We sat down with Greg Freedman, Principal at BH3, for a Q&A on the state of the Miami real estate market, and what’s next for the dynamic development firm.
1. Miami has just been ranked the #3 US city for real estate investment, reinforcing Miami as having a healthy RE market. What factors contribute to Miami an attractive investment?
GF: People have always been attracted to Miami for the sun and fun. However, over the past decade (and particularly over the past 5 years) Miami has become a truly global city- and aside from Manhattan- it is the most international city in the U.S. This is exemplified by the expansion of offerings in arts, culture, entertainment, and global cuisine offered by some of the world’s most notable chefs and restaurateurs all having a presence in Miami. Combined, these factors have not only attracted a migration of individuals from other cities and countries seeking the lifestyle that Miami offers, but has also resulted in major corporations relocating or expanding their presence in Miami. Also of critical importance, Miami International Airport and Ft. Lauderdale/Hollywood International Airport both have more non-stop domestic and international flights to/from major global cities than any other airport in the U.S., making Miami easily accessible for both corporate and leisure travel.
2. What are your predictions for Miami’s condo market in 2016?
GF: At BH3, we have made our careers by sticking to areas that have very high barriers to entry, have strong economics that support additional supply, and that cater to end-users. These areas include the barrier islands (from the Intracoastal to the beach), Coral Gables, Coconut Grove, and Doral to name a few. The beach/waterfront corridor of the barrier islands continues to have extremely high barriers to entry as: (a) There is literally no more developable land; (b) Any development parcels that become available are extremely expensive and thus can only cater to the uber-luxury market, which are end-users and not investors; and (c) The majority of planned projects on the barrier islands are not only mostly sold, but are already constructed or nearing completion in the next 18 months. Accordingly, based on simple supply vs. demand, end-user buyers looking to acquire in the barrier islands only have very limited options and we don’t see any meaningful changes on the horizon. This same logic applies to neighborhoods mentioned above, however, it vastly diverges when you look at neighborhoods such as downtown Miami and Edgewater, and it will be interesting to monitor these areas heading into 2016, given that all of these areas have extremely low barriers to entry, and there is a massive amount of supply proposed that- in our minds- well exceeds any real demand (this is evidenced by certain projects in said locations already being withdrawn from the marketplace). Our beliefs are that any projects in these markets that aren’t already substantially sold and under construction by now will not get built during this cycle until the existing inventory that is already under construction has been absorbed. Furthermore, these markets are highly reliant upon foreign middle-market purchasers (e.g. $400,000-$1,000,000) and investors, most of which are not end-users and much of these demographics have seen steep declines in the purchasing power of their local currencies against the U.S. Dollar at the same time retail pricing is at an all-time high. These factors, combined with high construction costs, rising interest rates, and lenders sitting on the sidelines to see how existing pipeline product gets absorbed in these areas, make for an interesting situation to monitor closely.
3. What are some emerging trends in RE to look out for in 2016? (This can be specific to architecture and interior design, amenities and lifestyle offerings, new buyer demographic shifts, etc.)
GF: We believe as a whole that Miami real estate market has matured a lot in recent years and in doing so and catering to a more global and demanding purchaser base, we expect lifestyle trends continuing to emerge, including an emphasis on: impressive and lasting design by renowned architectural firms; integrated interior design that exudes the “soul” of a building; the continued presence of “branded” buildings that purchasers identify with; and most notably what we call the “amenities arms race” where each building is offering more expansive amenities than the next. All of the above point back to developers selling a lifestyle, not just an apartment, which is something we pride ourselves on at Privé at Island Estates where we have more indoor and outdoor amenities than any other project in South Florida and is why we were named the #1 most exclusive project in South Florida (and #14 in the entire world) by Elite Traveler. It’s the lifestyle aspect that makes the Miami real estate market a strong one.
4. How many other projects are in the works for you?
GF: Aside from Privé at Island Estates, we are currently evaluating a luxury rental project in another submarket in South Florida that has very high barriers to entry and where there hasn’t been any new luxury rental product in over a decade. Additionally, we are co-developing a boutique mixed-use condominium and retail project in Brooklyn.
5. What other markets are you currently eyeing as potential development sites, besides Miami?
GF: We are active owners of multifamily product in Manhattan and we are long-term bullish on Brooklyn and aside from our current project there, we have another property near the Barclay’s Center that we plan on developing in the future.
With an expertise in financial analysis, sales and marketing, Mr. Freedman oversees Acquisitions, Financial Analysis, and Sales/Marking efforts at BH3.
Since its inception in 2009, BH3 has acquired, restructured, and recapitalized or sold an impressive portfolio valued in excess of $1 Billion, comprising over 1.5 Million square feet of high-end residential condominiums in the South Florida market, more than 500 rental apartments in New York City, and dozens of mixed-use properties throughout South Florida and New York City.
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