Occupancy finally rises and sales pick up, but at discounted prices.
Clouds are lifting over Miami's beleaguered condo market following a boom-and-bust cycle of epic proportions. Condo sales and occupancy rates are on the rise, according to a study commissioned by the City of Miami's Downtown Development Authority and conducted in partnership with Goodkin Consulting and Focus Real Estate Advisors LLC.
“We're coming out of the most prolific overbuilding in the history of Southeast Florida,” says Jonathan Kingsley, executive vice president and managing director at brokerage firm Grubb & Ellis.
The study, published in the first quarter, updates a 2009 report examining 75 condo buildings in a 60-block area of downtown Miami. Many of the buildings adorn prestigious Brickell Avenue and overlook Biscayne Bay.
In February, 74% of the 22,079 units built since 2003 were occupied, the study found, compared with just 62% in May 2009. An average of 345 units were leased monthly last year.
Full-time residents occupy 87% of the units and more than half, 52%, are rented. “There's a younger crowd, new businesses and lots more after-hours people,” notes Alyce Robertson, the Development Authority's executive director.
And sales are picking up. Average monthly sales in the downtown Miami area totaled 350 units in the fourth quarter, a whopping gain of more than 200% over the fourth quarter of 2008. But some 7,000 condo units remain on the market downtown.
If current trends continue, the report predicts that downtown Miami's current condo inventory could be fully occupied within 25 months.
“There's been a movement to the downtown area based on affordability that didn't exist previously,” explains Craig Werley, president of Focus Real Estate Advisors. But the projections depend on job creation and stability. “We're not out of the woods yet,” he says.
Buyers want appreciation, so many units could wind up back on the market. Rental rates generally don't provide enough cash flow to cover homeowner association fees and taxes, says Werley.
“When you peel back the skin it isn't so pretty,” says Jack McCabe, CEO of McCabe Research and Consulting based in Deerfield Beach, Fla. “We've seen sales pick up — primarily cash deals to bulk investors and international buyers — at deeply discounted prices. It's basically a cash buyer's market.”
Prices have fallen 50% to 70% to $180 to $250 per sq. ft. from a high of $500 to $600 per sq. ft. at the market's peak, says McCabe.
Sales of existing condos rose 46% to 1,920 units sold compared with 1,311 in the first quarter of 2009, according to the Florida Association of Realtors. But the median price fell 9% to $136,100 compared with $149,000 a year earlier.
Peter Zalewski, founder of Condo Vultures Realty LLC, which brokers sales and conducts research, reports that only 17% of the 713 new condos sold during the first quarter in the greater downtown Miami area obtained financing.
The remaining deals were cash transactions. Zalewski estimates that roughly three-fourths of the buyers are speculators paying cash.
Fannie Mae and Freddie Mac recently announced plans to ease existing stringent guidelines to provide more financing for Florida's condo market. That could allow more lenders to originate mortgages. “It's setting the scene,” says Zalewski. “The dividend will be paid in 2011.”
DEVELOPER: Wexford Miami LLC
LOCATION: Miami
SIZE: Phase I: 252,000 sq. ft. medical office building
BUZZ: The University of Miami (UM) has leased 50,000 sq. ft. of the medical office building for its tissue bank and another 30,000 sq. ft. for research laboratories. The facility will house wet and dry labs, offices and lab-ready development suites. The UM tissue bank researches regenerative technology used to replace damaged bones, joints and tendons.
PROJECTED COMPLETION: Summer 2011