The Miami Downtown Development Authority — a public taxing agency responsible for promoting economic investment in the area — should be applauded for knowingly releasing at this time of year a new 44-page study with a bearish outlook about the future of the local condo market.
To its credit, the Miami DDA released the report today — right in the heart of the winter buying season — rather than delaying the release date until sometime this spring when the impact of the study could have been lessened dramatically.
It is doubtful that the Miami DDA’s “Greater Downtown Miami Annual Residential Market Study Update” for 2015 would have created the same number of gasps from developers and brokers and “I told you so’s” from buyers on social media, if the report would have been released on, say, the Friday before the Memorial Day weekend in May when many locals are headed out of town. (For disclosure, my firm was deemed qualified in an application process by the Miami DDA in 2013 to conduct market research but we have never submitted any bids since then to perform consulting.)
The Miami DDA should also be recognized for declaring that the Greater Downtown Miami condo market can absorb an estimated 2,000 new condo units annually at a time when developers have more than 22,200 units — or an 11-year supply — in the “pipeline,” according to the study.
It is worth noting that nearly 1,050 additional new condo units have already been completed in Greater Downtown Miami that are not part of the “pipeline” total. It could be argued that the newly completed units are contributing to the mushrooming supply of condo resale units currently available for purchase.
(By our estimates at CraneSpotters.com, the number of new condos announced for Greater Downtown Miami currently stands at nearly 19,600 units as of Tuesday. We will be reviewing the Miami DDA study to see if any cited projects should be added to our database of preconstruction towers that have been announced since this cycle began in 2011.)
During the last real estate cycle, developers created — by way of either new construction or condo conversions — more than 22,200 units in Greater Downtown Miami between 2003 and 2010, according to an assessment of Miami-Dade County records.
Overall, the Greater Downtown Miami market already had nearly 34,000 units, even before the start of this new preconstruction condo cycle.
It also took courage by the Miami DDA to reveal that international buyers account for about 85 percent of the Greater Downtown Miami preconstruction condo market at a time when presale prices are rising to reflect higher construction costs and foreign currencies are weakening, effectively resulting in higher prices for international buyers.
Concurrently, domestic buyers — especially local buyers who can afford the monthly costs of owning a new condo unit — tend to be either “unable or unwilling to contract on a unit under the 50 percent deposit structure,” according to the study.
The revelation, which confirms the shortage of domestic buyer involvement — representing some 15 percent of the market — in Greater Downtown Miami, at a time when foreign buyers are increasingly financially strapped, makes it “most likely” that some condo projects could be canceled in the upcoming months, according to the study.
In what may be the most difficult conclusion of the study for developers, brokers and service providers to accept, the Miami DDA report suggests that the industry must prepare for the probability that some preconstruction condo towers will not get built despite the amount of time, effort and capital already invested into launching the projects.
“Shelving the development plans before construction commences is not a failure, it is prudent,” the report states.
For all of its refreshing straight talk about the Greater Downtown Miami preconstruction condo market, the Miami DDA report appears to underestimate the possibility that the number of new condo units available for purchase could jump substantially if developers convert a number of the nearly 6,700 apartment units — about 3,000 units of which are currently under construction — announced for the area.
Given the “big barrier” created by 50 percent deposits, it seems possible that some prospective buyers would consider purchasing a unit in a new rental building that has been converted into a condominium.
The unanswered question going forward is whether the Miami DDA will reach the same bold conclusions in future reports about the Greater Downtown Miami market, given the backlash that is sure to result from the condo development industry in the upcoming days, weeks and months.
Peter Zalewski is a real estate columnist for The Real Deal who founded Condo Vultures LLC, a consultancy and publishing company, as well as Condo Vultures Realty LLC and CVR Realty brokerages and the Condo Ratings Agency, an analytics firm. The Condo Ratings Agency operates CraneSpotters.com, a preconstruction condo projects website, in conjunction with the Miami Association of Realtors.