South Florida 'relatively insulated' from coming recession, panelists say
In spite of a looming recession, rising interest rates, and continued supply chain issues, South Florida is still a great place to build properties.
Such was the sentiment expressed during the Greater Miami Chamber of Commerce's Developers Forum held at the 2 Miami Central office tower on Jan. 19. Sponsored by the law firm of Carlton Fields, the forum was moderated by South Florida Business Journal real estate editor Brian Bandell and included Cain International senior vice president Justin Oates and Miami-based Neology Life Development Group CEO Lissette Calderon.
Oates, who oversees London-based Cain's projects in South Florida, such as 830 Brickell and Una Residences, said the Miami metropolitan area is "relatively insulated" from a national recession. Still, with lending markets essentially frozen, "it will be more difficult to get capital today than it was a year a go," Oates said.
Calderon, who recently broke ground on a 237-unit apartment project in Miami's Allapattah neighborhood, said she is still "bullish" on Miami.
"There is something about being in a good location with solid fundamentals," Calderon said, adding that even with banks shy on lending, projects "continue to get done."
The cost of construction, which rose more than 30% year-over-year at the height of the pandemic, is starting to show signs of stabilizing. Nevertheless, it's still a challenge to obtain building supplies.
"Supply chains are still correcting. Like, if you need something in 12 months, it's probably a good idea to order them now," Oates said.
Calderon, whose company builds and also manages construction projects for other developers, said she is already stocking up on kitchen appliances and air-conditioners "because, at the end of the day, we are just getting ahead of it."
The supply-chain issues did slow the completion date for 830 Brickell, a 724-foot-tall Class A office tower now being built by Cain and Miami-based OKO Group. Once slated to be finished in 2022, 830 Brickell is expected to be completed sometime this year. Although not yet ready for employees, the building is nearly fully leased by big names in business such as Microsoft, Citadel, Sidley Austin, and several other high-profile law firms, hedge funds, and corporations, Oates said.
Oates said 830 Brickell provided Miami's Brickell Financial District with a rare commodity – a brand new state-of-the-art office building. Without it, Oates said some of 830 Brickell's future tenants would have never moved to Miami.
"Those high profile firms, they were poking around the market, but would they go into a 30-year-old building in Brickell? Probably not," Oates said.
The structure was able to achieve asking rents of up to $150 per square foot, Oates said, which surprised even some Cain associates.
"Microsoft was the first big tenant we signed. That validated our business plan," Oates said, adding that soon other major tenants followed. "High profile companies like to be around each other."
South Florida's real estate sector has benefited greatly from the migration of people, wealth, and business to this region from other parts of the U.S. A recent study by the Internal Revenue Service revealed that $24 billion in net income flowed into Florida in 2020, making the Sunshine State the number one state for net wealth migration. And, according to the U.S. Census, Florida's population grew by 1.9% to 22.24 million people between July 2021 and July 2022, making it the fastest growing state in the nation. About one-third of the people moving to Florida end up in Miami-Dade, Broward, and Palm Beach counties, Calderon said.
Still, the additional wealth has done nothing to help alleviate traffic congestion in South Florida, the panelists said. The only new transportation project to come online in nearly 20 years is the privately-funded Brightline train system, said moderator Brian Bandell.
Oates said he would like to see a commuter or light rail system for Miami's Biscayne Corridor.
"More [building] density means more traffic issues," Oates said. "I wish we could think 10 or 15 years ahead rather than just three."
Another growing problem is affordable housing. Both Oates and Calderon agreed that the influx of wealth has made it more difficult for members of South Florida's workforce to buy homes. And while there are more high-paying jobs coming into the area from companies such as multibillionaire Ken Griffin's Citadel company, Oates said there aren't enough of them.
"We need to solve that for the broader South Florida community," he said.