With more than 80 proposed condominium projects in the early planning stages in South Florida, it’s hard to believe that developers learned anything from their mistakes during the recession.
“If they were built, it would amount to an oversupply in South Florida once again,” says Jack McCabe, chief executive of McCabe Research & Consulting in Deerfield Beach, Fla. “This is still a very tumultuous marketplace.”
A pool of foreclosure properties owned by Fannie Mae and Freddie Mac for the past 12 months is sitting in limbo, he says, which has decreased inventory and artificially propped up prices. “In some cases in South Florida, we saw prices increase as much as 10 percent over the last year,” he says.
The saving grace, of course, is that many banks have pulled back, which will deter a lot, maybe 75 percent, of these projects, McCabe estimates. And by serving the best growth option in South Florida, the foreign-buyer pool, the projects that remain will keep their heads above water once they break ground.
In Miami, specifically, the market may be more robust than ever.
“If you look at other areas where condos were successful in the past—Orlando, Tampa, West Palm Beach—that market is still very weak,” says Jorge Perez, chairman and CEO of Miami-based Related Group.
The second-home market, which drove those areas, has yet to re-emerge. If Perez were depending on healthy U.S. demand for his new projects, he’d still be waiting to break ground. So Related has focused the marketing of its new projects to foreign investors, buyers flush with cash that weren’t depending on a mortgage. And Perez calculates that anywhere between 60 percent and 100 percent of the sales price, on average, will be paid before completion of the job.
Related's recent 27-story boutique condominium, MyBrickell, purchased at distressed prices and begun while construction was at a low ebb, allowed Related to secure competitive labor and materials prices, savings that were passed on to the buyer. And when buyers agreed to pay 50 percent to 80 percent of the total purchase price on schedule during construction, Related didn’t need much traditional construction financing.
The condos sold at $300 per square foot, much lower than the typical cost of building the project. “The South American market was looking at these prices and saying, ‘My God, this is cheaper than we can buy in almost any city in South America,’ ” Perez says. “They understood the value proposition.”
Nearly 70 percent of MyBrickell’s sales have been to foreign buyers paying cash. In fact, Related received up to 40 percent of the cost up front from international buyers before construction even began. Almost immediately, 200 units were sold.
The company knew it had a hit on its hands, so it started work on another development nearby, 1100 Millecento Residences. There was a slight price increase, $325 to $350 per square foot, but once again, the development was 100 percent sold out soon after opening its doors.
And the two developments are like a mini–United Nations: More than 20 countries are represented in the buyer pool.