Condo boom is back: Is another bust on horizon?
Miami sees 3 groundbreakings for 3 new building projects
MIAMI – Take a walk through downtown, Edgewater or Miami's Brickell neighborhood and you will experience the hustle and bustle of condo construction city leaders and developers are buzzing about.
In a historic moment last week, three groundbreakings on three new projects happened back-to-back on the same day.
Mayor Tomás Regalado and Miami City Commissioner Marc Sarnoff attended all three.
"It's a very careful day," said Sarnoff, "but a new day, and it is a better day than the last one because this is real money, this is real people's money."
"Every developer and civic leader is talking about how this is a great thing," said Peter Zalewski of Condo Vultures. "Why? Because the new towers are going to effectively increase property taxes. It is also going to give a feel that the economy is back. There are jobs, construction workers, interior designers. There's a whole bunch of people who are going to get the benefit from it."
Zalewski discovered interest in Miami's building boom was so great, he began offering bus tours. On the day Local 10's Christina Vazquez interviewed him, he was narrating a tour for agents from Coldwell Banker's Coral Gables branch.
"During Art Basel weekend we had so much demand and interest in trying to figure out what was happening in downtown Miami in terms of newly proposed condo projects, we decided to rent a bus," said Zalewski.
Zalewski said a three-hour bus tour will run about $75 a person.
"We are overwhelming investors, we are overwhelming tourists, we are overwhelming Realtors with information about what's coming, what's already been done and how this compares to last time," said Zalewski. "We've had about nine straight sell-outs, we're doing bus tours now twice a day on Saturdays, we're doing private bus tours and we are also looking at doing Sunday bus tours."
WEB EXTRA: Experts weigh in: Is a condo crash coming?
Charlette Seidel and Ingrid Carlos are co-managers of Coldwell Banker's San Remo office. Seidel said their agents were excited to take the tour "because of the heavy demand for new construction from all over the world to Miami."
"This is a very educational experience where the agents are going to find out about all of the towers and projects that are going up in Miami," explained Carlos, "We are very excited to learn about everything that's happening. There is a lot of interest, especially from foreign clients looking to buy in South Florida."
Make no mistake: The boom is back.
But hasn't Miami seen this before? Cranes dotting Downtown's skyline made headlines 10 years ago. Then after the buzz, and the bubble, came the bust.
"At one point clients, buyers would come in, put 10 percent down and maybe not show up at the table," said Gary Hecht, a Realtor with Sotheby's International Realty.
Diego Ojeda of Rilea Group is behind The Bond at Brickell, the first project of its kind to break ground on Brickell since the recession. He said back then people were, "placing deposits in different buildings. What they would do is they would place, wait a couple of days since the market was always going up, it would raise and then they would flip it to someone else, never having the money to pay a for a full unit."
The Related Group also broke ground on a new project in the Brickell neighborhood steps away from trendy Mary Brickell Village. The new SLS Brickell hotel and condo with its Phillipe Starck design promises to be as hip and slick as its South Beach counterpart, said Carlos Rosso, president of the company's condominium division. It also nearly sold out before they even started building. "Well, I think the biggest lesson that we learned from the past cycle is that we need real buyers with real amounts of deposits."
Realtors, developers and market analysts say this time it's different because from the crash emerged a new finance model.
"The deposit structure is modeled after how it is down in South America and Europe where we are asking for 50 percent cash deposits," said Ojeda, "by asking that much money you are weeding out all the speculators, flippers."
Hecht said, "So what happens is the developer doesn't have to get the construction loan? Actually, the buyer is financing the project."
"During our last boom there were 245 towers created and there were 49,000 units. This time there are 186 towers proposed and there are only 25,000 units," said Zalewski, "So I guess where I am going with that is that the buildings that are being built are now more niche oriented so they tend to be smaller, they have fewer units and they are targeted toward the wealthy, last time they were targeted toward the masses. So 'Joe Six Pack' isn't necessarily going to be able to buy this new product that's coming online. Thus far, all the projects that are being built are being built with buyer cash, there's no real bank money involved. From our numbers there's about $2.4 billion in bank financing and last go around there was roughly about $11 billion."
At the groundbreaking for The Crimson, a new tower in Miami's blossoming Edgewater neighborhood, Mayor Tomás Regalado told Vazquez, "So we are very comfortable in the city that this will not be another bubble that will burst."
"You are seeing not enough supply and more demand,"Commissioner Marc Sarnoff said at the same event. "So in an unusual turn of circumstance you have more people wanting apartments than you do actually supplying apartments."
Downtown Miami has also changed, morphing into a pedestrian-friendly city with new restaurants and grocery stores making condo living now a lot more user friendly than it was back then.
"We are just in the early phase, this is effectively the second or third inning of what is going to be the latest boom," said Zaleski, "and if I were to compare it to where we were last time, we are really in 2003. After 2003 we had about a two- to three-year run and then the market began to go sideways in '06, and then in '07 it (went into) freefall. So really this is the early stage, this is the time to party, the DJ has been set-up, the food is starting to be served, the valet is parking everybody so the real event hasn't come yet but it's coming and it's coming really quick. At this point in time we'd say there is no concern of a condo crash, but that being said, as the market gains momentum watch for more and more players to get into the game and as more and more players get into the game that's when I think the issues begin to become sort of concerning. If you think of it as a hurricane, there's a storm brewing off the coast of Africa right now, so right now there's no real concern but I would say let's talk in about a year, year and half and it might be a little bit of a different story."
Until then, he'll be giving anyone who is interested a front-row seat to the action.
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