Marc Shuster, Berger Singerman
Iryna Ivashchuk, Berger Singerman
Miami’s multifamily market now ranks among the country’s strongest overall performers (if not the strongest). The city attracts, and benefits from, numerous tourists, investors, financial institutions, real estate funds, retailers and tourists from countries around the globe. The demand for condominiums and apartment buildings in Miami seems insatiable with the investors competing for increasingly scant deals. In practical terms, that means hotel and office developers often lose out across asset classes to the “ever-on-fire” multifamily sector. There is every indication in the first quarter of 2015 that Miami’s multifamily market’s upward trend will continue.
Debt and equity continue to stream into the Miami-Dade County apartment and condominium sector from both local sources and out-of-area buyers attracted to solid asset performance and robust housing demand generators. Continued employment and population growth have bolstered housing demand as the overall Miami economy strengthened in 2014.
The Miami metropolitan area added more than 30,000 jobs last year, and based on figures from the Bureau of Labor Statistics, Miami-Dade County’s unemployment rate continued its downward trend to 5.4 percent in February 2015. According to the Florida Bureau of Economic and Business Research, South Florida’s population is expected to increase by approximately 29 percent between 2013 and 2040. Residential occupancy has been highly sustained at roughly 96 percent or better for four full years in the Miami area. Demand for rental housing and the positive employment is giving multifamily landlords the ability to raise rents as leases expire.
The flood of residents moving into existing multifamily projects is encouraging developers to break ground on new apartment and condominium projects. The vast majority of new apartment construction is urban and high-end (Class A-plus) that targets rents at or above $2,000 per month.
The international flavor of the development culture in Miami is unmistakable. Miami is the prime example of the power that foreign direct investment can exert on a city’s skyline. Latin American, Canadian and Eastern European investors continue to gravitate to the Miami multifamily scene looking to create returns through rentals and appreciation. Aside from the currency volatility in home countries, part of the Miami lure are more reasonable costs and rental rates, which are seen as a tremendous real estate “bargain” compared to those in London, Paris, Tokyo, Hong Kong or New York. Luxury condominium projects in Miami are targeting in excess of $2,000 per square foot, and even if certain projects do reach $3,000 per square foot, the cost is still much lower than, for example, the $5,000 to $5,500 per square foot for New York’s luxury condominium units.
Due not only to the lower level of confidence in the buyers after the economic crisis of 2008-2010, but also the cash-wealthy foreign buyers, the deposit structure has changed tremendously over the last five years. Developers have begun to adopt a model of real estate finance in which a buyer pays almost half the cost of a pre-construction unit. The model is also well-suited to Miami’s real estate clientele, many of whom are looking to move cash reserves from South America’s and Eastern European volatile currencies into U.S. real estate. Only a quarter of Miami condo buyers take out mortgages, versus 70 percent nationwide, and only one in 10 new units is purchased as a primary residence.
To justify the 50 percent deposits that became standard and to attract both domestic and foreign buyers, the developers go out of the way to offer over-the-top luxury amenities that would make the extra investment seem worth it to high-net worth individuals. Today’s condominium buildings are not just offering the high ceilings and European appliances, but robotic systems that park cars next to an owner’s unit, ocean-side golf courses or high-tech home automation systems.
Between the international money flowing in and companies positioning themselves to benefit from port projects and trade, Miami is a market like no other in Florida. Miami’s multifamily market will most likely continue to grow for years to come based upon international appeal, while the oceanfront market will continue to grow until there is no more undeveloped land. Demand is expected to outpace supply in the forecast horizon with the vacancy rates staying low in the next several years.
— By Marc Stephen Shuster, Partner, and Iryna Ivashchuk, Associate, Berger Singerman. This article originally appeared in the May 2015 issue of Southeast Real Estate Business.