Miami’s condo euphoria treads a historically familiar trail
Written by Michael Lewis on June 4, 2014
If you’ve been around Miami at least a decade you recall the euphoria that’s causing condos to spring up faster than we can count.
“At this rate, we’ll have 12,000 [units] just this year,” architect Willy Bermello told fellow members of the Miami’s Urban Development Review Board two weeks ago as more than 1,300 units in four unrelated towers sought approval.
Mind you, he only tallied what’s about to rise inside the city of Miami, the county’s hottest but not only boom area.
As with all of Miami’s many booms, this one has unique elements, the reasons those caught up in the cycle use to assure anyone worried about a bubble that “this time is different” – which is always true right up to the point that it isn’t.
This time indeed differs from the bust eight years ago: buyers now finance construction, not the banks that did it last time and certainly not developers, who for years have operated on OPM – other people’s money.
So if condo values should ever fall – and it’s a safe bet that they will by some percentage someday – it’s the buyers who’ll be losers, nobody else.
And since most buyers are foreigners who rent out their units, bankers and developers take comfort, telling us that none of us will get hurt if the bubble bursts.
Nobody wants to talk about this, because lots of jobs and income are at stake. Why shake up the market?
Well, nobody wanted to talk about it in the past decade, either. In fact, nobody ever wants to talk about it.
Last decade, the global economic slide left more than 20,000 unsold condos in the county. We all thought they’d linger on the market – but fortunately the current boom soaked them up, leaving a hunger for more.
Developers are more than happy to feed that hunger. They are feeding it quickly. In downtown alone, 49 projects with 16,843 units are listed in preconstruction, though in their frenzy developers may already have begun some of them.
Thankfully, they’re building high-quality buildings. They will fill a need. Condos won’t go begging. The only question is, at what price? How long will it take foreign buyers to regain their full investments in sales or to rent profitably long term?
At the right purchase price, these units are all solid investments. But defining “the right purchase price” is tricky as the frenzy sends the sale price per foot of new units soaring.
Before the last bust $300 per square foot defined a luxury condo. The same units bring more than $600 per foot today. New condos are pricing well above $1,000 per foot – and getting their price.
The Miami Real Estate Gold Rush is an old story. Back in January 1926, Harper’s Monthly Magazine ran a long tale of it by Gertrude Mathews Shelby that I read in a college class, when I marked passages about her dealings here in 1924 and 1925:
Florida land buyers “found themselves in the midst of the mightiest and swiftest population migration of history – a migration like the possessive pilgrimage of army ants or the seasonal flight of myriads of blackbirds. From everywhere came the land-seekers, the profit-seekers. Automobiles moved along the 18-foot-wide Dixie Highway, the main artery of East Coast traffic, in a dense, struggling stream.”
And “On a street corner a woman selected a choice lot from a beautiful plat shown her by a complete stranger and paid him $1,500 in crumpled carefully hoarded bills. He gave her a receipt, but vanished. There was no land.”
Don’t get me wrong: today’s sales are no con jobs. The condos are real, beautiful, useful and valuable – at least, they are today.
Back in the early 1920s, most of the sales were also real, with the values then rising as much as 25% in a day, as Ms. Mathews Shelby documented. She claimed to have multiplied her own money when she quickly sold.
But less than a year afterward, the hurricane of 1926 wiped out much of downtown Miami’s value. That and the stock market crash of 1929 so far depreciated the worth of what she and others had owned downtown that prices didn’t return to their 1926 level until the 1950s.
All of us, condo buyers or not, face the reality that hurricanes do hit South Florida. We face the danger that sea levels are not set in stone. We face the fact that national and international economics are interlinked with Miami’s as never before.
Condo buyers in the city’s core also might consider that while we are adding tens of thousands of residents and their cars, we aren’t adding parking for everyone or new streets for anyone. And the county is decades behind on waterworks and sewerage.
New condo towers also displace what in the 1920s buyers flocked to Miami to enjoy: the environment. Downtown’s green space is gone, Brickell’s is going fast.
In this edition we detail a plan to add 1 million orchids in the community. Let’s hope they’ll thrive on the outer walls of condo towers. Lots more walls will soon be available.