Will Miami Luxury Real Estate Developers have a Long Memory?
Miami would do well to think about the lessons learned from the last condo boom-and-bust cycle that caused utter destruction to real estate values, mangled developer reputations, and decimated lenders’ balance sheets over the next few quarters of the current market.
Luxury real estate professionals with the ability to think with clear heads about the Great Recession could get a foot up on the competition. Those who are veterans of the previous cycle should still feel the sting of previous luxury real estate gambles.
More than two-thirds of the 21,800 new condo units that are proposed for Miami and its surrounding areas are to be developed by individuals and groups that were around during the last cycle, which ended with a huge crash in values in 2007.
Many of today’s Miami luxury real estate developers were stuck with unsold new condos, some that were recently completed and still under construction, when the real estate market began to go south five years ago. Some, gasp, even taking hits to their personal wealth.
The feverish scramble for current luxury Miami preconstruction real estate projects clouds the recent history when developers were not able to get buyers to close on their contracts even with 20% down. Many of those buyers were speculators making deposits on multiple units during the boom.
In a market that was being flushed away, luxury developers were forced to battle it out while competing for a small supply of buyers and loans. Some of the same developers are today commanding record prices for luxury Miami preconstruction. Back then, they were forced to slash prices, offer incentives such as cash allowances for interior design and even release buyers from multiple contracts if they agreed to close on one deal.
When all else had failed, luxury Miami real estate developers were instructed by the courts to negotiate a workout with lenders or else lose the condo units.
It almost always didn’t actually come to that. In order to pay back the construction loans, the luxury real estate developers who chose to work with their lenders were allowed to collect fees associated with managing the buildings and broker sales of the remaining units. They didn’t make out like bandits but they made it through.
Edgardo DeFortuna’s Fortune International had to lower prices at Jade Ocean from over $1,000 per square foot to an average of less than $715 per square foot, according to county real estate records.
Prices had to be slashed to sell off the 530 units at Mint, a luxury tower on the north bank of the Miami River. With presales at $600 per square foot, it took Ardid nearly four years to sell out. Average prices ended up dropping to $320 per square foot.
Original buyers at Terra Group’s 900 Biscayne Bay in downtown Miami had to wince as they paid as much as $850 per square foot, when at the end units went for an average $445 per square foot.
Well-known international builders have been drawn to the new booming market in Miami. Will these new players and the old ones remember and learn from the lessons of just a few years ago? Only time will tell.
Andres Leiser is a local contributor for Constec Realty’s Miami luxury real estate website. Andres Leiser has been involved in Miami real estate for over a decade. For more information please visit http://www.constecrealty.com
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