10/24/12 Many proposed rentals could become condo conversions - Miami Herald
If history is any indicator, South Florida’s next generation of residential condo conversion units are
currently being proposed, financed, and built in Miami-Dade, Broward, and Palm Beach counties under
the auspices of rising rental rates.
In a trend reminiscent of South Florida’s last condo boom and ultimate bust, rising lease prices are
prompting developers to build – increasingly with bank financing — a new wave of apartment projects to
capitalize on the spike in rents.
If the South Florida condo market returns to any form of normalcy, where most residents users can
actually purchase units, many of today’s newly proposed rental projects would be expected to be
converted into condominiums and sold off for a premium.
During the last South Florida real estate boom, several proposed and existing rental towers were
converted under such a scenario into condominiums, including the Skyline and the Vue in greater
downtown Miami, the Tides and the Wave in Hollywood Beach, and the Las Olas By The River and the
Village East in downtown Fort Lauderdale.
For the last six months, developers from various real estate specialties — ranging from office towers to
industrial warehouses — have been rushing forward with plans to construct at least 3,000 new rental
units scattered in locations from Kendall to Coconut Creek with everything in between, including Miami’s
Upper East Side, downtown Fort Lauderdale, and Hollywood’s Young Circle neighborhoods.
The proposed residential rental units are slated to be developed in a variety of projects, ranging from a
pair of 20-story high-rise towers with 400 units on 79th Street at Biscayne Bay in Miami to nearly 400
units in a series of low-rise buildings on a 24-acre site in Coconut Creek.
Construction of these projects — often on former condo development sites — is in the early stages of
development but expected to begin by the end of 2012 with the first units scheduled to be ready for
tenants by late 2013.
The new residential rental units are targeted toward users who cannot — or choose not to — purchase
in South Florida for a variety of reasons, including an inability to pay all cash for a property, credit
problems, difficulty securing mortgages, or the fear that the market has not yet bottomed.
Regardless of the reason for not purchasing, South Florida’s rental population is faced with lease prices
that are rising at rates two and three times that of annual inflation.
For example, the median price per square foot monthly for a rental property in the first quarter of 2012
was $2.01 in the greater downtown Miami market, $1.21 in the downtown Hollywood and the beach area,
and $1.26 in the downtown Fort Lauderdale and the beach neighborhood, according to an analysis of
the Southeast Florida MLXchange.
Compare this to the first quarter of 2009 when the U.S. economy was on the brink of financial disaster,
the median rental price per square foot per month at that time was less than $1.60 in greater downtown
Miami, $1.00 in downtown Hollywood and the beach, and $1.05 in downtown Fort Lauderdale and the
beach, according to the data.
As the rents have increased, the operating expense for landlords has remained somewhat consistent or
even decreased in condo projects as governing associations have used the foreclosure process to
recoup unpaid fees, thereby, reducing or even eliminating special assessments. Adjustments in property
taxes are somewhat mixed depending upon the specific market.
For developers of the new rental projects, the financial returns have the potential to be even greater as
apartment residents usually expect less in terms of amenities, finishes and service compared to condo
owners. This translates into lower costs on the construction and the operations.
Contributing to the potential upside for developers of today’s rental projects, the cost of the developable
land – often times with the necessary planning approvals already in place from previous developers who
failed to build – is significantly less than the price levels achieved at the height of the South Florida real
estate boom.
The unknown is whether today’s renters will ultimately become tomorrow’s owners given the financial and
personal hardships that many experienced during the last real estate implosion.
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