Allen Morris On Real Estate

Where is Miami Real Estate Headed?

  |   Business, Commercial, Community, Office, Real Estate, Residential, Retail

What are the big questions investors in Miami real estate are asking in the midts of the latest building boom? Addressing the fifth annual Greater Miami Chamber of Commerce Real Estate Summit recently as keynote speaker, I listed the questions as they are often presented to me along with my ready answers:

  1. Are we immune from another boom/bust – No!
  2. Are these climbing valuations sustainable? – No!
  3. Is foreign investment only going to increase? – No!

I must warn you that the answer to all three questions is also…Yes! 

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 underbuilding, 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. Because the alarm has been sounded that we are at risk of overbuilding in the condominium market, that 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.

Our own SLS LUX Brickell Hotel and Condominium is under construction now with 538 units in 57 stories. It is our 80th project. We have sold 78{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.

We have 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 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

We are growing up and becoming a serious office market with Miami Dade County now approaching 100 million sq ft of office space. Our future is always tied to international business and banking with the new element of international businesses opening offices in Miami to reach into the US market! We absorbed over 1 million sq ft 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{f861352ab7d0f3f786cb6cad7d8c1b9836ed30c85c37a8f77ba2d159a4e0e407}.

We ourselves have new office developments in our 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{f861352ab7d0f3f786cb6cad7d8c1b9836ed30c85c37a8f77ba2d159a4e0e407}.

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:

MMemory 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.

BBalance 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!

AAdaptability 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 just 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 long-term in Miami as we remember history, embrace balance, and adapt to our changing world.

 

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