Shoo, Vultures! Florida Won’t Have Another ‘Bloodbath,’ Developers Insist
For two years now, Douglas Elliman Florida Brokerage CEO Jay Parker has been hearing investors tell him they are waiting for Florida’s real estate market to plummet again.
“‘Oh, there’s going to be a bloodbath! I’m waiting! I’m going to take advantage when it collapses,'” he said investors tell him.
Those would-be vultures are out of luck, several major real estate executives said during a panel at Bisnow’s South Florida Forecast event in Fort Lauderdale. Market forces — and a whole lot of cash — will insulate the region from the type of tumult it experienced around 2009, they said.
“The thing to understand this time versus last is that there’s so much equity already in the deals," said Miami Worldcenter Associates Managing Principal Nitin Motwani, who is developing a $2B project downtown. "There’s so much sophistication from developers, whether from New York or international. There has never been more money raised, in more institutions and high net worth folks watching in Miami. If there’s a 5% dip, they dive in and buy something! There’s so much money looking at this market right now. They’ve all been waiting for this '09 event, which isn’t going to happen.”
“There’s this notion of a cyclical market — that we’re going to continue to go up, and then crash, then come back and then crash,” Parker said. “Maybe that’s what we’ve been used to, or in our lifetimes we’ve seen, but in fact, there are many markets throughout the country that have been on an upward trajectory for 20, 30 years.”
Condos that used to sell 10 units per month have now slowed to two or three per month. That is still a strong, healthy pace, the panelists said. Whereas in the wake of the housing crisis, developers scrambled to unload units — or entire projects — they are now holding out for prices they want.
LeFrak Director of Florida Development Michael Tillman, who is working on the $4B SoLeMia project with Turnberry Associates, said that attitude would hold, largely because the structure of capital stacks has changed and developers and banks are not overleveraged.
“There’s a lot more equity in these deals,” Tillman said. “There’s a lot more intelligent financing coming to the market that is not blind lending, not based on very aggressive pro formas, not making land loans with people with no experience. The due diligence process in getting financing now is extraordinarily difficult, no matter where you are in the developer spectrum.”
“If you open and it’s a little bumpy, and you’ve got 60%, 50% leverage, you’re fine as long you have strong capital," Motwani said.
Faisal Ashraf, who is on track to execute $2B in financing this year with his Lotus Capital Partners advisory firm, dismissed discussion about South Florida's oversupply as "noise," but said there is a double standard in perception about Florida.
"If there are 10 projects not getting off the round in the Tri-State Area in New York, you don’t hear about it," Ashraf said. "If five in South Florida [don’t], everyone is writing about it.”
“That’s the New York developers trying to deflect attention,” Motwani added.
Ashraf said that some submarkets might have some oversupply, but secular trends like migration and purchasing power keep South Florida, in the long run, a "phenomenal market.” But he added a slowdown in which planned projects do not get built would be a good thing for the local market.
"A series of healthy corrections are what is needed so you avoid the next catastrophe," he said.
Parker said some developers who are working on smaller projects, or who had started late in the current cycle, might need to reposition their assets to resize units or change the complexity of their projects. They worried about that being interpreted as failure, but he said that perception is misguided.
“Repositioning is actually a very healthy thing, and something we should embrace rather than see as something negative,” Parker said.
Parker said ultimately, tax reform will drive the uber-wealthy to Florida, and as baby boomers get older, they too will naturally move south.
“The bigger trend that you didn’t see previously was the filling in of the culture,” Tillman said. Whereas five years ago, a bulk of condos served as out-of-towners’ investment properties, more are now opting to live in Florida full time, thanks to a burgeoning arts scene, new restaurants, major sports teams and museums.
“We’re in a very, very exciting position,” Parker said. “Overbuilt? Absolutely not.”