Six Questions for Bilzin Sumberg's Jim Shindell

Just as foreign and out-of-state buyers continue flooding the market to purchase Miami's leftover condo inventory, developers are gearing up to build once again. New projects like Newgard Development Group's $170 million, 374-unit BrickellHouse and the Related Group's MyBrickell are just two projects now in the works by developers who are seeking to capitalize on the demand for urban living that is far outpacing supply.

According to Bilzin Sumberg real estate partner Jim Shindell, two years ago there were more than 20,000 unsold units in downtown Miami. Today, that figure hovers just under 2,500 units. Foreign cash buyers account for the majority of these sales taking place, bringing Miami towards recovery years faster than was previously expected and taking the region from one of the most over-leveraged markets in the country to among the most under-leveraged.

GlobeSt.com caught up with Shindell to discuss how developers are working swiftly to get new projects out of the ground, as well as what will be different this time around. One thing that won’t change: overbuilding.

LeClaire: Why are the same developers who nearly lost their shirts during the boom-turned-bust now working swiftly to get new projects out of the ground in the Miami market?

Shindell: Projects require lead-time. I think the velocity of absorption of the condo overbuild in Miami took most everyone by surprise. Developers find themselves back in the saddle much more quickly than most had anticipated. More than 80 residential condo buildings were erected in Downtown Miami during the boom period, which introduced over 23,000 units to the market. Even the more bullish analysts thought it would be at least a decade before we would reach equilibrium and construction would resume, but now just two years since the crash, only approximately 2,500 units remain unsold. For a developer, this is like a red flag to a bull.  
 
LeClaire: What do you expect to be different in this next cycle?

Shindell: There is currently a lot of buzz in Miami about significantly increasing the amount of the deposits for unit purchase contracts. Pre-crash, deposits were typically 20% of purchase price. Some developers plan to test the market to see if it will stand much larger deposits—50% of percent of purchase price or more. In that sales model, construction financing is presumably easier to obtain because the entire deposit—other than an amount equal to 10% of purchase price—is available for construction, resulting in a lower construction loan to value ratio. It will be interesting to see if the market will support that type of program. Perhaps it will for a limited number of projects selling primarily to buyers from countries where leveraging residential purchases is not customary. This would be a big adjustment for the typical American buyer.
 
LeClaire: Can the bulk investors who purchased inventory afford to wait before selling? Should they wait? Why?

Shindell: Many of today's bulk investors are cash heavy. As a result, they can afford to wait before selling. These investors differ from those buying in bulk during the boom period in that they have a conservative hold period built into their modeling. Not in it for the quick score, they have the ability to hold onto their property until the time is right to sell. And when they do, if their modeling is accurate, they will see significant gains. It helps that rental programs have been highly successful in certain sub-markets.
 
LeClaire: Do you anticipate overbuilding this time around based on this early rush?

Shindell: Yes, but not because of the rush. I expect overbuilding because real estate lessons are never fully learned and the pull of profit is strong. The deciding factor will be whether lenders are able to restrain themselves.
 
LeClaire: How can developers win in this go round?

Shindell: Build projects that make sense in places that make sense for an end user that is likely to be present and able when you go to market—and protect your downside with larger deposits, if you can. Nothing to it, right?
 
LeClaire: Do you expect banks to jump into this Downtown Miami condo development party? What's it going to take to get funding?

Shindell: That is the real question. While the lenders are unlikely in the foreseeable future, to lend at anywhere near the boom levels, some are looking on longingly again.