For the data wonks that we had promised to provide some numbers with analysis, we apologize for the delay but we will get to it! But first, an article hit the newswires that we had to comment on: “Florida’s Condo Bust Hits the Courts.”
The early August article, first published in the Wall Street Journal, depicts the situation in which condo owners and developers are squaring off in the court system over forced sales under a law that initially intended to allow for hurricane-damaged condo complexes to be rebuilt quickly.
Without belaboring this heavy topic, we want it told here and now and early, that the next condo bust is going to be bigger and deeper and more painful than the bust spurred by the 2007-2008 market collapse.
We find it interesting that the current condo boom is being played out while some of the participants in the previous boom work out some “legacy issues” as they say.
What’s amazing is that the last boom ended only six years ago and the sky fell. And here we are again watching cranes pop up like weeds over the Miami skyline. The difference is that the current boom is fueled mostly by offshore cash buyers. No one is asking where that money came from…just like in the 1980s. “Say hello to my little friend,” anyone?
Like the guys on TV’s reality show, “storm watchers,” we’re re-launching the Morris Southeast Blog with a post on Miami’s condo craze. After all, condo development is the big story in South Florida real estate and we intend to track it.
However, we are mostly interested in how all the residential condominium building is impacting the overall economy and the commercial real estate office market. Concerning the latter, so far the nexus between condo sales and the commercial office vacancy rate has mostly been a case of “where’s the beef?”
Pause. For younger readers that missed the 1984 TV commercial, or for people that were alive and well then but had tuned out, Wikipedia offers this definition for “where’s the beef?” It is “a catchphrase in the United States and Canada. The phrase originated as a slogan for the fast-food chain Wendy’s. Since then it has become and all-purpose phrase questioning the substance of an idea, event or product.”
In the last two years, 25 new condo projects have been announced in the downtown area, although it is far from certain they will all be completed. Within sight of Brickell CityCentre alone, eight residential buildings are under construction, including three being developed by the Related Group, an affiliate of the Related Companies of New York.
The latest condo boom, bear in mind, is in the wake of the pre-recession addition of 22,000 condo units created in downtown Miami during the previous boom, of which only about 600 remain unsold – thanks mostly to an influx of Latin Americans seeking a safe haven for their money. Yet it hasn’t been just the Latin American nationals buying condos – Canadian snowbirds and investors, Russians and some Europeans are South Florida condo owners now, too.
Offset this with the fact that Miami’s office vacancy rate in the financial district is hovering near 17% according to CBRE, which is only a few points lower than it was at the depth of the recession.
Which means, Miami might be adding owners to condominium projects all over Miami, but so far there isn’t much evidence that more condo sales are translating into significant population growth, and they certainly are not creating many new jobs. Jobs, remember, are what we need to fill office space.
When we return to “Condo Craze,” we’ll take a look at employment data and population growth trends in South Florida. And of course we’ll tell you what we think it means. We will not, repeat, will not, tell you what we think of LeBron going back to Cleveland.