In South Florida, a growing concern over elevated condo inventory levels has prompted developers to rethink their strategies for new construction projects.
A recent report from the Miami Realtors highlights that Miami-Dade County is facing a staggering 14 months of condo inventory, significantly exceeding the six-to-nine month range typically considered balanced.
This oversupply is causing developers to exercise caution, as discussed during Bisnow’s Miami State of the Market event held on Thursday.
Taylor Collins, a partner at Two Roads Development, emphasized the challenges of adding new luxury condos to an already saturated market, stating, “That’s a lot of inventory. So, sitting there and going like, ‘Oh, I’m gonna go do another luxury condo that’s gonna add more inventory,’ it’s difficult.”
Despite the Federal Reserve’s recent 25-basis-point rate cut, which traditionally might encourage investment, Collins affirmed that Two Roads is remaining cautious in the current climate.
He pointed out that elevated borrowing costs, coupled with South Florida’s expensive construction, labor, and insurance rates, make new land acquisitions difficult to justify.
To avoid carry costs that could take years to recover, developers are refraining from new acquisitions in South Florida until inventory levels stabilize.
“Buying something on the ocean and saying, ‘Hey, I’m not going to start this for three years,’ the burn rate on that money to carry that property will eat all your profits,” Collins remarked.
Data indicates that Miami’s condo inventory has seen a 25% surge over the past year, with available listings increasing from 10,094 to 12,637 as of August.
Nonetheless, Two Roads has several projects underway, including the 56-unit Rivage Residences Bal Harbour in partnership with Related Group, Rockpoint, and Witkoff Group, as well as the 185-unit Edition Residences currently under construction.
These projects are part of a larger pipeline of 37 condo developments planned for the region, expected to introduce over 9,000 new units, according to the Miami Realtors report.
Allie Eichner, President of The Continuum Co., acknowledged the apprehension many developers feel about the upcoming projects, stating, “I think that you look at the pipeline and it can feel scary, because there’s so many projects coming up. There will be winners and losers here. Not everyone is going to win in this cycle.”
In addition to the heightened inventory, many of the older condos entering the market are doing so as a consequence of Senate Bill 4-D, signed into law by Governor Ron DeSantis in 2022.
This legislation mandates that buildings 30 years or older and three stories or taller undergo structural inspections every decade and maintain adequate reserves, with a compliance deadline of December 31.
As a result, the market has seen what some described as a “doom loop” for condos, leading to units burdened with repair costs, declining values, increased association fees, and soaring insurance premiums.
The Miami Realtors reported that it takes a median of 106 days to sell older condos, up from 87 days just a year ago, while Fannie Mae is increasingly excluding these properties from loan backing.
Collins noted that while the inventory statistics might appear misleading, they can still create a daunting picture for lenders and investors who focus solely on perceived oversupply.
“The 14 months is skewed, but it’s also a data point that we kind of see from a micro-level,” he explained. “The banks don’t see it like that, so when you go off and try to talk to a bank, they’re sitting there going, ‘Hey, there’s 14 months’ worth of inventory here, what are you doing?’”
While Two Roads adopts a wait-and-see approach, other developers are opting to move forward despite the challenges.
Gaetano Caltagirone, President of Calta Group, stressed the necessity for developers to adapt in order to thrive in the current climate, saying, “It’s hard for any of us to kind of sit and say, ‘You know what, I’m not going to do anything right now for a couple of years.’ There are not many people who are that privileged to do that. You have to be dynamic. You have to adjust to the market that you see and just make sure that you can survive whatever’s in front of you.”
image source from：bisnow
