Downtown Miami Investors Focus On Land Deals


Posted on Sun, Aug. 21, 2011


Developable land suitable for future condominium towers has replaced blocks of units in troubled projects as the primary focus for large investors searching for distressed deals in the Greater Downtown Miami market.

Investment groups have intensified their efforts in 2011 to purchase developable sites — especially land that had previously been earmarked for new towers — in preparation for the next wave of new condominium development in Greater Downtown Miami, even if it may be years away.

In the first seven months of 2011, investments groups have purchased the deed or mortgage to at least 10 condo development sites for nearly $300 million. This year’s activity follows the sale of at least six development sites for $20 million in 2010, according to Miami-Dade County records.

This year’s developable land deals range from the $236 million paid to acquire the waterfront Miami Herald land at 1 Herald Plaza, the $14.8 million deal for the Coral Station At Brickell Way site at 1420 SW 1st Ct., the $14 million purchase of the land where the Brickell Tennis Club operates at 637 S. Miami Ave., to the acquisition of a 78,200-square-foot development site of the once proposed Cima condo at 24 SW 4th St. on the north bank of the Miami River.

In total, nearly 125 development sites exist in a 60-block stretch of Greater Downtown Miami that spans from the Julia Tuttle Causeway south to the Rickenbacker Causeway, Interstate 95 east to Biscayne Bay.

Investor interest is being propelled by intensifying rental, resale and new-sale activity over the last 18 months.

Renters are leasing condos in Greater Downtown Miami at a pace of 360 units per month in 2011, leaving the area with less than two months of available inventory, according to data from the Florida Association of Realtors.

The strong leasing activity has worked to increase the median rental rates for condos by 5 percent to $1.82 per square foot per month as of June 30. An 800-square-foot condo with one bedroom is renting at a median price of nearly $1,500 per month.

Condo resales by quantity per month in Greater Downtown Miami are up 25 percent in the first half of 2011 compared to the year 2010.

In the first six months of 2011, buyers acquired nearly 925 condo resales — a pace of 154 transactions per month at a median price of $197 per square foot.

In 2010, buyers purchased more than 1,475 condo resales — an average of 123 units per month — at a median price of $195 per square foot. In 2009 they bought more than 1,200 condo resales — an average of 100 units per month — at a median price of $191 per square foot.

As of Aug. 15, there are 1,515 condos — about 10 months of inventory at the current resale pace — in Greater Downtown Miami on the resale market at a median asking price of $323 per square foot.

New condo sales are also on the rise in Greater Downtown Miami.

In the last 18 months, individual buyers and equity groups have acquired nearly 5,000 new condos, reducing the number of unsold developer units to less than 2,300 as of June 30.

At the current sales pace of 200 new units transacting per month, Greater Downtown Miami has about 12 months of remaining developer inventory out of the nearly 22,250 units created during the real estate boom that began in 2003.

The unsold new condo total does not include the more than 1,200 units that have changed ownership — either bulk deals or bank repossessions — and are now being marketed for resale on an individual retail basis by the successor owners.

Despite the encouraging activity, obtaining construction financing for new condominium construction is a major issue. For example, the developer of the proposed 23 Biscayne Bay condominium east of Biscayne Boulevard has begun construction of the 18-story tower using his own funds.

To improve their chances of securing construction financing for a new project, developers who want to build now are asking prospective buyers to place deposits — in phases — of between 30 percent and 70 percent prior to the condominium tower being completed. The staggered deposit approach, common in Latin America, assists the developer in funding the construction, thereby lessening the importance of the lenders.

Compare today’s climate to the condo boom of a few years ago when developers normally collected 20 percent deposits from preconstruction buyers. Once a developer obtained preconstruction contracts with 20 percent deposits for half of the units, lender consortiums would typically provide financing for about 70 percent of the development cost.

Given the difficulty that condo construction lenders have experienced since the crash, many financiers are skittish or even defiant about financially backing new projects in South Florida, especially in Greater Downtown Miami.

In June a lending consortium took title through the foreclosure process to the nearly 350 units in the new Paramount Bay condominium tower after a lengthy court battle. The lending consortium of Paramount Bay was owed nearly $221 million on a project where the construction cranes were removed nearly three years earlier in October 2008.

Even with the recent experiences from the real estate crash, an increasing number of equity groups are once again willing to bet their investment dollars that construction of new condominium projects could sometime soon be viable again in Greater Downtown Miami.

The unanswered question is whether preconstruction buyers will make that wager.


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