The Miami area condo market has attracted $4.5bn in financing this cycle compared to $11bn last cycle, signaling that there’s plenty of lending opportunity left as more projects rise
When Louis Montello of Regalia Beach Developers broke ground on the Regalia oceanfront condominium residences in late 2011, he was one of the first to do so in South Florida coming out of the recession.
“It was an uncertain time for South Florida’s real estate market, but we were always very confident in the product,” he told Real Estate Capital at the National Association of Real Estate Editors (NAREE) annual conference last month at the InterContinental Miami.
Things have changed. There are currently 355 condominium towers set to reshape the Miami-Dade, Broward and Palm Beach counties, according to market intelligence firm Condo Vultures; 31 are complete, and the rest are being planned or coming out of the ground.
Miami alone, which saw a massive construction boom between 2003-2006, only to bust and cripple the market during the recession, has logged an impressive recovery, absorbing most of that product, adding seven new towers and an additional 25 under construction.
“We are currently on fire,” says Peter Zalewski, founder of Condo Vultures. “In Silicon Valley they make technology; in Miami we make condos.”
Miami is known as a hotspot for Latin American money. “It’s a direct flight,” notes Zalewski. But a wealth of Asian money, most usually associated with New York City, has worked itself into the region as the market picks up after a particularly rough recession.
The shining example is Brickell City Centre, a $1bn-plus shopping and mixed-use project being developed in downtown Miami by the US arm of Hong Kong-based Swire Properties. Just a few blocks south, an affiliate of China Communications Construction Company purchased a block-size site at 1430 South Miami Avenue for $75m, where a condo development may be on the cards.
Though New York City has deservedly garnered much hype over the high-end — and ultra-tall — luxury towers to hit the market post-recession, the number of projects in the works in Miami is unparalleled, with more condos going up and a range of financing options that are just as vast; from banks to specialty finance firms, hedge funds to public mortgage REITs, private equity firms and foreign capital, experts at the NAREE conference said.
“New York City may have the iconic spires, but there’s a lot more condo development in Miami,” said Brian Stoffers, global head of debt & structured finance at CBRE. “The Miami market hit the skids bigtime during the recession, while New York City plateaued. But now most lenders lending in New York City are lending here. The capital is almost ambivalent.”
In Florida, condo buyer deposits can be used as equity towards construction financing, and most developers today require 50 percent down payments, which brings a degree of solace that the market won’t implode as it did eight years ago.
The boost from condo deposits and the influx of foreign capital could turn developers away from seeking loans. Brickell City Centre is privately funded and hasn’t secured any loans or government subsidies, a company spokesperson confirmed. (It is also a 100% spec project, not terribly uncommon this cycle, perhaps showing the depth of foreign capital flowing into the region).
But both non-traditional, “Wall Street-type” lenders and traditional banks, comforted by the 50 percent policy most developers have embraced, have contributed a bulk of the $4.5bn in financing to back this latest condo boom, Zalewski says. The previous cycle saw $11bn, however, signaling that there’s plenty more to come as more and more projects come up.
The Blackstone Group’s lending platform, Blackstone Real Estate Debt Strategies (BREDS), for example, has been bullish on South Florida, most notably providing a $290m construction loan to Fort Capital Management in August for the development of a nine-acre Four Seasons resort at The Surf Club in Surfside, Florida, by which time 60 percent of the high-end residences had been sold.
“The full expectation is [Fort Capital Management] will have enough sold upon opening the building or shortly thereafter to pay down the loan or dramatically de-leverage,” a source familiar with the firm’s operations said at the time about the Surf Club deal.
In December, BREDS provided a $102m construction loan for the development of the Hyde Resort & Residences in Hollywood Beach to the Related Group, the South Florida residential arm of New York City-based Related Companies.
The latter firm developed (pre-recession) the $1bn Icon Brickell, a ten-acre development on the Biscayne Bay waterfront with two residential towers and one condo-hotel (1,648 residential units, 162-room hotel).
Now Related is developing a four-tower megaproject in Miami’s Edgewater neighborhood, where it just landed a $117.5m loan from the real estate investment arm of financial company TPG and Deutsche Bank for a planned 53-story, 272-unit condo tower called ONE Paraiso.
Among other notable deals, in April, NGD Centro, an affiliate of Newgard Development Group, received a $39m loan for the 36 story, 352-unit Centro Lofts in the Brickell neighborhood from a Coral Gables-based company managed by Carlos Acosta Lopez, described in reports as a non-traditional lender.
“You could go in so many different directions in both cities,” says Russell Frahm, a vice president with specialty lender Mesa West Capital, comparing Miami to New York City. “But there hasn’t been anywhere near the level of ground-up condo development in New York City.”
There are some signs of a slowdown, in the Miami market in particular, where land prices have steadily risen on par with New York City figures. Condo sales are likewise slowing. The sales office at Brickell City Centre reportedly attracted more than 100 visitors daily last year, but by June of this year that dropped to just 25.
“If you play by generalities, this all suggests we are deep in the game in Dade county,” Zalewski says, but he notes that developers are simply moving further up along the coast to the Broward and Palm Beach counties. “That foreign buyer still wants to park money. They are packing up and increasingly going that way because the dirt is cheaper.”
Montello’s recently-completed Regalia condos, a 46-story, 39-residence oceanfront building on Sunny Isles Beach, about 30 minutes north of Miami, with its flowing, glassy façade, boasts one apartment per floor; and its Rooftop Penthouse and Beach House are listed for $45m and $35m on a stretch of Atlantic Ocean coastline in Sunny Isles Beach known as “Billionaire’s Row.”
Maybe it speaks volumes when the “dirt is cheaper” in a place called “Billionaire’s Row.” But the project’s original fall from grace wasn’t unlike so many other condo projects that faltered in the Miami area during the recession.
Montello’s original stake in the property consisted of a mere $5m mezzanine loan to the original developer back in 2007, a loan that sat atop a roughly $38m of senior debt from Minnesota-based Bank First. When the recession hit, Bank First was taken over by the Federal Deposit Insurance Corporation (FDIC), which flipped the loan to Texas-based Beal Bank.
Under a newly-formed firm, Regalia Beach Developers, Montello in March of 2011 closed on the purchase of the first mortgage from Beal Bank, taking control of the project, breaking ground that November and ultimately using a combination of buyer deposits, an undisclosed amount of private capital and a loan from C1 Bank to complete the project.
“In 2011 there was no new construction,” Montello recalls. “I remember the day we did the foundation pour. It was a Friday night, so I was wondering if the cement pourers would be upset with me, but they were so happy.”