Real estate developers, sales agents and unit owners are preoccupied with visions of how casinos could provide further stimulus for the South Florida condo market.
By Peter Zalewski Special To The Miami Herald
South Florida’s condo industry is reaching an almost giddy level of optimism in anticipation of the January session of the Florida legislature, when state leaders are expected to consider — and possibly adopt — language that would permit Las Vegas-style casinos in the economic struggling counties of Miami-Dade and Broward. Real estate developers, sales agents, and units owners alike are preoccupied with visions of how casinos could provide further stimulus for the improving — but still wobbling — South Florida condo market that crashed in 2007 under the weight of an oversupply of new projects.Consider that since the second quarter of 2011, when Malaysian-based Genting Group purchased the Miami Herald headquarters and surrounding land for a possible casino, at least 16 new condo towers with more than 3,500 new units have been proposed in Miami-Dade and Broward counties.
The new condo towers are being proposed despite more than 3,700 new units near the coast remaining unsold in Miami-Dade and Broward counties as of Sept. 30. At the current sales pace, the new condos could be sold out by 2013, which does not factor in bulk buyers who are looking to resell units acquired during the scariest times of the South Florida real estate crash. It is not to say all of the newly proposed projects — three of which have already begun construction — will be cancelled if the casino legislation fails next month, but it is curious to see how many projects have been announced since the Genting Group announced its plans for a 10-million-square-foot complex in downtown Miami. Part of the South Florida optimism is rooted in a sudden surge in condo transactions in 2011 by cash buyers from abroad with strong foreign currencies who have been picking up units in bunches. All the while qualified domestic users with healthy down payments have for the most part failed to acquire their own condo units due, in part, to lender apprehension about providing financing for South Florida condos. Under the proposed casino legislation, three licenses — two in Miami-Dade and one in Broward — would be available to chosen groups that commit to spend at least $2 billion for new development, which should spur jobs and future tax revenue. In recent months, representatives from what seems like every major casino operator in the world -—Caesars Entertainment Corp. to Las Vegas Sands Corp., Wynn Resorts Ltd. to MGM Resorts International — have reportedly visited South Florida to explore the prospects of pursuing one of the potential gambling licenses. The optimism brewing for the prospect of casinos has many in the real estate industry hoping that the possible approval of gambling in Miami-Dade and Broward counties could jumpstart South Florida’s condo market, which has suffered financial pain and hardship since the peak in 2006. The bullishness, however, may be overly optimistic for most existing South Florida condo projects where association bylaws regulate the period of time that units can be rented out annually. Much like in the Las Vegas condo market, only those condo units that can be rented out by the day or week are likely to realize any direct boost in leasing activity, which in turn could translate into stronger pricing rather than the emergence of casinos. For the majority of South Florida condo projects, leasing is limited to three-, six-, or 12-month increments annually. As a result, any boost in pricing would likely occur as part of an overall improvement in the South Florida market.Condo-hotels, however, are the best positioned to directly benefit from a surge in visitors to South Florida. Think of condo-hotel units as a partnership of sorts between individual owners and the property’s flag operator. Some of the best-known South Florida condo-hotels include the newly opened St. Regis Bal Harbour Resort, the W South Beach in Miami Beach, the Q Club Resort & Residences in Fort Lauderdale, and the ICON Brickell Viceroy Hotel in Downtown Miami. Many owners of condo-hotel units opt to include their properties into the flag operator’s inventory in hopes their units will be rented when visitors make a reservation or walk into a property seeking accommodations. Typically, a flag operator will split the overnight fee with the condo-hotel unit owner. The condo-hotel owners are responsible for the unit’s property taxes, monthly maintenance fees, daily cleaning fees and the cost of maintaining the interior and furniture of the units based on the guidelines established by the flag operator. For many investors, the condo-hotel concept allows buyers to purchase a unit that is entrusted to the flag operator to rent out and manage on a quarterly or annual basis. Any proceeds owed to the owners are typically used to cover the unit’s monthly expenses including the maintenance fee and property taxes. Despite the convenience, many investors consider condo-hotel units to be unpredictable. Tourism trends, natural disasters and changes in flag operators can play a key factor in the project’s success. Still, condo-hotels have enjoyed a resurgence in popularity in Miami-Dade and Broward counties even prior to the South Florida casino discussion. In the first 11 months of 2011, buyers have acquired an average of 32 transactions per month at a median price of $292 per square foot in Miami-Dade and Broward counties, according to the Miami Association of Realtors. In previous years, buyers purchased an average of 17 units per month at a median price of $277 per square foot in 2010 and an average of nine units per month at a median price of $291 per square foot in 2009. As of Dec. 18, 2011, there are 375 condo-hotel units on the resale market in Miami-Dade and Broward counties at a median price of more than $450 per square foot. An additional 70 condo-hotel units are under contract waiting to transact. The median asking price for the pending deals is $276 per square foot, according to the data. As the Florida legislature prepares to decide the fate of full-fledged gambling in South Florida, it is essential for the real estate industry to control its enthusiasm and closer examine what direct impact Las Vegas-style casinos could realistically have on the region’s volatile condominium market. Peter Zalewski is a principal with the Bal Harbour-based real estate consultancy Condo Vultures. Zalewski, who has had a Florida real estate license since 1995, works as a consultant for private equity groups and institutional investors.