Miami's Real Estate Boom: Too Good To Be True?

Every Monday, Mirielle Enlow, executive vice president of operations for Keller Williams in Miami Beach, gathers her top real estate agents for a meeting that she calls the Millionaire Mega-Agent Mastermind.

With South Florida now experiencing a well-publicized real estate boom characterized by top-dollar prices and fierce competition for homes, you might expect Enlow's agents to be thrilled. But many of them are fearful.

"[They say,], 'Oh my God, I feel like it's 2008 again. Oh my God, I feel it coming, it's going to pass,'" Enlow said during a Bisnow webinar on March 31. "I'm like, 'Guys, this is so different. These are real people moving here. They're not speculators. They're not coming in to flip it and then flip it again like they did back then. These are real people moving here that have real jobs, that have equity."

During the Future of Waterfront Development webinar moderated by Sandstone Realty Advisors founder James Fried, Enlow and other commercial real estate professionals discussed the forces shaping the current real estate moment. Is this a stretch of sustainable growth or the boom side of another wild boom-and-bust cycle?

"Everybody's coming to Florida because it's open," said Peter Zalewski, principal of Brickell Ventures and Condo Vultures. "Everybody always comes to Florida. The question is: Do they stay?"

PTM Partners CEO Michael Tillman said that in the single-family home market, "There's no inventory and prices have reached highs that we haven't seen in 30-plus years."

Condos, too, are in high demand.

According to Douglas Elliman's most recent New Signed Contracts report for Miami-Dade County, single-family home sales increased by 47.2% in March compared to the same period in 2020, while condo sales rose 338.9%. Zalewski said that circa 2008, part of the reason that condo prices collapsed was that Wall Street had been buying 51% of units in buildings in order to control homeowners' associations.

"The foreign investor basically picked away at it and they never got the critical mass, so they went horizontal. ... They went up to the suburbs and got involved with single-family houses, which is part of the reason we have this lack of inventory," he said.

When large funds decided to release chunks of condos at once, it created a flood of supply, he said. That's not happening now. Also, as the market recovered from the Great Recession, area developers began to require 50% deposits on new-construction condos, which prevented people from backing out of contracts and has kept supply in check.  

Still, Zalewski offered some words of caution. Developers of One Thousand Museum, a luxury project in downtown Miami that was designed by Zaha Hadid and has some high-profile owners, have not been able to sell all the units even after five years. They recently refinanced the remaining units with a condo inventory loan to narrowly escape foreclosure.

"You've got to wonder: How strong is the market for luxury?" Zalewski said. "Even if David Beckham lives there? How strong is the market if you can't sell a building in five years?"

He warned that anyone coming to Miami should be trying to buy slightly above replacement costs.

"I'm not sure that this is the space to be buying at this moment in time, given the lack of foreign nationals that are currently playing, and the crackdown by the Fed on money laundering," he said, referring to the federal FinCEN program tracking all-cash transactions that have skewed the market.

To gauge the ongoing strength of the market, the panelists suggested watching the office sector to see whether only high-profile executives move to South Florida, or companies make major relocations with big staffs. Recently, Blackstone announced plans to hire 200 people in Miami and Subway inked a new office space for 100 employees. Lease rates have stayed relatively stable during the coronavirus pandemic, and Miami is the only market in the country projected to see office rents grow over the next two years, according to CBRE.

Tillman suggested that there will always be opportunity in middle-income and affordable housing.

"You have a lot of luxury product out there. We don't know how big that demand is, but we do know for sure the need for accessible housing," he said. "More than a third of the people who live here are cost-burdened, meaning over 30% of their income is going towards rents."

He said more public financing is needed to build affordable product but opportunity zones can help entice private capital. 

As for hospitality, Highgate Managing Director Richard Millard referred to his firm's buyout of Colony Capital's hospitality portfolios.

"We closed on a $2.8B purchase of 197 hotels the middle of last week, so we definitely think the hotel business is not bad," Millard said.

People were too quick to assume hotel prices would collapse during the pandemic, he said. He doesn't foresee many hotels being converted for other uses.

"We don't believe we're going to park all the airplanes somewhere and make them affordable housing because the airline business is going out of business," Millard said. "There won't be a paradigm shift. We're still going to go on vacation. We're actually going to go on cruises, too, by the way."

Of course, all of the sectors will have to face challenges related to climate change and sea-level rise.

On a separate panel, Neology Life Development Group CEO Lissette Calderon, who has pioneered developments in Allapattah and along the Miami River, said that so far, during the underwriting process, lenders and partners have not pressed her firm much about its resiliency plans or sea-level rise.

Individual developers need to think about that proactively, she said. Her firm intends to hold its portfolio long-term, so in the early stages of planning, her team considers factors like foundation heights and site drainage and how that will affect future financing and insurability.

Crescent Heights Managing Principal Russell Galbut pointed out that he recently secured a $345M construction loan to build Five Park, which at 519 feet will be the tallest building in Miami Beach. It will incorporate a 3-acre public park and is possible with smart design and city leaders who are planning for long-term resiliency, he said.

"It takes a great deal of intelligence and a great deal of determination because you're always dealing with CAVE people," Galbut said. "CAVE stands for Citizens Against Virtually Everything."

The webinar also featured Bilzin Sumberg attorney John Chibbaro, Miami-Dade County Chief Resilience Officer James Murley, Delos founder and CEO Paul Scialla and GFI Development Co. Vice President Andy Ashwal.