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Miami Luxury Condo Market Sales Rise as Prices Drop
(This is Part One of a two-part exclusive Real Estate Channel overview of the luxury condominium market in metro Miami. Part Two will focus on recent bulk sales and will be posted Monday morning, Aug. 31. Current Broward and Palm Beach County pricing trends are also cited in the posting.)
(MIAMI, FL) -- Miami's over-built, over-priced and over-hyped luxury condominium market is moving again. It is expected to surge over the next 18 months in a crush of sales, some at fire-sale prices.
Michael Cannon
Whether that market movement is going to be up or down depends if you are selling or buying.
If you are selling, you are almost surely discounting some of the product. If you are buying, you can almost name your price.
That's what brokers, lenders, consultants and developers told Real Estate Channel in an informal phone and e-mail survey this week.
On the for-sale market are at least 10,000 of the 23,000 condo units constructed in metro Miami since 2003. Many of the owners and developers are offering discounts of $100,000 or more on the sale of entire multi-million-dollar buildings.The effective sales price has dropped from an average $500 per square foot in 2004 to about $200 per square foot today. Bulk sale buyers are demanding prices of under $200 per square foot - and starting to get them.
"I call this the Payback Period or the Hyperbole Period," says Cannon.
"Prices are being rolled back to the 2004 era. A lot of profit expectation (by developers and owners) has been lost," says Cannon. "Much of the product was overpriced to begin with."
Cannon has been monitoring the Miami commercial real estate scene since the 1980s. "My biggest concern is that many of these condos will be turned into rentals...Many of these properties should never have been built."
A Real Estate Channel reader who identifies himself only as Moishe Pipuk notes Cannon's concern on condo-apartment conversions.
Pipuk says "the rental market in Greater Miami has gotten very soft...Virtually; all the rentals are (converted) condos...There are almost no purpose-built apartment buildings."
Jack McCabe
He anticipates a wave of bulk sales transactions over the next year and a half. Hedge Funds and high-net individuals will be the main players. Many of the buyers, both investor groups and individuals, will be from Latin America, Germany, the United Kingdom and Spain.
McCabe predicts inland condo units will be selling for $100 to $120 per sf. Waterway condos will go for below $200 per square foot.
Those are eye-popping numbers, considering original construction cost on some of these properties have run between $300 to $500 per sf.
McCabe, who finds time from his consulting work to also write a bi-weekly column for the Real Deal magazine and The Real Deal Online, isn't entirely convinced that bulk sales alone will dictate near-future condo pricing.
"The questions and answers for buying South Florida's distressed properties seemed simple when opportunistic hedge funds, private equity firms, high-net investors and former Resolution Trust Corp. profiteers hit the South Florida bricks in 2006," he notes.
"Three years later (in 2009), buyers and sellers now know the market is highly complex and filled with risks previously unconsidered."
Among those risks are two key questions, the market hasn't answered yet:
1--Can enough individual buyers be found by developers-owners-lenders to unload units from bulk sales transactions at a price that will still give the bulk buyer a realistic profit.
2--- And if those individual buyers balk at the asking prices or can't be found in great mass, can the units be realistically converted to rentals so that some of the bulk buyer's initial cost can be salvaged?
Robert Given
"The buyers are investors, many times with off-shore funds, utilizing low leverage debt, or no debt at all.
"I suspect investors, whether they buy-out all remaining inventory in the assignments I work on or they are buying individual units, will be the driving force to clear out all of the remaining developer inventory."
Given says, "Much of this product will remain in the rental pool for three to seven years, until it can be sold to end users at a profit. Normally, I am seeing investors underwrite to a 20 to 25% all-cash yield requirement. This is fairly typical.
"There are great buys out there right now for end-users. However, the appraisers are suppressing that activity with low values, making it difficult to get loans.
"In almost all cases at this stage, developers are operating at a loss. They are typically working with their lenders to find a clean exit from the investments in order to maintain good relationships. These workouts come in the form of friendly foreclosures, deed-in-lieu, short sales and/our work-out arrangements for fees."
Given recalls "the condo conversion and new development boom really started in South Florida, so there were many successful developments prior to the bust.
"However, there were some late stage developments or developments delayed by construction that are hurting at the moment.
"And, most certainly, some of these were ill-conceived and should have never been built. But, all this chaos creates opportunity for others and we are seeing investors now taking advantage of those opportunities.
"In many cases, the new investors are the old condo developers themselves."
Marilyn Alva of Investor's Business Daily notes bulk investing in metro Miami "isn't surging to the degree real estate watchers had expected, especially among large private equity and institutional investment groups.
"That's seen as largely because developers and lenders especially, haven't yet been willing to drop prices low enough to attract such all-cash buyers in large numbers.
"But they're lowering prices enough to attract a growing number of regular buyers" who are now competing for product with the potential bulk sale buyers.
Lewis M. Goodkin
"The saving grace for Miami's condo market will be bulk sales at distressed prices to funds and investors, which will either rent them out, pending the evolution of more favorable market conditions, or sell them off at bargain prices to end-users."
"The market needs to purge itself of the many speculators and excess inventory that plagues it (today)."
"Miami is a fine condominium market that was decimated by the dominance of speculative purchases over the past five years, accommodated by lenders that largely ignored the basic safeguards against multiple purchases and pure speculation."
Andrea Heuson
"One of the more interesting developments I see in the condo market is the "new car phenomenon," says Heuson.
"Some investors think it makes sense to keep a building unfinished, close it up and hold on to it rather than face the price discount that will occur if you let tenants in and then the unit is no longer new.
"What I see happening is that these bulk buyers are putting themselves in the same position that buyers of large tracts of raw land were in years ago...buy, face the carrying costs, and hold long term with the idea that demand will eventually catch up.
"I think that was a successful strategy for lots of the firms and individuals that are now historic names, (think Henry Flagler) so it makes sense to try to implement it now, but with buildings (instead of land)."
Peter Zalewski
He calls the current discounting activity "a wave..." that may or may not develop into a full-blown buying storm in the coming months.
'The investors are swarming from one building to another and all of it has to do with price point, which is roughly $200 a square foot.," says Zalewski. "That's really the magic number."
In a recently published article, Zalewski notes the bottom of the South Florida condo market, and in Miami specifically, will be seen "when there are three consecutive months of increased sales by quantity and three consecutive months of increased median sales price.
"The problem for buyers is that this data won't be detectable until about four to five months after the recovery has already begun.
"A better way, from a symbolic perspective on calling the (market) bottom is to watch for when the construction cranes are taken down; credit for individual buyers is once again available; and a Florida-based bank is severely reprimanded and forced to sell of troubled loans that may not be classified properly today.
"The statistical recovery will occur shortly after each of these three scenarios occurs."
Nelson Gonzalez
"The high end condo market has picked up quite a bit lately, as has the high end single family market," he tells Real Estate Channel.
"Although there are bulk sales happening, the high end condo market on Miami Beach is doing well.
"I just did a search for high end condo sales in Miami Beach. just from 63rd Street down to South Beach, and there have been 72 sales of condos over $1,000,000.
" It is an amazing statistic, seeing that those are only from the MLS system and does not include sales from developer/client sales or private sales."
Gonzalez adds, "It appears that we may have hit the bottom...We may be scraping the bottom for awhile longer before we see prices begin rising again, but the worst may be behind us."
Meanwhile, July 2009 statistics from the Realtor Association of Dade County, Realtor Association of Greater Florida Inc., Realtors Association of the Palm Beaches and Condo Vultures Database of Bal Harbour, FL show these numbers for condos in all price ranges and not specifically for luxury condos:
Miami-Dade County -- Sales up 48 percent. Median price down 40 percent to $137,600.
Broward County -- Sales up 66 percent. Median price down 42 percent to $80,800.
Palm Beach County -- Sales down 9 percent. Median price down 5 percent to $110,500.
Treasure Coast Area (above Palm Beach County) -- Sales down 23 percent. Median price down 26 percent to $81,300.
The National Association of Realtors, however, has slightly different numbers for metro Miami's luxury condo market, since the NAR lumps together condos, townhouses, villas and co-ops. For July 2009, NAR reports there were 1,142 new listings; 336 sold listings; average price, $150,074, down 46.9 percent; year-to-date average price, $162,952, also down 46.9 percent.
For July 2008, NAR reports 1,545 listings; 257 sold listings; $282,418 average price; year-to-date average price, $306,929.
NAR reports sales and solid listings were up by 23.5 percent over July 2008. New listings decreased by 26.1 percent.
For individual condominiums and single-family homes with asking prices over $1 million, Condo Vultures Database of Bal Harbour, FL shows these discount prices in July 2009:
Miami-Dade County
Bal Harbour--Bank-owned condo reduced 33 percent.
Coconut Grove---Bank-owned condo discounted 49 percent.
Coral Gables---Single-family house discounted 43 percent.
Eastern Shores---Distressed single-family house reduced 58 percent.
Fisher Island, Miami Beach---Distressed oceanfront condo reduced 60 percent.
Key Biscayne--Single-family house reduced 35 percent.
Miami---Distressed single-family house discounted 58 percent.
Miami Beach--Condo on the Intracoastal Waterway reduced 68 percent
Miami Shores---Distressed single-family house on Biscayne Bay discounted 54 percent.
North Miami---Single-family house discounted 44 percent.
North Miami Beach--Single-family house reduced 20 percent.
Sunny Isles---Distressed, oceanfront condo discounted 69 percent.
Surfside---Oceanfront condo reduced 13 percent.
Broward County
Ft. Lauderdale---Distressed single-family house discounted 56 percent.
Hallandale---Bank-owned single-family house reduced 39 percent.
Hollywood---Bank-owned single-family house discounted 38 percent.
Palm Beach County
Boca Raton---Single-family house discounted 25 percent.
Delray Beach---Single-family house reduced 10 percent.
Highland Beach---Waterfront condo discounted 23 percent.
Palm Beach---Oceanfront condo discounted 14 percent.
(Part Two of Real Estate Channel's exclusive Miami luxury condo overview will appear Monday, Aug. 31, detailing some of the most recent and largest bulk sales, along with photos of the properties.).
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