Image: Quantum on the Bay. The backdrop for last evening’s Nightline piece
According to Nightline, which aired an expose concerning the real estate boom in Miami, what we have here is fool’s gold. The piece centered around condo investor-owners that want to pull out of contracts due to drops in unit value caused by over-supply. Quantum on the Bay and 500 Brickell were cited as an example of such a situation.
“Rosa Blanco paid $465,000 for a one bedroom at Quantum on the Bay. Today, however, Blanco estimates the property is worth $100,000 less than what she agreed to pay.”
Retired businessman Tom Leon knows a bad deal when he sees it. He bought two condo units two years ago for $500,000 each, hoping to flip them for quick profit.
Today, as the buildings near completion, Leon is certain he couldn’t he even get $400,000 for each of the units — so he’s decided to cut his losses and walk away from $200,000 in deposits rather than pay the $800,000 balance he now thinks is a bad investment.
The report stated that the Miami skyline has transformed, but at the cost of many speculative buyers suffering financial loss. It referenced Miami’s history of boom and bust. They are right but to a certain extent. This boom will go down as one of the most important and positive events in Miami’s history.
The Boom’s Effects
Because of the boom:
- Miami surpassed NYC for the first time in new construction–at least momentarily elevating us to the great pantheon of famed cities.
- Miami is developing a sense of real and broad urbanism–breathing life to the center of the City.
- Neighborhoods once derelict will have emerged from obscurity–adding depth to the social fabric of our City.
- Miami is closer than ever before to being a truly world class metropolis–so that the world can know.
- The city’s vast skyline will actually reflect the ambitious and adaptive nature of its inhabitants–enhancing civic pride.
One can go on and on. Yet, apparently the real news is these short sighted investors who planned poorly and bit off more than they can chew.
Disgruntled Investors Going Out With a Bang
It’s unfortunate that there are some flippers/investors crying foul and doing whatever they possibly can to garner attention, discredit developers, and tarnish the market. These people are at the root of the foreclosure spike, units for sale over supply, and contract pullout craze. Since they can’t afford to remain in place they’re going out in a blaze of glory. The very essence of this report, I think, is positive: Flippers and investors are getting flushed out.
In the Long run
The price downturn will continue and probably worsen as thousands more units come into the market, and frankly, one cannot ponder a recovery when one hasn’t seen the bottom yet, but there will be a recovery, and the buildings aren’t going to be swept away as the flipper/investors will. After the market bottoms out and begins to recover, we will be left with a much greater city than we had before. End buyers will remain as the beneficiaries. They planned longterm, committed themselves to the vision, and did not place themselves at the mercy of a highly volatile and unpredictable market. They will benefit from long term value gains.
Despite the downturn, the boom will have served to set an already exotic Miami further apart from most other major U.S. real estate markets. My guess is that the long term (5 year minimum) gains are going to make even today’s high purchase prices seem like peanuts.
Housing Price Index since 1975 for the Miami-Kendall-Beaches Metropolitan Statistical Area-as defined by the U.S.Census Bureau (right click to view full image):