Allen Morris On Real Estate

How to find balance in the boom

  |   Commercial, Office, Press, Real Estate, Retail, Urban Planning

Guest Columnist  W. Allen Morris

Investors in Miami’s real estate boom often approach me with questions.

Are we immune from another boom/bust? Are these climbing valuations sustainable? Is foreign investment only going to increase? The answer to all these three question is, no. But it is also, yes. Let me explain.

 

Residential condominium market

My father used to frequently say, “The only thing constant is change.” We always go through cycles of expansion and contraction, overbuilding and under building, rising and lowering prices. I believe that this

is the healthiest economic expansion — or go ahead and call it a “boom” — that I have seen in my 40+ year career, because we’re sounding the alarm when there is the possibility of overbuilding. That alone is a sign of a healthy balance and not mindless intoxication.

Alarm over the potential for overbuilding is the best insurance for a healthy long-term investment market for both developers and condo buyers. And I believe we’ve laid the foundation for positive change and growth in Miami.

We forget that in the last cycle (2003-2007), only one-third of the announced projects were actually built. I think that will also be the case this time around because of rising construction costs, land costs, and changing Latin American economies and exchange rates.

SLS LUX Brickell Hotel and Condominium, which The Allen Morris Company is currently developing, is under construction now with 538 units in 58 stories. It is our 80th project. We have sold 82{f861352ab7d0f3f786cb6cad7d8c1b9836ed30c85c37a8f77ba2d159a4e0e407} with non-refundable deposits. Our construction costs are locked in. Our buyers know they will get their condominiums and they will be first class. There is no risk.

There are 22,000 new units in the pipeline in the downtown Miami area and many will not be built until the current supply under construction is sold. The typical requirement for presales with 50{f861352ab7d0f3f786cb6cad7d8c1b9836ed30c85c37a8f77ba2d159a4e0e407} non-refundable deposits is also a very healthy governor on the market to control our development and to protect us from a boom leading to a bust.

Office market

South Florida is growing up and becoming a serious office market with Miami Dade County now approaching 100 million square feet of office space. Our future is always tied to international business and banking with major companies opening offices in Miami to serve Latin American customers and expand into the Latin American and Caribbean markets. The new element is now international businesses opening offices in Miami to reach into the US market! We absorbed over 1 million square feet of office space last year and I wouldn’t be surprised if we absorbed a bit more this year. We had a healthy office vacancy at years end (2014) of 11.6 percent.

The Allen Morris Company, too, has new office developments in the pipeline.

Retail market

Miami is attracting a new flood of trendy and some internationally renowned restaurants and retailers with many new retail developments planned or under construction. With so much new development we are at risk of overbuilding, but right now the retail vacancy rate is an incredibly low 3.5 percent.

Want to earn a quick MBA in Miami real estate? Here’s what’s most important for Miami’s successful future and also the most important things for me to remember as an investor/developer:

 

M – Memory of past cycles that can return, because change is constant. In other words, there is a lot to be excited about, but don’t get mindlessly sucked into the hype.

 

B – Balance of greed vs. fear vs. purpose. In other words, seize the opportunity but don’t put all your eggs in one basket, and remember that life and love are more important than business. That helps to balance the intoxication of greed!

 

A – Adaptability to keep learning and improving our community and ourselves for an ever-changing world. In our community we are continuing to improve the quality of our infrastructure, transportation, education, medical services, financial resources and quality of life. An example for me personally is after many years of developing office and commercial projects, I’ve been reborn as a residential developer, developing mixed-use projects with multi-family residential apartments, condominiums and hotel, in addition to office buildings. This is our company’s way of adapting to the changing market.

 

I think about real estate as a long-term investment and it’s very exciting in every sector of Miami as we remember history, embrace balance, and adapt to our changing world.

 

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