We recently asked WSH Partner and Real Estate Practice Group Chair Joseph Hernandez to provide some insight on the real estate market recovery and trends in the industry. Here’s what Joe had to say:
- Luxury Residential Market “On Fire”:
- “Deblasio Effect” – Many uber-wealthy NY residents are re-establishing residency in South Florida to avoid higher taxes in New York. As a result, luxury Condo and Single Family Home prices have trended upwards. Projects such as Surf Club, 1000 Museum, and Porsche have seen high demand and very high prices per square foot.
- Wealthy South American and European investors also view So. Florida as an attractive market and continue to come to this market. This is also propping up the luxury residential market and the “middle market”.
- Our luxury market is still priced lower than most of the other major cities in the world (New York, Paris, London, etc.) so we are viewed as a relative bargain.
- “Middle Market” Condos (approx. $500 – $1000 psf) in this niche are very active. Several new projects in the works in Brickell area (Brickell City Centre) and near Miami World Center.
- Retail is Back! – After several years of recovering from the Great Recession, retail investment and development is back. Retail developers are once again searching for well-located sites on busy traffic areas to establish retail. So. Florida is still under-served by retail vis-à-vis other major markets in the U.S.
- Distressed Deals Almost All Gone – Very few, if any, good distressed deals are left. There are some but usually deals with “hair” (i.e. many issues, bankruptcy, foreclosure, land use issues, environmental issues, etc.).
- Institutional and Foreign Capital Presence – The competitors for deals are large institutions and uber-wealthy foreign investors. This is crowding out local investors for large deals. The latest example is sale of the Epic II parcel next to Epic for $125M for 1.2 acres of land. Also, there has been a steep increase in land prices is potentially making other types of projects infeasible (rental, office, etc.).
- Interest Rates Still Low, But . . . – Some real estate players are concerned about the effect of rising interest rates. The combination of rising land prices and rising interest could cool the market. Perhaps, this could be a good thing to prevent another bubble.
- Lending Picking Up – But, it still does not seem like lenders are being too aggressive. Construction lending is available but very conservative.
- Latin American Influx – The influx of capital from Latin America remains strong despite efforts by the central banks in certain Latin American countries to prevent capital outflow. The positive effect is that it seems to be driving more businesses started by Latin American transplants. That’s a good sign for our local economy. The concern from many observers was whether Latin Americans would come here to stay or just visit.
- South Florida Economy Improving, But . . . – Real wages still lag the rest of the U.S. and the cost of living in South Florida is higher than the average in U.S. This is a tough place for folks of moderate to low means to live. Does this cause a decreasing or flat population growth?
