Foreign Investors Still Bet on Miami Multifamily Sector
In spite of climbing rental rates and tight vacancy, Miami-Dade County remains one of the nationâ€™s top real estate markets in the U.S as well as an attractive tidbit for the foreign investors.
After the 2008 economic crisis, followed by the investment paralysis of 2009, nowadays, we are witnessing a revitalization of purchasing capacity and the overall growth of investments in the Miami multifamily building.
The Miami market is definitely on the rise and the latest figures clearly indicate that now is the best time to invest in local real estate. According to the latest statistics, the biggest demand comes from South American neighbors (Brazil, Argentina, Colombia, Venezuela) and Canada. The 6th place is occupied by Russia, followed by Malaysia, France, Spain and the United Kingdom.
New demand for rental housing has emerged this year as evidenced by newly-constructed 1,700 units. In the past two years, local developers have launched dozens of new residential projects, including a considerable number of elite apartments.
The current building boom is very similar to the one happened in Miami a decade ago, when the so-called â€śbubble effectâ€ť took place in the real estate market. But, if the previous experience was quite dramatic (overbuilding was the reason of mass bankruptcy and devastations), the todayâ€™s apartment replenishment can hardly provoke the market oversaturation.
Instead of the single-family homes that dominated during the â€śbubbleâ€ť years, nowadays, we notice a shift towards multifamily buildings, both apartments and condominiums.
Carlos Rosso, the Head of the condo division for the Related Group, believes that a similar bust is unlikely this time aroundâ€¦
As long as there’s cash from buyers and banks are disciplined enough not to overextend themselves, I think this is a long market because there’s so little supply.
Why Multifamily Is a Good Choice?
Being a rarity before, the multifamily product has become the darling of investors over the last few years.
Continuous growth of the overall Miami population as well as the low vacancy and bursting rental growth has created a limited number of proposals along with a strong demand from the U.S. and foreign buyers. That is why, a multistorey buildings and other types of condos have emerged to facilitate the housing problem as well as to save a free public space.
Thus, the demand and undersupply combine to justify new constructions in Miami. Creditor interest and low borrowing rates facilitate financing and give developers a positive spread.
To see the prospects of multifamily market development in the nearest future, letâ€™s consider the main factors which drive the demand for this type of housing:
Demography Is What Really Matters
Positive demographic changes stimulate business. In Miami the growth of population continues to create a wide range of economic opportunities. The demand for apartments and condominiums is being fueled by the large number of new residents pouring into the Miami area.
Thus, the demographic jump has leveraged a great shift in the real estate market. Realtors and developers who rely on the influx from abroad have already noticed a growing Miami inflow and started to make profit of this situation.
According to statistics, the percentage in Miami-Dade County demonstrates the growth between 2010-2012 from 2,496,457 up to 2,591,035 (3,7%). Moreover, experts forecast that Miami district population will show the percentage increase of 2,6 % by 2014.
Multifamily has been a critical part of the construction recovery, â€¦ as the construction market rebounds and as more people are looking for rentals, builders have responded with more multifamily construction,Â Mr. KolkoÂ said.
Strong population growth creates perfect conditions for the further multifamily development and investmentsâ€™ expansion.
Homeownership Rate Falls
As a result of the housing crisis, increasing prices and limited vacancy, homeownership is down, particularly, it regarding younger households. However, the housing market continues to grow due to the limited supply of affordable for-sale apartments and housing alternatives.
The multifamily market has directly benefited from the change in the homeownership rate. Over the last two years, experts have noticed that the shift from homeowners to renters increased the demand for rental apartments, contributing to the multifamily building development.
Expanding Employment Opportunities
There is no secret that the job market is a traditional driver of multifamily demand. The rise of employment opportunities in Miami has become an engine for the economic development as a whole and the real estate market, in particular.
According toÂ Marcus&Millichap Market Report…
Despite the inflow of new rentals, transaction velocity and dollar volume continue to rise, fueled by confidence in the countryâ€™s long-term prospects for sustained rental housing demand and expanded access to acquisition debt.
Over the last few years Miamiâ€™s job rate increased by 1,2 % from June 2012 to June 2013. Today metropolitan area, transportation and trade are experiencing the largest employment rise. The second largest job increase is being estimated in the leisure and hospitality sector.
Regional Commissioner Janet S. Rankin notes that the overall employment rates in Miami have been significantly raised over the last three years.
For people who are moving to Miami for a new job or a job transfer, renting a house becomes a necessity. Of course, there is no point of buying a home when you are not sure if you stay in the area for a considerable amount of time. Therefore, renting an apartment is the best option.
No Debts Policy
Under the new payment arrangement, developers are relying more on buyers’ deposits, and less on debt, to fund construction. This puts projects on more solid footing. In addition, banks have become stricter about the projects they finance and, as the consequence, more less-experienced developers are weeded out from the market. Foreign investors start paying cash and are looking to receive rentals, instead of waiting for immediate profit as investors did in the last few years.
Developers and market experts note that explosive international demand has created a new cash-financing model which is believed to be safer than easy bank loans. This model requires putting down at least 50% before starting a project, which means that the owners would lose their money if they walked away, which creates more guarantees for the banks and project developers.
Young Residents Give More Hope
The age composition of the Downtown Miami population reflects a high percentage of young working-age individuals from ages 20 to 44 representing a large influx of young working people. The majority of them are mobile and do not want to be stuck in the mortgages.
Additionally, experts start to make bets on the soon release of pent-up demand from the so-called generation-Y living with parents. Many of them will find jobs, leave the nests to form their own households, thus creating a new demand for housing.
Tight Sub-Markets Which Are Easy to Enter
Miami District has a number of areas outside that could offer easy entry to multiply profit. Among the most active submarkets are Doral, Coral Gables and Dadeland. For instance, in Dadeland there are several apartments of class A, some of them are completed, others – under construction. These are the first new rental projects implemented in this area in about a decade.
Being one of regionâ€™s largest employment hubs, the sub-areas around Miami still have a great rental demand and are open for new multifamily constructions and investments.
The Most Successful Projects to Invest In
Today new construction condos are rising in every community of Miami-Dade County (Downtown Miami, Miami Arts District, South Beach, Aventura, etc.). The developers propose different types of building projects, ranging from penthouse mansions under the open sky and luxurious condo-hotels, to more economy class multi-stories buildings.
Here is the range of the most perspective condos which are now under the construction:
- One Thousand Museum â€“ sixty-two stories tall ultra-luxury project, situated in Downtown Miami. These apartments will offer incredible panoramic views of Biscayne Bay. The design of the building will be provided by internationally acknowledged architect Zaha Hadid, famous for her distinctively futuristic style. Approximate opening date: 2016.
- 400 Sunny Isles Condos â€“ a large luxury building complex, located on 648 ft. of bay with direct water views and a short walk from the Oleta State Park. It will be designed by renowned Architect Chad Oppenheim. Approximate opening date: 2015.
- Bond Brickell Condos – a 44-storied building, which offers 323 residences, swimming pool and jacuzzi, fitness center and psa , state-of-the-art security and 24 hour concierge service. The project is under the MDR Toledo control. Completion date: 2015.
- Regalia Sunny Isles Beach â€“ a 39-storied apartment ultra-luxurious condominium that is planned to be built in one of most desirable beach front locations in Miami. Interiors designed by Arquitectonica. Approximate completion date: Summer, 2014.
- Biscayne Beach Condos â€“ a 51- storied luxury condo which is being built by East view development and GTIS Partners in Miamiâ€™s Midtown. Completion date: 2016.
Thus, with a number of units available for a growing number of renters, 2013 marked significant growth in multifamily construction, and this growth should continue. Survey data of multifamily developers predicts that more businesses will see positive market conditions. Experts consider that within the nearest few years investing in multifamily under-construction projects will be secure and profitable.
Timothy Martorella, managing director at Madison Capital Group LLC, a real estate finance adviser said thatâ€¦
The biggest difference in Miami to other markets is how far it fell and how quickly it came back, defying all previous predictions.
Considering multifamilyâ€™ growth forecast and the factors that will continue to drive this sector, there is no doubt that the same tendency will stay in the future and the investors can feel secure placing their money in the multifamily business.
I predict another bubble in Miami on the way. Instead of replacing it, the Fed decided to pump more air in it. I believe that a rise in interest rates will crush the latest Miami bubble.
I do not think that there is a place anywhere that makes sense to invest in now. If I had money to invest in real estate I would do it for productive farm land.