Condominium Oversupply
Miami as a Second Home Resort Market
February 9, 2005
Supply & Demand
• Miami is an overbuilt market
• There are 10,000 to 20,000 luxury priced
units in the pipeline
• Land Prices at Record Levels <$300SF
Interest Rates
•
•
•
•
Now Increasing
Budget deficit at record levels
High trade deficit
Weak dollar
Date
2/2/2005
1/2/2005
12/2/2004
11/2/2004
10/2/2004
Prime Rate
9/2/2004
8/2/2004
7/2/2004
6/2/2004
5/2/2004
4/2/2004
3/2/2004
2/2/2004
Percentage
Prim e vs 30yr fixed
30yr Mortgage
7.00%
6.00%
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%
Housing Market Still Hot, Due For
Leveling
Median Home Prices
$400,000
2001 – 3Q 2004
Price Increase
1990-2003
Median Home Price
$350,000
$300,000
64%
65%
3Q2004
91%
$250,000
23%
$200,000
$150,000
$100,000
$50,000
Miami-Dade
Sources: Marcus & Millichap Research Services, Economy.com
Broward
West Palm
Beach
U.S.
South Florida Housing Cost
Comparison
Median Mortgage Payment
Average Class B/C Rent
Average Class A Rent
$2,000
$1,800
$1,600
$1,400
$1,200
$1,000
$800
$600
Miami-Dade
Sources: Marcus & Millichap Research Services, CoStar Group, Inc.
Broward
West Palm Beach
South Florida Apartment Rent Trends
1999-2002
$1,200
2004*
2005*
2001-2005*
Rent Increase
11%
$1,000
8%
8%
$800
$600
$400
$200
Miami-Dade
*Forecast
Sources: Marcus & Millichap Research Services, Reis.
Broward
West Palm Beach
DEVELOPMENT TREND OF NEW APARTMENTS
MIAMI-DADE COUNTY
Year
Absorption
Completion
Starts
Vacant
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004-3
1,007
2,946
5,930
4,487
3,305
4,424
3,313
1,206
1,241
873
2,367
1,373
1,105
1,416
1,139
2,404
1,245
2,094
3,202
2,206
1,216
4,022
6,387
3,902
2,499
3,919
2,228
832
1,246
902
2,873
1,011
1,140
1,506
858
2,341
1,980
2,548
2,392
2,047
2,559
6,531
4,769
3,891
2,102
1,824
1,385
495
1,734
2,301
1,926
1,268
1,977
2,511
1,183
3,878
1,697
3,544
4,372
555
1,338
2,414
2,871
2,286
1,607
1,068
396
12
17
70
576
214
311
401
120
57
754
1,210
779
690
Source: Reinhold P. Wolff Economic Reasearch, Inc. 1985-2004/3
New Condominium Prices
DADE COUNTY
2004
2003
2002
2001
2000
Year
Total
$150,000
$174,999
1Q
2Q
3Q
4Q
753
632
811
883
3,079
29
14
10
89
142
44
28
47
118
237
68
81
112
136
397
98
126
51
46
321
210
235
210
300
955
1Q
2Q
3Q
4Q
612
813
665
1,640
3,730
18
37
33
77
165
29
101
67
269
466
66
158
94
329
647
51
52
97
284
484
1Q
2Q
3Q
4Q
1,490
1,077
1,062
1,124
4,753
45
54
80
97
276
146
84
105
99
434
282
188
115
208
793
1Q
2Q
3Q
4Q
1,149
1,418
1,397
1,917
5,881
56
123
178
270
627
93
152
176
320
741
256
289
214
168
927
1Q
2Q
3Q
4Q
1,512
2,038
1,780
159
215
265
5,330
639
$175,000 $250,000
+
$175,000
%
$249,999 $449,999 $450,000 +$450,000 County
$150,000
+$450000
%
County
27.89%
37.18%
25.89%
33.98%
31.02%
239
249
220
389
1,097
31.74%
39.40%
27.13%
44.05%
35.63%
146
311
258
882
1,597
23.86%
38.25%
38.80%
53.78%
42.82%
164
348
291
959
1,762
26.80%
42.80%
43.76%
58.48%
47.24%
406
202
163
84
855
834
474
383
391
2,082
55.97%
44.01%
36.06%
34.79%
43.80%
879
528
463
488
2,358
58.99%
49.03%
43.60%
43.42%
49.61%
215
235
376
389
1215
564
676
766
877
2,883
49.09%
47.67%
54.83%
45.75%
49.02%
620
799
944
1,147
3,510
53.96%
56.35%
67.57%
59.83%
59.68%
$175,000 $250,000
$175,000
%
$249,999 $499,999 +$500,000 +$500,000 County
231
272
147
650 42.99%
355
401
130
886 43.47%
274
525
160
959 53.88%
#DIV/0!
860
1198
437
2,495 46.81%
809
1,101
1,224
3,134
53.51%
54.02%
68.76%
Total (97-04)
32,986
Annual Avg.
4,256
(1997-2004/3)
Source: Reinhold P. Wolff Economic Research, Inc.
Note: *From 2004 range varied
13,602 41.24%
1,755 41.24%
58.80%
15,866 48.10%
2,047 48.10%
Unit Price
Price
Down payment 20%
Mortgage
Monthly Payment
Annual Payment
Taxes
Insurance
Yearly Payment
Yearly Income
$600,000
$120,000
$480,000
$2,878
$34,536
$13,161
$649
$48,346
$161,153
1,500 SF
$400 SF
30 yrs, 6%
30 % of
annual
income
Construction Costs
• Increasing above inflation rate
• New construction loans are participated to
reduce exposure
Developer buys Miami waterfront hotel for $94
million
•
•
•
•
•
•
•
•
•
By Matthew Haggman, The Miami Herald
Knight Ridder/Tribune Business News
Dec. 14--Developer Jorge Perez has paid $94 million for the waterfront Sheraton
Biscayne Bay hotel on Brickell Avenue, which he plans to demolish to make way
for a mixed-use project that will include high-rise condominium towers.
The 598-room hotel will stay open for at least six months while plans for the project
are developed, said Perez, chairman of Miami-based Related Group of Florida.
The Sheraton will continue to manage the property, he added.
The 5.1-acre property at 495 Brickell Ave. stretches to Biscayne Bay. The sale price
is the highest total price Perez has ever paid for land.
Flanking the hotel are the Miami Circle, a protected Tequesta Indian site, and the 2.2acre Brickell Park.
Springfield, Mass.-based MassMutual Financial Group sold the property to Perez.
Manuel de Zarraga, executive managing director of Holliday Fenoglio Fowler in Coral
Gables, led the team that brokered the sale, which closed Friday.
(c) 2004, The Miami Herald. Distributed by Knight Ridder/Tribune Business News.
For information on republishing this content, contact us at (800) 661-2511 (U.S.),
(213) 237-4914 (worldwide), fax (213) 237-6515, or e-mail reprints@krtinfo.com.
HOT,
Physical Market Cycle Characteristics
Increasing Sales
Prices Tight
Market
Negative Sales Price
Growth
Below Inflation
Sales Price
Growth
Sales Price
Increases in
Decline
Below Inflation &
Negative Sales Price
Growth
The Role of Research In Identifying
Cycles in Real Estate
•
•
•
•
•
•
Demand for Space Increases
Rents Rise Faster than Expenses
NOI spike Attracts Capital
Over Building Reduces Occupancy
High Vacancy Reduces Rents
Lower Income Leads to Reduced Prices
Valuation Considerations
•
•
•
•
•
•
•
•
Business cycle
Inflation or deflation
Interest rates and credit
Population demographics
Tastes and preferences
Regional economic base
Construction costs
Legal and regulatory
environment
• Taxes
• Physical
characteristics of
property
• Location
• Legal
• Nature of leases
• Financing
Valuation Considerations
•
•
•
•
Return
Purchase price or cost •
Price appreciation
•
Leverage
•
Inflation hedge
•
Risk
Liquidity and
marketability
Interest rate risk
Inflation risk
Systemic/non-systemic
Principle of Balance
• H&BU of residential sites will revert to
commercial use as demand for
condominium units weakens
• Result will be lower land prices in the CBD
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
Absorption
Completion
Starts
Vacant
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
20
UNITS
DEVELOPMENT TREND OF NEW APARTMENTS
YEAR
Profit
• Construction lenders see lower profits on
gross sales to 5% from 10% - 15%
The Life Cycle of a Real Estate
Investment
Product
Characteristics
Risk
Land
No income, but high
appreciation potential
High Risk
Development
No income, but high
income/appreciation
potential
High Risk
Renovation
Limited income, but higher
appreciation
Higher Risk
Lease-Up
Limited income,
appreciation
Lower Risk
Operating
Stage
Income and appreciation,
depending upon market
cycle
Lowest Risk
At What Point in the Market Cycle Do You
Invest?
Recovery
Rising
Stable
Declining
Discount Pricing
Increasing pricing Highest pricing
Decreasing
pricing
Low occupancy
Increasing
occupancy
Full occupancy
Declining
occupancy
Flat rental rates
Increasing rental
rates
Maximum rental
rates
Softer rental rates
Supply exceeds
demand
Demand exceeds Supply & demand Over supply
supply
in equilibrium