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Hello everyone

Im new to the forum although Ive been reading your posts for a few weeks now. Ive recently taken an interest in real estate development and found whats going on in Miami to be fascinating.

I was wondering what your take on the rental market will be for all these new units going up. How high is the rental demand for units in CBD and Brickell. Say when 2008/9 comes and many of these buildings are complete. How much would these units fetch in terms of rental rates in CBD, Brickell?
 

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At this point, I don't think there's anyone who really knows.

I suspect the BIGGEST growth market will be for companies that sign long-term leases for hundreds or thousands of condos owned by individuals, then sub-lease them to short-term high-income transient residents (like consultants, who need a nice place to live for 6-12 months while temporarily working on a high-paying job in Miami). Big, corporate-run complexes don't mind short-term residents... they just factor in the higher costs of dealing with them and charge more. Individual owners, in contrast, tend to get REALLY bent out of shape over them.

My prediction is that a single professional content to sign a year+ lease on a one-bedroom condo will probably end up with a nicer unit at the same cost he would have paid for a comparable unit at a big rental complex, but someone who wants a bigger unit (especially a relocating family that wants to rent a 3 or 4 bedroom unit to live in while they decide where they want to buy a house) is going to have a MUCH harder time finding a place to live, and will probably pay dearly for it compared to what they would have paid at a nice rental complex in the past.

I predict that anyone who wants to sign a short-term (6-9 month) lease for a condo bigger than one bedroom will probably have a REALLY hard time finding one that's even available, and will end up bending over while their landlord puts on a rubber glove & pulls out the bucket of Crisco... there's going to be a HUGE glut of tiny one-bedroom condos up for rent, but an equally huge shortage of bigger condos thanks to Miami zoning's warped FAR-to-unit ratio that enables developers to build a hundred 650sf one-bedroom units on a given lot as a matter of right, but makes it impossible to build fifty 1800sf units on the same lot short of divine intervention.
 

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I'm curious to the pricing of these units. We all know that the majority of purchasers have been investors, flippers, etc, and I assume these owners are trying to rent their units out equal (or more) to their mortgage. I just don't see a deep demand for $3000/month tiny one bedroom units that require 1 month (or longer) minimums. I see a lot of nice units in finished buildings sitting bare empty right now.
 

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Personally, I hold by my standing prediction that in the long term, lots of one-bedroom condos are going to get dumped/foreclosed, bought at firesale prices, and ultimately gutted and combined into fewer (but larger) units. Miami developers keep forgetting that Miami is NOT Manhattan, no matter how badly they want to pretend it is. In Manhattan, people settle for tiny apartments because there's no alternative. Miami, in contrast, has plenty of nearby gentrifying areas with MUCH larger homes competing with the hordes of too-tiny condos getting built everywhere. In the near-term, I can even see middle-class families with a single teenager doing things that would be considered wacky elsewhere, like renting two one-bedroom condos next door to one another (treating the teenager's kitchen and living room as the "family home", and treating the other as an extended master bedroom suite that uses the living room as a sitting area or home office, and the kitchen as a place for a second coffeemaker and "drink" refrigerator + storage area piled floor to ceiling with boxes) just because it'll likely be cheaper than trying to find an available two or three-bedroom unit at a comparable price.
 

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How much is a lease on a one bed / one bath condo running aprox in a new building like for example BOR. Are those 1/1 only available on the lower floors?
 

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There's not really a glut yet. The units coming online right now are still satisfying the remnants of the major shortage that peaked about 2 years ago, and the buildings they're in were mostly started before "flipping" became a household word, so their developers made an effort to include larger units with more bedrooms since that's what "normal" buyers wanted for themselves. It wasn't until the insanity peaked a year or two ago that developers just dropped all common sense and started to pack as many tiny 1-bedroom units into each building as zoning would allow them to get away with, on the assumption that they'd sell them all instantly on opening day anyway, regardless of how miserably small they might be. I'm guessing it'll be another 18-36 months before the m!3rda really starts to hit the fan, and 2+ bedroom units start to cost WAY more than 1 bedroom units (due to a shortage of 2B+ units and horrific glut of 1B units).
 

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I have a friend living in the Jade in a 2/2 (1500 sqft) unit and he's paying A LOT less than the owner's mortgage and condo fees. In fact the condo fees have gone up 50% since the building opened. Apparently Fortune didn't do a very good job of estimating the real maintenance costs for the building.

Anyway, it is currently not possible to close a condo and cover the costs via rental. You are going to lose a lot per month in negative carry.
 

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One note about the condo situation. Don't forget that many, many units have been purchased by people from across the country and around the world who have chosen Miami as a place to purchase a second home or a retirement home. Of these purchasers, myself included, many have no intention of renting out the unit for the long term. This is also one reason why the smaller units have been so popular. When looking for a vacation or a retirement home, a huge, sprawling home is not what some people are looking for.
 

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dach2k5 said:
Apparently Fortune didn't do a very good job of estimating the real maintenance costs for the building.
That is a VERY common tactic used by developers, as they set fees as low as possible to attract buyers. Once turnover occurs, the new board/association will be forced to raise dues every year to keep up with rising costs, and to fund a reserve that was not properly funded by the developer and the low dues.

The board often discovers the developer was making payments/maintenance on my items not listed in the budget, and they have to make up for that shortfall when the developer is not around anymore.

All the owners will want to blame the board, but its usually the developers fault.
 

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To answer the question on rents, a 1 bedroom in BoR rents out for about $1500 to $1600 a month, 2 bedroom go for over $2100 a month. In the Club, 1 bedrooms rent for $1700 to $1900 a month with 2 bedrooms for over $2100 a month. At One Miami I've seen 1 bedroom for as low as $1350 a month and as high as $2100 a month for a high floor, 2 bedrooms start at around $2000 a month.
 

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dach2k5 said:
I have a friend living in the Jade in a 2/2 (1500 sqft) unit and he's paying A LOT less than the owner's mortgage and condo fees. In fact the condo fees have gone up 50% since the building opened. Apparently Fortune didn't do a very good job of estimating the real maintenance costs for the building.
Anyway, it is currently not possible to close a condo and cover the costs via rental. You are going to lose a lot per month in negative carry.
That is typical in new construction where the condo association changes hands from the developer to the owners. Owners in luxury buildings typically vote to add reserves. That is, the owners decide to pay a little bit more per month to open an account that will pay for big things later. Otherwise, they deal with big surprise assessments in the future.
PS. I just read LCB's post after writing the above...
LCB said:
That is a VERY common tactic used by developers, as they set fees as low as possible to attract buyers. Once turnover occurs, the new board/association will be forced to raise dues every year to keep up with rising costs, and to fund a reserve that was not properly funded by the developer and the low dues. The board often discovers the developer was making payments/maintenance on my items not listed in the budget, and they have to make up for that shortfall when the developer is not around anymore.
Not really true. Saying "tactic" sure sounds nefarious, but the reality is that it cost a certain amount of dollars to operate a building or a house or just about anything. By Florida Statute, 718 to be exact, a developer must outline the costs to operate the building with and without reserves. Once the building is turned over to the owner's, it is the owner's right and decision about what their maintenance fees are going to be. These budgets are clearly outlined in all condo documents.
 
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Condo Rental Market - Sobe

Here are some recently researched condo rental market stats for the 33139 zip (South Beach).
There are currently 420 rental listings in the MLS for rentals in South Beach (not including Fisher/Star or any of the islands).
65 Studios $ 950 - $2,100 per month
135 One Bedroom $1,200 - $4,300
182 Two Bedroom $1,800 - $10,000
40 Three Bedrooms $3,500 - $10,000
I've thrown out the top and bottom five listings to eliminate the wacko information (for instance, the $4,200 a month studio). These rental rates are ranging from 1.80 to 4.60 per square foot. I'd imagine that Sobe is one of the strongest rental markets in the United States.

Within the last 2 years, South Beach has experienced a definite shortage of rental stock. Large rental buildings such as The Floridian, The Mirador, Waverly, and now 562 units of the Flamingo have converted to condo. There is no sign in the lack of demand for South Beach living, and there is clearly a lack of supply, especially in amenity laden buildings.
 
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Always amazing to read the Herald's angle

This article is from yesterday's Herald.
It is written in a way that we should pity the poor renters.
It is my opinion that the Herald has an opportunity to educate and help renters understand that rents go up in a high demand area where supply goes down. Sure, renters are getting squeezed as rents go up, but owners are doing well when rents go up. There is a negative angle and a positive angle, note that the Herald always seems to take the doomy and gloomy.
Buy real estate and wait, do not wait to buy real estate.
Buy the way, rents at the Flamingo have increased 10% in the last 4 months since converting to condo...bad for the renters that did not buy their own apartments (85% did not) and great news for any investor that did buy in Flamingo.
Full Article
Posted on Mon, May. 08, 2006

REAL ESTATE
South Floridians troubled by higher rents

BY TODD WRIGHT AND MATTHEW HAGGMAN
[email protected]

After just a year in their two-bedroom apartment in Plantation, Carl and Pascale Desir were told their rent would go up by $250, to $1,150.

So they moved into a one-bedroom in North Lauderdale. They're now thinking about leaving Florida altogether.

''We had to go smaller to stay in our price range. It doesn't make sense to pay so much just for rent,'' said Carl, 27, a math teacher. ``We know it's a possibility the rent is going to go up here, too. You just can't get settled in anywhere.''

Rental prices are rising across South Florida, as the number of available apartments shrinks and the demand for them grows.

On the supply side, more developers have converted apartment complexes to condos in recent years in hopes of making money in a hot housing market. And fewer new apartments are going up because of high land and construction costs.

At the same time, people need rentals more than ever because homes are so expensive to buy.

The result: Rents are creeping up -- in some cases leaping up by hundreds of dollars a month.

And they're not expected to come down anytime soon -- although the increases may level off, real estate experts report.

South Florida renters, meanwhile, must spend a larger share of their income on housing or make other arrangements to get by -- find a roommate or, like the Desirs, downsize.

''It is almost a perfect storm for affordable housing -- for-sale prices high and rents going higher,'' said Kevin Judd, senior vice president at Apartment Realty Advisors.

Condo conversions are one reason. The number of apartments in complexes with 100 units or more in Miami-Dade, Broward and Palm Beach counties has plunged over the past three years from 175,000 to fewer than 107,000, according to McCabe Research and Consulting in Deerfield Beach. The analysis did not include low-income rentals or figures for Monroe County.

QUICK INCREASE

''I can't think of a time where we have ever seen rental rates increase so dramatically and so quickly,'' analyst Jack McCabe said. In fact, McCabe is organizing vulture funds betting the condo market will tank because of too much condo construction and conversion.

Miami-Dade County would need to add 3,000 apartments every year for the next five years just to get back to 2002 levels, according to a Marcus & Millichap's 2006 report.

But new apartments are expensive to build. Only 610 new apartments are expected in Broward this year -- compared to 2,828 built in 2004, Apartment Realty Advisors reports.

Developer Alan Ojeda opened a rental tower off Brickell Avenue in Miami last year and has rented 202 units at a rate of almost one a day. But he says he could not afford to build the same building today.

HIGH DEMAND

''With today's construction cost and land, there is no way for someone to build a rental and make it work,'' he said.

At the same time, more people want -- or need -- to rent. From January through April, 7,059 rental deals were signed in Broward and Miami-Dade counties, according to the Multiple Listing Service, which lists homes for sale and rent.

That's a 20 percent jump from the same time last year.

That leaves rentals in high demand, and people like Eric Marcos in trouble.

A 23-year-old recent college graduate, Marcos gave up his $1,300-a-month studio apartment and moved in with a friend because he couldn't afford a $100 rent increase.

''It's out of control right now,'' said Marcos, who waits tables at J. Alexander's restaurant in Fort Lauderdale. His friend is also facing an increase.

''It's to the point where you have to move or get a roommate. All I know is prices need to come down,'' Marcos said.

SPIKING FASTER

So far, they haven't. Rent in Broward and Miami-Dade is spiking much faster than in the nation as a whole.

Renters nationwide paid on average 3.9 percent more in March than the previous year. But in Miami-Dade and Broward, the increases were more than 10 percent. The average monthly rent for a two-bedroom Broward apartment topped $1,000 last year. Miami-Dade was not far behind at $969, according to McCabe's report.

Landlords used to offer incentives, including poolside drink service and free massages, in a bid to compete with the red-hot condo market. Not anymore.

''I would offer free parking or $100 towards the first month's rent,'' said Robert Davison, property manager for the 98-unit Summerhill Apartments in Coconut Grove, which has one vacant unit.

''Now, I don't need to do that,'' Davison said.

There may be hope that at least rent hikes won't be as steep in the future.

The supply of apartments may stop shrinking as it becomes more lucrative for owners to rent. In March, an investment group decided to keep a 376-unit complex in North Miami for rentals, instead of converting to condos. And the owners of some condo units may turn them into rentals instead, if they can't find buyers for resale in an increasingly clogged market.

''The jury is still out,'' said veteran real estate analyst Michael Cannon, managing director of Integra Realty Resources in Miami.

That's not much consolation for Howard Moss.

Moss sees the writing on the wall at his apartment complex on Biscayne Boulevard in Miami and is already looking for a new place.

Moss pays about $900 for his two-bedroom apartment, but he said others in his complex have received notices that the rent will be more than $1,000.

`NOWHERE TO GO'

Despite his early start, Moss, a photographer, hasn't found anything cheaper. His lease is up at the end of the year.

''There is nowhere to go unless you settle for less than what you have now,'' he said. ``It's a stressful situation. Everyone needs a stable place to live. It just makes life much easier if you don't have to worry about that.''
 
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Most renters are not renters by choice. I'm sure many would be happy to purchase if they could afford the 10%-20% down payment, the high property taxes, the high association fees, and the high hurricance home insurance. You'll see the rents and prices retract more this year after the next few hurricanes blow through in a few weeks. The resell market is already struggling.
 

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LCB the poor are usually overlooked by many in this group...one who would be the poster of the story.
 

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LCB said:
Most renters are not renters by choice. I'm sure many would be happy to purchase if they could afford the 10%-20% down payment, the high property taxes, the high association fees, and the high hurricance home insurance. You'll see the rents and prices retract more this year after the next few hurricanes blow through in a few weeks. The resell market is already struggling.
I'm with you on the downpayment part, but tenants are paying property taxes, association fees, and/or windstorm insurance...they just pay it to their landlord who in turn pays it. The landlord gets the deductions and the capital appreciation of the asset.
At Flamingo tenants were offered the ability to put 5% down, 3 months rent toward their down payments, no title insurance cost, no documentary stamp fee, no intangible tax fee.
The monthly maintenance on a one bedroom is about $410 per month which includes two gym memberships ($150 value), Air Conditioning, Wireless Internet Service, basic DISH Satalite service and all the other amenities of a waterfront building. The monthly electric bill is about $35! That is a lot of value for $410 per month.
As we all know, the property taxes and the mortgage interest are tax deductable items. Renters don't get any tax deductions for renting.
 
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rider_of_rohan said:
LCB the poor are usually overlooked by many in this group...one who would be the poster of the story.
Sounds like the Rider is suggesting that I overlook poor people. Not true at all. Having grown up very modestly, it is been important for me to notice the difference between broke and poor. Poor is a state of mind that doesn't change. Broke is usually temporary.
Regardless, neither poor of broke have a direct correlation as to whether you buy or rent. For example, the rent for the best one bedroom in Flamingo is $1,800 per month. Most of us would be hard pressed to lable someone that spends $21,600 per year on a 1 bedroom apartment poor or broke. However, they are still renting, often times for over 5 years. History shows us that the rent you pay (or the rent you collect) will go up over time. Which side of that equation should we all be on or striving for?
If you really care about the poor (and/or the broke) isn't educating/helping them, rather than pitying them, the right thing to do?
 
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Roark said:
I'm with you on the downpayment part, but tenants are paying property taxes, association fees, and/or windstorm insurance...they just pay it to their landlord who in turn pays it. The landlord gets the deductions and the capital appreciation of the asset.
At Flamingo tenants were offered the ability to put 5% down, 3 months rent toward their down payments, no title insurance cost, no documentary stamp fee, no intangible tax fee.
The monthly maintenance on a one bedroom is about $410 per month which includes two gym memberships ($150 value), Air Conditioning, Wireless Internet Service, basic DISH Satalite service and all the other amenities of a waterfront building. The monthly electric bill is about $35! That is a lot of value for $410 per month.
As we all know, the property taxes and the mortgage interest are tax deductable items. Renters don't get any tax deductions for renting.
I'm not really familiar with the Flamingo project, so I can't really comment on it.

However, apartment REITs are typically leveraged at least 30-40% in a building (if not more), which keeps the payments for renters very low, the building fully leased, and pension funds happy with a nice cash cow flow of money. They are able to absorb insurance and maintenance with ease.

When that is gone, and now individual owners must mortgage 95% of the cost to own, plus add all the additional expenses, then typical renters cannot afford it.
 

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Funny seeing everyone talk about this whole "how to get renters to become buyers thing" while I am pretty much what everyone is talking about. Young couple, recently married, Mid-20's (late mid-20's in my case, or is it early late 20's??), "young professionals" income ~125K. Trying to purchase first place after years of renting (for around $1700 a month). Our biggest problem (like so many others our age) is our expectations. We don't want to live out in Kendall, yet we don't want a less than 800 sqft apartment either. The thing that has stopped us from purchasing so far has been forming any kind of savings for a downpayment. Even that low 5% downpayment Roark was talking about being so low for the Flamingo adds up to about $15,000 for most of those apartments. Many of the downpayment assistance programs around have income caps too which eliminates us from the picture with those. Odds are, what is going to happen is we are going to have to buy some small one bedroom suburban apt, hope it goes up in value quickly so we can sell it can get our asses out of there as soon as possible.
 
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