FirstBank Florida's senior vice president and Commercial Banking Head, Mahesh Pattabhiraman

MIAMI—Miami's Downtown Development Authority recently reported that the number of new Downtown Miami condos will surge by nearly 3,500 to be delivered this year as resale pricing falls, showing a significant slowdown in the market. The report describes the phase in the cycle as a sign of stability after an economic bust and then a boom.

One clear way to get a sense of the direction the market is headed is exploring whether banks—particularly those with success directly tied to and contingent upon the Miami market—are lending to new projects. In other words, what are community banks doing.

While other community banks in South Florida are pulling back drastically on commercial real estate lending overall, FirstBank Florida, a boutique bank with regional headquarters in Miami, continues to take a bullish, yet cautious, approach. According to Mahesh Pattabhiraman, senior vice president and Commercial Banking Head with FirstBank Florida, the cyclical nature of the luxury high-rise residential condo market has directed the bank's focus primarily to non-vertical projects that allow it to better manage risk.

“The state of commercial lending in South Florida is very healthy,” Pattabhiraman tells GlobeSt.com. “The demand for loans remains very high, and national and foreign investors alike continue to be active in the market. At FirstBank, we see the opportunity to remain bullish with regards to industrial, office—especially medical office—retail, and any projects that will attract businesses directly benefitting from infrastructure spending, such as the port and airport.”

Now, Pattabhiraman admits his bank is cautious of the condo sector, which represents a very niche lending market. Most of the local community banks are not involved in lending for high-rise condo developments because of the sheer size of these projects. Instead, he says, they are mostly funded by out-of-state banks or non-bank lenders that have the risk appetite for high-end condo projects. As such, he explains, the projected condo slowdown won't have a huge effect on the commercial lending activity of community banks.

“However, the slowdown will affect—and already has begun to affect—residential lending within those developments,” Pattabhiraman says. “Banks are becoming more conservative about lending to those seeking loans to purchase condo units, particularly watching out for drops in prices due to oversupply.

Down the line, Pattabhiraman says will also see an impact on business lending, specifically the businesses that are contracted to bring condo developments to fruition and will be directly affected by the slowdown. “Because there is currently so much development activity, this impact won't be felt for another 12 to 18 months as construction costs continue to rise,” he says. “Due to oversupply in many South Florida markets, hotel joins the condo sector as a property type we are also cautious of.”

Beyond condos, one multifamily developer is rejecting the notion of multifamily overbuilding in South Florida. Do you agree with his view? And take a look at what's preventing technology from truly disrupting next-generation real estate developments in my recent column.

Instant Insights /

Another Indicator of Where Miami's Condo Market Is Headed

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