual presidente de la junta de la Asociación de Miami de Agentes Inmobiliarios.
Él comento al OPP: “Actualmente, hay solamente inventario inmobiliario para 7.4 meses en el condado de Miami-Dade. Los E.E.U.U. y los compradores internacionales continúan aprovechándo la asequibilidad del mercado, el estilo de vida atractivo, el tiempo de Miami, y otras cualidades locales.”
Los precios también continúan estabilizándose en el área mientras el valor de los condominios y de los hogares unifamiliares incrementaba en un 7% comparado a Abril.
“Las figuras de mayo son muy alentadoras, pues reflejan la consolidación y la estabilización continua del mercado,” dijo el presidente residencial de la Asociación de Miami de Agentes Inmobiliarios Rafael E. De Martín. “El número de ventas de bancarrota y short sales decayó en un cuatro por ciento, lo cual se traduce a más transacciones regulares.”