CONSTRUCTION OVERVIEW
Florida’s high cost of living and pricey rents make it harder to attract more construction workers. Some construction companies have begun participating in local partnerships in order to provide training and apprenticeships to incoming workers to ease the problem. Nevertheless, this labor shortage will inevitably lead to increasing prices for labor and will not be an easy problem to solve. Growing land costs have also presented issues for builders. Miami-Dade’s dwindling supply of residential lots continues to plague the residential construction market, which has led many builders to develop upwards instead of outwards. On the commercial side, the increase in construction spending can be explained by surging demand. Home to PortMiami and Miami International Airport, two of the busiest logistics hubs in the U.S., the Miami area attracts development for all types of commercial real estate. As a growing major financial center, Miami’s office construction in particular has soared. As the live-work-play dynamic permeates Miami-Dade’s neighborhoods, the retail sector is also being transformed by many new projects. The industrial sector is booming, as well, due to surging e-commerce sales and Miami’s continued growth as a logistics center and gateway to Latin America. Conservative lending The recent plateau in the real estate market has undoubtedly had an effect on financing trends. Due to oversupply and high labor and land costs, the availability of financing for construction diminished in 2017. Particularly for condominium development, the construction of new condos, in addition to existing inventory, has created a saturated market. Subsequently, asking prices have decreased and buying has slowed down, discouraging lenders. Another reason for the tightening of construction lending is the ambiguity surrounding regulations. In the first half of 2017, commercial lenders were anticipating a repeal of the Dodd-Frank Act, which would have improved Miami’s restricted lending atmosphere. As of early 2018, the future of Dodd-Frank remained in limbo. “The biggest financing challenge currently facing developers today in Miami is the limited availability of capital, the cost of capital and the extent to which borrowers can leverage their projects,” Charles Penan, executive vice president at Aztec Group, told Invest:. “Local community banks are the most aggressive capital source in the local market. Some
Edgardo Defortuna President & CEO Fortune International Group
How do presales in Miami today compare to the last few years, and what do you think the future holds for Miami’s luxury market? The market has changed in the last two to three years. The peak was sometime in 2015 when it comes to absorption and rhythm of sales. The strengthening of the U.S. dollar in comparison to many foreign currencies has diminished the influx of buyers in parts of Miami. In many ways, 2016 was the slowest year in terms of volume of sales. It’s starting to feel like the market is coming back again. Even though we went through Hurricane Irma, sales didn’t slow down. There’s still incredible opportunity for new development in the city. Despite its ups and downs, the Miami residential real estate market is one of the most solid international markets worldwide. Miami is still a great value if you compare its prices to those in other major cities around the world. We’re expecting a great season in 2018. Who is investing in Miami right now, and how does this impact the market? We’re seeing a resurgence in the economies of the countries that are feeder markets for us. Argentina has an established policy, both economic and political, so people feel comfortable, and that allows them to invest outside the country. The same thing with Brazil, Peru, Chile and even nontraditional countries like Paraguay or Bolivia. We certainly have to work a lot harder to get those customers, and as a consequence, we make a little less money. If you actively search for that type of customer, with the assurances and comfort level they need, they will pull the trigger and invest in Miami. The financing model might change. The banks in Miami might be more flexible, in a consolidated and more mature market, to finance with the model they use in cities like New York. In other words, banks will allow more financing to developers with fewer presales because they trust the developer and the fact that the market is much more stable and the building’s sales will be absorbed faster during the process of construction. www.capitalanalyticsassociates.com
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