South Florida’s Older Condo Stock Struggles as Newer Buildings Thrive

The Carriage House condominium in Miami Beach should be an easy sell. The building, which dates back to 1967, overlooks the ocean in the city’s coveted Mid-Beach neighborhood. And, yet, at least 26 of its 416 units are languishing on the market. 

In contrast, the Perigon, an OMA-designed luxury condo under construction next door, is doing just fine. The 18-story project, developed by Mast Capital and Starwood Capital Group, secured a $390 million construction loan earlier this year, and more than 75 percent of the residences are under contract. 

These two buildings tell the story of South Florida’s bifurcated condo market. Prices overall are falling as owners of older condos flood the market with units to avoid mounting structural repair costs following reforms passed after the deadly June 2021 collapse of the Champlain Towers South building in Surfside. 

But real estate analysts and executives say they aren’t too worried. Demand for new, ultra-luxury condos remains healthy, even as the wealth migration from North to South has slowed since the height of the pandemic. And lenders, despite interest rate hikes, are providing mammoth financing packages to get projects off the ground.

“Even when the brakes are on everywhere else, Miami seems to still have some momentum, because the money that’s coming into the market defies logic. It defies the macro economy,” said Scott Wadler, managing director of Berkadia’s Miami brokerage office. “It’s the exception to the rule.”

The rest of the state’s market, though, is not as lucky. At the beginning of the year, Florida had 172,209 homes for sale, the most since 2012 and 22.7 percent more than last year, according to a report from Redfin. 

Sales are slowing, too. In April, the number of closed sales dropped by an average of 18.3 percent across South Florida’s three counties — Miami-Dade, Broward and Palm Beach — from a year prior, according to data from the Miami Association of Realtors. Median sale prices were down in Broward and Palm Beach counties. 

New legislation provoked much of the downturn. In 2023, the Florida Legislature passed laws mandating that condo associations inspect buildings that were at least 30 years old and begin saving up for expensive structural repairs. In January, the first inspection deadline came, leaving many condo owners with bills that amount to tens of thousands, if not hundreds of thousands, of dollars. 

Take the 1060 Brickell building in Miami’s Brickell district, where condo owners are facing a $21 million assessment, as CBS Miami reported. The assessment averages to nearly $64,000 per unit. At least 17 condos at that address are now on the market, with some owners having cut their asking prices by tens of thousands. 

Some analysts predict the market will slowly recover. “For the next five years, or four and a half years, I think there’s going to be a lot of uncertainty and nothing but falling prices,” said Peter Zalewski, an independent condo analyst. “When a couple of people start to sell units cheap in a building, that creates, effectively, a doom loop. Think of it like a game of Tetris.”

But, on the ultra-luxury end of the market, upside abounds, at least for now. “The buyer for that new stuff is not the same buyer as for the old stuff,” said Nick Miceli, TD Bank’s Florida metro president. 

Despite a glut in the market, developers are still landing sizable construction loans, which serve as proof of concept in Florida. Before a lender provides financing, builders must sell a certain number of units, typically at least 50 percent. 

Many have. Just last week, developer Stephen Ross nabbed one of South Florida’s largest condo construction packages: $600 million for a waterfront luxury condo development in West Palm Beach. A few months prior, Savana obtained $380 million to construct a similar project. 

Even new luxury destinations still look attractive. Related Group and Merrimac Ventures landed $160 million for an oceanfront project in Pompano Beach, a mostly working- and middle-class town until the pandemic, when developers began launching luxury projects along its oceanfront.  

South Florida’s “pre-construction pipeline is definitely slower than it was in the immediate aftermath of COVID, but we still have one of the most active in the country,” said Ana Bozovic, a condo analyst and founder of Analytics.Miami. “Key for condo pre-construction is product that’s aligned with this wealth migration and in some sort of location where scarcity is inherent.”

It’s a formula that Eduardo Otaola of Constellation Group is using. He selected Miami Beach’s North Beach neighborhood for Ella, a boutique condo project. In comparison to neighboring areas, such as Surfiside and Mid-Beach, North Beach counts few new condos. In March, Otaola secured a $42 million construction loan after putting more than half of Ella’s units under contract.  

For his next project, Cora, Otaola has chosen Coral Gables, a wealthy suburb of Miami. Given the town’s tight single-family market, the developer believes there’s also demand for new condos. He feels confident he’ll secure financing in the coming months.  

“Cora is in an ultra-high barrier to entry market, where there are only 260 units of pre-construction at the moment, and there’s significant demand for end-user product,” Otaola said. 

For other developers, the downturn is creating new land opportunities. As condo owners face steep assessments, some are choosing to sell to developers, who will redevelop their building into a luxury condominium. While these transactions are difficult to close because they require the approval of almost all condo unit owners, they can unlock sought-after land, typically along South Florida’s built-up waterfront. 

In Coconut Grove, the wealthy Miami residential neighborhood, Mast Capital is buying out units at a condo building that faces Biscayne Bay. The developer began acquiring units in 2015, and this month it expects to close on about a dozen units, alongside BH Group. The additional units will likely grant the developers enough units to gain control of the condo owners association and thereby the entire building. 

But even as the construction pipeline remains active, South Florida is not immune to broader macroeconomic trends. Fears of a recession are growing after the Trump administration launched a global trade war earlier this year and is now pushing for tax breaks that are expected to widen the deficit by $2.4 trillion, an expansion that will likely rattle the U.S. bond market. These moves could eventually also rattle the appetite of ultra-high-net-worth individuals for new condos. 

Still, real estate analysts aren’t too perturbed. 

“Everyone is affected by the wider economic trends, all states, all cities,” Bozovic said. “Within that framework, South Florida is on the path of least resistance because it’s become a place that’s perceived as being friendly to capital and business.”

Julia Echikson can be reached at jechikson@commercialobserver.com.