MIAMI – Fifty stories below the penthouse terrace of Jade Residences, a new luxury condominium high-rise, the turquoise waters of Biscayne Bay and the Atlantic Ocean beyond stretch endlessly.
This mesmerizing view from the three-story, four-bedroom condo fetched $7 million in the hottest real estate market Miami has ever seen, and one of the hottest in the USA.
Florida’s developers and real estate brokers are flying high amid an unprecedented condo-building and buying wave they hope won’t end anytime soon. The frenzied spending is coming to a large extent from outside Florida, well-to-do baby boomers from the North nearing retirement, and foreigners whose money for real estate has gained potency from a weak dollar.
Development is also setting records in other Florida coastal cities such as Tampa and West Palm Beach, but the boom has been most dramatic in Miami and its nearby beach communities.
Miami-area home values increased 20% in 2004, vs. a national gain of about 12%, the federal government says. But that measure fails to register the dizzying price escalation for new condos on or near the water. Developers of new projects are asking about $500,000 for a one-bedroom on the beach with an ocean view.
Today, an estimated 50 major condo projects are proposed or under construction within 50 city blocks in Miami on or near Biscayne Bay. There are so many gaping holes in the ground, where old buildings have been razed and new ones are planned, that downtown looks as if it has been bombed. A remarkable 69,000 condo units are currently in the permit pipeline or are newly built and for sale citywide. By comparison, Las Vegas, perennially among the USA’s hottest housing markets, issued permits for 40,000 units of all types of housing last year.
The explosion in South Florida real estate comes despite four major hurricanes that roared across Florida last summer, causing $22 billion in damage and weeks of panic statewide. The Miami area was spared, but for a time, it seemed the phenomenon of four hurricanes could cause the entire Florida coastline to lose a bit of luster. That hasn’t happened.
“South Florida is going through the largest urban redevelopment in its history,” says Michael Cannon of appraisal firm Integra Realty Resources.
Cannon and other experts here are increasingly worried that paradise might be getting overbuilt. They fear investor speculation is driving too much of the condo demand, that some builders, developers and lenders might be heading for a crash, as has happened here before.
He and other experts suspect some projects will never get the construction loans they need to get off the ground because so many units have been pre-sold to speculators with small down payments, and banks know the speculators plan to resell at a profit, not live there. “Do I think all these projects will be built?” says real estate expert Lewis Goodkin of Goodkin Consulting. “Absolutely not.”
Weak dollar draws Europeans
Powerful economic and demographic forces are driving the boom. Developers see an army of aging baby boomers looking for a warm place to vacation or retire. Low interest rates have made big mortgages more affordable. In the past five years, real estate has been a far a better investment than the stock market.
The weak dollar makes Florida real estate look like a bargain abroad. To Europeans with euros to spend, for example, Florida property can seem like a deal because of the added buying power they get from a favorable currency exchange rate. Unlike the past, today’s Florida developers aren’t targeting just retirees or snowbirds from the Northeast and Latin America. Luxury buildings are targeting the wealthy worldwide.
For years, Miami suffered from negative perceptions fed by popular culture and reality. TV’s Miami Vice glorified the fight against the violent cocaine trade. The series CSI: Miami still portrays this as an unusually murderous town. In the 1990’s, police corruption, violent attacks on tourists and prosecutions of top politicians on bribery and voting-fraud charges shaped a banana republic image.
Today, Miami’s business and government leaders are working to craft a world-class city. A performing arts center is going up downtown, and development is planned all around it. Blocks away, the American Airlines Arena houses Miami Heat basketball games and concerts by top stars. A few miles to the east lie the hot restaurants and nightclubs of South Beach. So fast is Miami’s landscape changing that Mayor Manuel Diaz last weekend unveiled a master plan, “Miami 21,” designed in part to bring order to frenetic development.
Prices for new condos have leaped. As of last year, the average price for a condo in Miami-Dade County hovered close to $300,000, a third higher than in 2000, according to Integra. But in downtown Miami’s more desirable neighborhoods, one-bedrooms in new projects start at about $350,000 in the earliest stages of selling. In Miami Beach and other communities, one-bedroom units in new oceanfront projects start at close to $500,000 and run into the millions.
With prices at those levels, developers must inspire an irresistible urge to buy. To that end, some new projects are named for precious stones and metals: Onyx, Emerald, Platinum. Others evoke colors of the sea, Blue, Acqualina, and still others, rapturous states of mind -Apogee, Nirvana.
“They’re not selling condos anymore,” Cannon says. “They’re selling sex.”
“You sell a dream, ” says Edgardo Defortuna, CEO of Fortune International, a Miami developer.
Developers, he says, must sell condos today before the first dirt is turned because construction lenders require sales-contract commitments upfront. Fortune’s Jade project sold out a year before the building was completed last fall.
Now, Fortune is marketing a proposed oceanfront project called Jade Beach, where the penthouse is advertised at $11 million. Meanwhile, land prices in downtown Miami’s handsome Brickell Avenue neighborhood, where Jade was built, have continued to soar. In 2001, Defortuna paid $19 million for Jade’s 2.5 acre site. Today, an adjacent empty lot the same size is advertised at $100 million.
Developers are amazed at the diversity of buyers and shoppers. Ninety percent of Jade’s buyers are foreign nationals, says Ana Cristina Defortuna, Edgardo’s wife and the company’s vice president for sales.
“We have people from every Latin American country,” she says. “We have royalty in the building, singers, actors.”
Mexicans are the top Latin buyers now, she says. Mexican pop music star Luis Miguel owns one of Jade’s penthouses. Colombian race car driver Juan Pablo Montoya owns another one.
“Russians are very strong right now,” she says. “They are the best: They don’t negotiate price.”
Other projects target U.S. buyers. At Trump Grande, an oceanfront high-rise development in nearby Sunny Isles Beach, buyers tend to be from the Northeast, where the Trump name is well known. Five condo towers are proposed on a total of 19 oceanfront acres where sleepy motels once stood. Prices range from $700,000 to a stunning $25 million for an 18,000-square-foot penthouse.
Developer Joyce Bronson, whose company Related Group is backing Trump Grande, says they have seen no signs the market is cooling off.
“There is a large buying population out there,” she says. “When you compare the value of real estate here to other world-class cities, our numbers look pretty good, and we have sunshine.”
Community leaders hail the burst of growth, the new property tax revenue and the revitalization of neighborhoods. But many real estate experts are warning that rampant speculation could jeopardize the vibrant market.
Consultant Goodkin estimates up to 70% of recent condo buyers are purchasing for speculation. “People are betting rather than buying,” he says.
Fueling the problem is “an absence of gatekeepers,” Goodkin says. “There’s a lot of liberal financing out there.” Experts also note that a new crop of aggressive but inexperienced developers has been drawn to the market by the smell of quick profit.
“All the banks are concerned about the level of speculation,” says Raul Valdes-Fauli, the senior lender at Union Bank in Miami. “In a market like this, banks really need to go back to the fundamentals, and do deals with people they know.” Union is now “being more selective” about financing new condo projects.
He says many construction lenders are now requiring developers put “non-assignment” clauses in sales contracts forbidding buyers from flipping their units before they close. Others are requiring 30% down payments or limiting the number of units any one buyer can get to one or two.
If a building sells too many units to speculators who don’t close, he says, “The first people who get burned are the buyers who just closed on their units.” The value of their investment plummets.
Despite the investment risks, many buyers can’t resist the hypnotic water views, and the possibility prices will keep going up. Drawn to the tropics, airline CEO Jonathan Ornstein of Phoenix-based Mesa Air Group shopped a long time for an oceanfront condo in Miami Beach.
Miami Beach is “a hip place,” he says. “The condos are really on the beach. You walk out the door, and you’re on the sand.”
Ornstein just put 10% down on a small, furnished condo-hotel room in Fontainebleau III, a project adjacent to the oceanfront Fontainebleau Hilton Resort in Miami Beach. The building won’t be completed for at least two years. At $580,000, the unit was $1,000 a square foot.
He knows he might have overpaid. “This could be a bubble,” he says. If it is, he says, buying at the low end of the market gives him some protection. “The less you spend, the less you could lose.”