Plum Pads, LLC - Michael Internoscia

Clogged Miami condo pipeline creates shadow market

December 18, 2008
By Jennifer LeClaire

A surge of condo developments in Miami promised to light up the city's skyline. But thousands of condos are sitting dark -- and casting a shadow.

Indeed, a massive shadow market has emerged around the approximately 38,000 new condos that have either been completed or are currently being finished in Miami-Dade County.

A shadow market, what could be called a secondary market born of grim necessity, is made up of condos and single-family homes that developers and investors intended to sell but have been forced to rent instead. The county's multiple listing service shows 25,116 condos for sale here, offering plenty of potential inventory.

"The Miami market has come full circle from the pinnacle of the boom at the end of 2005 to where it is today: crashing hard," said Jack McCabe, CEO of McCabe Research & Consulting in Deerfield Beach. "Right now, we have a 42-month supply of condos -- and that doesn't include the condos that have yet to be finished."

With so much inventory and so few takers, the market now features bargain sale prices on foreclosed properties for buyers who can successfully navigate the battered credit markets. But the shadow market could cause more buildings to light up at night.

Savvy developers are restructuring their financing and repositioning their projects as apartment rentals, according to Michael Internoscia, president of PlumPads, a Miami-based real estate firm that specializes in shadow markets.

"The developers that aren't more aggressively reaching out to brokers have their head in the sand," Internoscia said. "The buyers who have been through ups and downs are actively trying to rent their units."

While developers got aggressive with buyer incentives earlier this year -- some offered to pay the first 12 months of condo maintenance fees, others touted free cars and other wild specials -- the incentives trend has slowed. That's another factor driving the shadow market.

"Incentives may be slowing for a few reasons," said Matthew Zifrony, a real estate attorney in the office of Tripp Scott. "Some developers weren't able to follow through on their promises, the more desperate developers have either sold all of their units or lost their properties to foreclosures, and regulators began looking into some of the incentives that the developers were offering."

So it's back to the rental market. Internoscia said homeowners that have gone through foreclosure still need a roof over their heads -- and most of them can't qualify for a new loan.

"People who lost their home are finding tremendous value and tremendous condominiums that are priced well-below market value," Internoscia said. "So folks are taking advantage of that, living in beautiful high-rise buildings."

The low values, high vacancies and more inventory coming to market, should halt developers from breaking ground on new projects in Miami, McCabe said.

"It would be financial suicide for any developer to move ahead with a new project at this point."

[ Also see the Press Release at The Real Deal -- South FL Real Estate News ]