Developers Build Thousands Of Miami Condos With Investors, Not Homeowners, In Mind
Tourists headed to Miami for vacation have no trouble finding a place to stay. For residents of the city, the story is a little different.
Short-term rentals have proliferated across Miami as developers race to meet demand that surged during the pandemic. More than a dozen properties have been proposed or broken ground, even as the state and local governments work to incentivize affordable housing development to alleviate an affordability crisis in coastal cities across the state.
“It would be a lot more helpful for the housing problem that we have to build true apartments or true condos — true housing,” said Eli Beracha, a professor and department chair at the Hollo School of Real Estate at Florida International University. “But the developers are giving the market what the market is asking for, and right now the market is asking for investment opportunities in a hot city like Miami.”
Demand for short-term rentals has remained strong even as other commercial real estate sectors face challenges, developers and operators said. New developments in Miami frequently sell the majority of their units before construction begins and developers say they’re able to command a premium as much as 40% higher than a traditional condo.
At least 4,312 short-term rental units across 12 projects have been proposed or started construction in Miami just since November, based on an analysis by Bisnow.
The properties traditionally offer smaller units and luxury amenities designed for vacationers, and while some buyers may opt to live in their units most of the time, the majority are purchasing the condos as investment properties.
“Buyers like it because it's flexible,” said Harvey Hernandez, the founder and CEO of Newgard Development Group, which has two short-term rental properties under development in Miami. “They don't know where their lives are going to be in three years when the product is delivered. So if they decide to live in it, they can. If they decide never to use it, they can. If they decide to use it for 20% of the year — say the wintertime, and the rest of the year monetize it — they can. Flexibility is the name of the game.”
“The times of the consumer buying an asset that they cannot monetize are over,” Hernandez said.
Newgard started the short-term rental trend in the city with its Natiivo project in Downtown Miami, Hernandez said. The 51-story tower broke ground in 2021 with more than 60% of its 448 fully furnished units already sold. The remaining units sold out in the first six months of construction, well before the property’s planned completion in the third quarter of this year.
Newgard’s second short-term rental project in Miami, a 44-story tower called Lofty Brickell, broke ground in January. Sales have been strong, Hernandez said, with fewer than 30 of the property’s 288 units still on the market.
Both projects integrate full-time management that provide the services that have traditionally fallen on Airbnb owners looking to rent their units. Operations like check-ins, turndown service and cleaning are handled in-house, allowing unit owners to generate revenue at their property without having to be anywhere near it.
The rising interest in short-term rentals led developers Property Markets Group and Greybrook Partners to convert a planned, 49-story apartment tower called Society Residences Miami into the Elser Hotel and Residences, a 646-unit short-term rental project in Downtown Miami.
Brian Koles, the senior director for corporate development at PMG, said market dynamics forced the developers to transition to short-term rentals. He pointed to rising construction costs, shifts in the availability of financing, the ability to increase operating revenue and cap rates by offering short-term rentals, and strong demand for fully furnished units as the main drivers that led to the property’s conversion.
“It's part the financing cost, part the construction costs, and also insurance costs have risen dramatically to where it is very difficult to develop a multifamily project with today's costs,” Koles said. “Starting from scratch right now, it's very challenging.”
The Elser opened in November and PMG announced in January that it had closed on $80M in sales at the property in less than 60 days, with 75% of sales coming from Colombia, Mexico and Chile.
The Elser also offers in-house hotel management services and a centralized booking process as part of an operational partnership with condo owners that has become the standard for short-term rental developments not just in South Florida but nationwide. As demand grows, a whole industry supporting the growing short-term rental market has begun to sprout.
Nicholas Falcone, a hospitality industry and real estate investor, created Rentyl Resorts in 2015 to provide full-service management of short-term rental sites. The company helps develop plans for sites, has an in-house sales team and manages the rental process for owners.
“When we first founded the company seven or eight years ago, there was little to no demand for this type of management,” Falcone said. In recent years, however, Rentyl Resorts has “seen tremendous demand. We're seeing it everywhere now and the demand is off the charts.”
His firm, which started with two properties in Orlando, is now involved with more than 50 developments across the globe including the Conrad Fort Lauderdale Beach and the DoubleTree by Hilton Grand Hotel Biscayne Bay in Miami.
Falcone said South Florida remained a growth market for Rentyl Resorts. His firm is gearing up to begin marketing short-term rental projects at Miami Worldcenter, the $6B multiphase development spanning 27 acres in Downtown Miami. The master-planned development is being built by Miami Worldcenter Associates, which is led by Nitin Motwani and Art Falcone, Nicholas’ father.
“As developers, we're very big on looking at how we can maximize our products or site plans,” Nicholas Falcone said. “And this has been one area where, as time has gone on and things have progressed, we have realized that having that type of thing in Miami, especially downtown, would really be extremely feasible.”
Miami is already inundated with vacation rentals. The city has 6,962 Airbnb listings, according to a study from ChamberOfCommerce.org, or 1,478 per 100,000 residents, the highest number of listings per capita in the country.
The rising inventory of short-term products has helped to drive up rents in the region, according to a report from Ken Johnson, a researcher and economist at Florida Atlantic University. Miami has the eighth-highest rents in the country, according to an analysis from Johnson and his colleagues, and renters can expect to pay a 15.4% premium on their rent compared to where rates should be based on historical growth.
“Those are extensions of hotels, it does not address housing needs,” Beracha said of short-term housing developments. “Somebody who would be renting a house long-term to someone who needs housing, now they’re renting the house to vacationers.”
But developers say market forces are pushing them to develop short-term housing instead of traditional multifamily. Lenders are increasingly interested in financing the development of short-term rentals because of their potential to generate a consistent revenue stream and stronger returns than long-term apartment rentals. And a steady stream of international buyers has kept demand high even as U.S. buyers are hamstrung by rising interest rates.
“We've seen a pretty healthy mix of domestic buyers as well as international buyers,” Falcone said. “In the last year, things have shifted more [toward international buyers] because of government policy that has shifted economic results. With inflation, with the interest rate hikes, the government continues to do what they're doing to kind of shut down the economy and reset the economy.”
Koles said that the shift in buyers represented a return to traditional market drivers in Miami. His firm has seen the buyer pool change at the three short-term rental towers in Downtown Miami that it currently has under development.
PMG is working with E11even Partners to build the E11even Hotel and Residences and adjacent E11even Residences Beyond. The first tower will have no rental restrictions and the E11even Residences Beyond, which is expected to be completed a year after the first tower, requires a minimum one-month stay. More than 80% of the combined 1,000-plus units at both properties are sold.
“Demand has been wild,” Koles said of the E11even project. “We sold out Phase 1 in a matter of months and, since the market likes it so much, let’s do it again with E11even Beyond.”
PMG is also developing the West Eleventh Residences nearby at 18 Northwest 11th St., a 659-condo tower where owners can rent their units through a centralized Airbnb platform.
“We are seeing more international buyers on that tower than we had on the two E11even towers,” Koles said. “Those were both far more domestic buyers that we have traditionally seen in the Miami market, whereas with West 11th we’re seeing a resurgence of the international market, with buyers largely from Latin America. That is more in line with Miami condo sales historically.”
Related Group is also investing heavily into short-term rentals. The developer currently has three projects underway in Miami and has seen strong demand from buyers. It sold more than 70% of the 329 units at its NoMad Residences Wynwood, a partnership with the hospitality company Sydell Group.
Related has also sold all the units at The Crosby Miami Worldcenter, a 450-condo property free of rental restrictions at the master-planned development that is expected to deliver in early 2025, and the District 225 Miami Residences, a 343-unit tower in Downtown Miami that is being built in collaboration with Airbnb, a spokesperson said.
“The absence of rental restrictions has proven to be a significant catalyst for driving sales velocity across projects like NoMad, District 225 and The Crosby,” Nick Perez, the president of Related’s condo division, said in a written statement. “In recent years, there’s been a notable rise in demand for this type of turnkey rental product, driven by a new generation of buyers seeking flexible ownership and living options.”
Developers acknowledge that the market will eventually reach a saturation point, but they say there is still room for growth in Miami not only because of interest among buyers, but also because institutional lenders are increasingly interested in short-term rentals.
“Lenders have recently come around,” Koles said. “If they're not making loans, they're not in business. And so they're seeing the market shift, or at least partially shift, towards short-term rentals and they're realizing that they need to get a piece of that business. Otherwise they're missing out.”
If the market ever does reach oversaturation, there’s a chance that short-term rentals could help alleviate the need for affordable housing in the region, said Beracha, the FIU professor. It will take years, but some projects that are riding the wave of interest may not generate as much revenue or foot traffic from tourists as the developers and owners expect. That, he said, could lead to them being converted into traditional long-term rentals.
“There are some properties that are primed for short-term rentals, where it makes sense, and some that are not,” Beracha said. “In a market that’s so hot for short-term rentals, everything goes. But when it’s not, you’ll see that those properties where it doesn’t make much sense are going to be converted back to long-term.”
“If you can rent something for a week, then you can rent it for a year,” he said.
CORRECTION, JUNE 24, 7 A.M. ET: A previous version of this story incorrectly named the school where Eli Beracha teaches. He is the department chair at the Hollo School of Real Estate at Florida International University.