Posted by Leonard Steinberg on December 2nd, 2013

This week heralds the beginning of ART BASEL in Miami, that eponymous art fair that revolutionized the perception of Miami from an average American coastal resort City to a world-class cultural center. Of course along with this culture comes a large swath of horrendous wannabe’s entirely focused on the party aspect of the scene, which already for some serious collectors and culture-vultures has become somewhat vulgar and off-putting.

The real estate market has bounced back too, spectacularly so from its massive decline during the great recession. Here are some factoids about this market, many of which could serve as lessons for other cities hoping to prevent similar crashes:

• Much of the buyer focus is on foreign investment: much of it is cash based with the thinking that these buyers are not here to buy real estate as much as they are here to park their money, removing it from their own countries and economies to diversify risk and exposure. This would also imply that a huge percentage of these new buildings will be rented out, or sit un-occupied a large percentage of the year. Around 80% of all buyers in Miami are foreign.
• Many buyers are being asked to deposit 50% cash down prior to closing…and in Miami that allows developers to be far less reliant on banks as they are allowed to use these funds for construction. Scary or smart?
• 70% of residential construction is for multi-family units: this means far fewer single family units are being built. It also implies that foreign buyers like the idea of a building where maintenance costs and hassles are shared. And they also love amenities.  Renting out these units is easier too. The trend towards multi-family is growing nationally and its a good thing in my opinion: multi family is FAR more efficient from every aspect and could encourage more social interaction and a lesser sense of isolation and the necessity for private transportation.
• Many buyers are buying or own MULTIPLE apartments in Miami. Many of these buyers are rich speculators. While speculation in real estate is usually bad, rich speculators are far better than those that are taking out huge mortgages or are simply gambling beyond their means.
• Will the construction of all these tall buildings make Miami less of a resort and more of a big city surrounded by water? Sounds appealing to New Yorkers for sure, especially with no state taxes…..
• Architecturally is the ‘MIAMI-STYLE’ disappearing, or is a new one being created? Miami needs to be very careful to avoid looking like “ANY-CITY-A-LA-DUBAI”.

So all of this is rather good news. One concern I have is if all this property is being bought by purely wealthy people with lots of cash, does this further erode the chances for the less wealthy middle class to become real estate owners and forever keep them as renters especially when now would be their very best chance to buy with super-low mortgage rates? Their chances will decrease over time as rates rise.