Last week, Miami saw the first major loan for a new condominium tower since the housing crash in 2008. This was the latest in a string of signals that Miami has climbed from the depths of the crash back to stability. Miami has become one of the stronger residential markets in the U.S. due to investor interest, high-profile downtown redevelopment projects, and foreign investment. While job and population growth contributing to fundamental demand are improving, the primary driver is an almost complete lack of construction to meet external demand.
I recently spoke about the real estate revitalization in Miami-Dade County as part of the Beacon Council’s ACCESS series. The Beacon Council is one of 33 accredited International Economic Development Councils. The council’s primary mission is to expand existing businesses and attract new job-generating investments to Miami-Dade County. Under their “One Community One Goal” long-range strategic plan, the Council’s mission is to enhance Miami-Dade’s industry diversification in the identified target sectors of aviation, life sciences, international banking and professional services, IT & telecommunication, tourism, and logistics.
I was joined by a panel of local residential experts, including Ron Shuffield, President of EWM Realty; Alyce M. Robertson, Executive Director of Miami Downtown Development Authority; and Craig Studnicky, President and Principal at ISG World to discuss what factors were contributing to Miami’s strengthening real estate market.
Watch a video of our Beacon Council ACCESS panel below. Here are some of the highlights:
6:07: Alyce Robertson on downtown Miami’s revival.
12:26: Ron Shuffield on condos versus traditional houses.
22:02: Anthony M. Graziano speaks about trends, statistics, and due diligence necessary to capitalize on the recovery.
35:24: Craig Studnicky on foreign investment in Miami.
Five major trends we identified:
1. Investors’ absorption of downtown condos for rentals
Investor purchases of the 2009 glut of units have reduced for-sale inventory to record low levels in 2013. The price deflation in 2008-2010 attracted all-cash flight-capital based on the rental value of these units. This is now happening in other areas of the county in both single family and multi-family projects. Rental properties are driving the market as buyers (mostly cash buyers) are snatching up the inventory of sub-$200,000 properties, boosting sales numbers in the city.
2. Infill redevelopment is taking off
Due to a declining inventory of developable land in Miami-Dade County, single-family Infill redevelopment will play a major role in the market. Over the next five years, the pace of single-family infill development and redevelopment will likely exceed the total inventory of new single-family projects.
Buyer Demographics are changing: successful new home developments must adjust to the realities of pricing and fundamental affordability. The most active segment will be first time homebuyers given five years of pent-up demand. The difference is that these buyers will be older (30+) versus traditional mid-20’s, and they will be seeking a longer-term hold with home sizes that can accommodate a family. The pricing on these “starter” homes will likely come up into the mid to high $300,000 price range. Pent up demand for new housing is providing a pop in the market for these homes with low interest rates allowing buyers to afford more expensive properties. Affordable housing development will also be very active in the coming 24-36 months.
3. Downtown has been drawing the younger crowd
From 2009 to 2012, the residential occupancy rate in downtown Miami grew from 62 percent to 93 percent. Younger professionals and Trustifarians have fueled the in-city rental growth. Walkability was cited by younger residents as an attractive feature of living downtown, and in response, Miami funded efforts to clean up the streets, plant trees, and remove graffiti to improve the city’s aesthetics. The younger demographic has also supported demand for new downtown retailers, giving rise to Mary Brickell Village, and the planned Brickell CitiCentre project. The incremental success of the Wynwood design district is also drawing attention and a younger crowd of artists, designers, IT firms, and others consistent with the Beacon’s “One Community One Goal” initiatives.
4. Tight supply of available inventory and low interest rates will fuel housing price increases
Over the last decade, condominium sales increased exponentially as sales volumes of single-family homes declined. Limited land availability will continue the trend to more vertical development. Despite the perception that the Miami market has an overhang of condo inventory, more condos and homes were sold last year than any other year in history, and demand is predicted to grow in 2013. The panel agreed that six to 12 months of inventory is the comfort zone for residential real estate inventory, but based on current absorption, there is only an approximate four to five months of inventory currently listed in both the single-family and condominium segments. This will continue to place upward pressure on pricing. Current owners who have been waiting for pricing to return should speak to their Realtors to determine what’s available in their local market.
5. Foreign buyers continue to invest in Miami
Rapidly increasing real estate prices in South American markets have led foreign buyers to invest in comparatively less expensive vacation homes in Miami. Before the real estate bubble burst in 2008, more than 16,000 units were constructed in the city. While many Americans could no longer afford to buy a home after the economy crashed, foreign buyers stepped in to absorb that inventory and simultaneously denominate their wealth in US dollars. Developers are current experimenting with the South American and European finance model of requiring large cash down payments (25%-50%), progress payments at completion of vertical (25%-50%), with the balance due upon building opening and unit delivery. This model has removed the bank’s exposure from funding large projects, but it’s also going to differentiate “branded” developers who have successful track records. Smaller projects like Acqualina have broken new ground, but the effect on absorption in larger downtown projects such as Related Co’s Milecento as an example, are yet to seen.
Despite the different ways in which Miami’s real estate has recovered, each panelist agreed that the Miami market is growing well ahead of the national average, and Miami is in fact leading Florida on a recovery, performing 12 to 18 months ahead of the rest of the state. These statistics have not gone unnoticed, making the market a hot-bed for investment. Multi-family properties are popular among investors, despite nearly zero going-in equity returns, as rental appreciation is expected over the next several years. The Miami Beach retail and lodging markets are poised to deliver outsized returns for those who invested 24-36 months ago. Residential development land owners are poised to see strong upside as the demand increases for new single family development county-wide.
This strong interest in the Miami real estate market is a sign of economic advantage boosted by small gains in fundamental demand, but large gains due to a lack of supply relative to foreign investment demand and continued low interest rates nationally which are boosting current local price growth.