Outlook for Florida's Real Estate Market: Overcast But Clearing?
An investor group buying a 63-unit condo project on Brickell Avenue in Downtown Miami recently secured financing from a local bank, according to CondoVultures LLC, a real estate consulting firm in Bal Harbour, Fla. Granted, the $5.5 million mortgage for the new buyers works out to $68 per square foot -- quite a drop from the $126 per square foot price that was the basis for the building's original purchase price of $10.2 million in August 2009.
Still, these events amount to cheery news for the southern Florida's beleaguered real estate market.Peter Zalewski, who runs Condo Vultures, believes the deal signals a belief on the part of lenders that Miami's condo market is starting to stabilize and a willingness to lend on larger deals. Most recent condo sales in downtown Miami have been done with cash buyers.
And brokers say they have been busy in the last three weeks as South Florida glowed in the national spotlight -- and was flooded with visitors. In addition to the Super Bowl, played on a picture perfect day, Miami was host to the NFL's Pro Bowl on January 31. And during Presidents Day weekend, the region hosted the Coconut Groves Arts Festival and the Miami Beach Boat Show, two events that usually brings in out-of-town buyers for art and boats.
"We just had the greatest commercial for South Florida we could ever have," says Kenneth Rietz, who handles the Bank of Miami's portfolio of foreclosed properties.
Despite the hopeful signs, the outlook for the real estate market in South Florida is still rather gloomy.
Yes, foreclosures were down in January, but Florida still ranked among the the top states in terms of the number of properties receiving foreclosure notices that month. Combined, Florida, California and Arizona accounted for the more than 44 percent of new filings nationwide in January, according to RealtyTrac.com.
A still-high rate of foreclosures, little credit availability and a continued high unemployment rate don't bode well for the real estate market, according to the University of Florida's quarterly survey of real estate professionals throughout the state, done by the school's Bergstrom Center for Real Estate Studies.
As one respondent summed it up: "Unemployed people don't need office space, don't shop, don't pay rent, and don't buy houses."
Ken Thomas, a Miami-based real estate consultant and a lecturer at the University of Pennsylvania's Wharton School of Business, says that until the credit shortage is alleviated, any full recovery is doubtful. But lending can be tough when many of state's banks are on the ropes. Thomas estimates that about 60 of Florida's 300 banks are troubled. He expects federal regulators will close some 20 banks this year. In 2009, 14 Florida were shut down.
As properties -- from single family home and condos to, increasingly, commercial buildings -- continue to feed into the foreclosure pipeline, brokers worry about increasing supply in the market as they emerge on the other side. A study by the John Burns Real Estate consulting firm in Irvine, Calif. estimates Miami has a "shadow inventory" of about 24 months to work off.
This is not a good sign. Rietz says he initially worked only on residential foreclosures. Recently, his team was split in two. Now he's part of a team of five bankers working only on commercial foreclosures.