Miami Multifamily: Next Crash Won't Be So Bad
Rents are rising, lenders are competing on condo deals, land’s trading at high prices, cranes are everywhere—the state of Miami multifamily is clearly robust. But for how long?
Our speakers at Bisnow’s Miami Multifamily Summit at the Hyatt Regency this week wrestled with this topic. The conclusion: it's tricky. Demand for both rental and for-sale properties is strong, fueled by Millennials and eager condo investors with cash. Also, any downturn this time is likely to be a slowdown rather than a crash, because of the more conservative way deals are structured. (People may still be wearing barrels, but only because it's become fashionable.)
Franklin Street regional managing partner Deme Mekras and Grass River Property principal Chris Cobb. One thing that’s different about this expansion, our speakers noted, is that Miami is experiencing what it’s like to be a big city on an international scale: an influx of people and capital from around the world, infrastructure growth, world-caliber arts and dining, and more. Both domestic and overseas investors consider Miami in that light, yet they still see land and other investment opportunities here as a bargain compared with the likes of New York and Hong Kong.
13th Floor Investments managing principal Arnaud Karsenti and Related Development CEO Steve Patterson. Another recent change for Miami multifamily is that flight capital isn’t quite what it used to be. Family offices and other overseas investors now have some return expectations, not just a belief that Miami’s a convenient and safe place to stash some capital. But they also tend to have a long-term outlook and, as equity investors, are thus less worried about the inevitability of real estate cycles.
Hunt Mortgage Group SVP Marc Suarez and ADD principal Rachel Cardello. The economics of development will, for now, favor condos, the panelists explained. Buyers are contributing a lot more equity than they did in the mid-2000s, so from the point of view of the developer, that’s like getting free money to build that product for a number of years. That dynamic won’t last forever, but while it does, the capital in the system today is a point of health. When a downturn comes, there will be stalled projects and lawsuits, but probably not to the degree of the post-recession crash.
Bilzin Sumberg partner Jim Shindell, who moderated. On the rental side, South Florida is one of the least affordable housing markets in the country; costs are increasing 8% a year, while incomes are barely up 1% a year, the panelists said. That means affordable housing is, and will remain, a stubborn problem. Even Class-B and -C apartments are becoming less affordable. Another bit of uncertainty is how many investor-owned condos are actually being rented and for how much. There’s no data on that, but it could have a major impact on new rental properties, say, just outside Brickell.