5 Questions With Kevin Maloney of PMG

Since Kevin Maloney launched Property Markets Group three decades ago, he has been on a tear. The company, now known as PMG, has amassed a national portfolio of 10,000 residential units and 18 million square feet of development.

PMG is a major player in South Florida, where its projects include the 93-story Waldorf Astoria Residences Miami and The Elser Hotel & Residences, a condo-hotel at 398 Biscayne Boulevard in Miami.

And with buyers’ appetite for condos still going strong, Maloney, the company’s founder and CEO, has shifted away from rentals and further into the for-sale arena.

The following conversation has been edited for length and clarity.

Commercial Observer: You’ve got a lot of projects going. Give the quick overview.

Kevin Maloney: Everything we do is ground-up construction. We know how to build stuff, how to get through the process, how to get through the cities. We have about $4 billion under construction. A few years ago, we were 70 percent weighted in multifamily and 30 percent in condos. With rising interest rates, and rising operating expenses, specifically insurance, we’re the opposite. We’re probably 30 percent weighted in multifamily and probably 70 percent in luxury condos. I think the multifamily space is pretty much shut down.

In the condo space, we’re in great markets. We just launched the Waldorf Astoria Residences Denver Cherry Creek. In Miami, we’ve got five locations going up, and those are all over 90 percent sold out. Some of them are 100 percent sold out. In St. Petersburg, we’re introducing a new high-rise Waldorf. Generally, the condo business has been very positive for us.

In multifamily, we’re building Society Nashville, a 502-unit rental right on Broadway in Nashville. We won’t be delivering for 18 months, and in another 18 months, Nashville’s multifamily market will be completely different. That will give the market some time to achieve equilibrium. Nashville has another 10,000 jobs coming from people moving. I’m comfortable with Nashville, because I see a lot of growth there. It’s a tax-free state.

But I think nationally, multifamily is shut down. SOFR was at 18 bps, and then SOFR went up to 550 bps. Even if you had 30 percent equity in the original project, you no longer can afford financing in the current state. We’re in a different place than a lot of developers. We’re more liquid, so I don’t see a ton of downside for us. But operating expenses have grown substantially. Insurance is up three fold.

I know insurance has gone up, but is it really three times as expensive?

If you were paying $1,000 per unit, you’re now paying $3,000. Storms are getting more severe, they’re getting more frequent, and insurance companies are reacting. This is going to be a real problem. Insurance costs are doing tremendous damage in both the condo space and the rental space. I don’t like to blame any one thing, but certainly in South Florida, the Surfside tragedy was the beginning. And as storms rip through these cities, insurance companies are either refusing to insure, or premiums are continuing to skyrocket. It’s not exclusive to Florida.

Are you surprised there’s still so much demand for high-end condos?

There’s still a lot of migration from some states to other states. Some people say, “Oh, Florida is over. It’s soft.” But over 80 percent of the condos on the market are over 40 years old. And Florida still has 1,000 people a day moving in. So the parameters are here – we still have the population growth. A lot of people are moving from California and the Northeast, and a lot of it is tax-driven. And the supply is not overbuilt. I’m not saying it won’t end – it will end at some point, or slow down. I am seeing a slowdown in the $10 million price range. But the stuff that’s priced at half a million to $2 million is flying out the door. 

Why did you decide to develop a condo-hotel?

That’s an interesting story. The Elser is a 650-unit deal, and it started as multifamily. We were 20 percent leased before the first person moved in. We had offers on the table for substantially more than it cost us to build it. We were happy. We were going to have a long-term capital gain, easy-peasy. Then rates went up very significantly and substantially. Buyers were coming back to us and saying, “It doesn’t make sense anymore. We can pay you $15 million more than you paid to build it.” Then rates went up again, and they said, “We can pay you $10 million more.” We weren’t upset, because we would have behaved the same way.

So we went to a group of brokers and said, “Here’s standing inventory. You don’t have to wait four years for it to be finished. What do you think?” They said, “Let’s furnish it, let’s put some forks in it, let’s create a hotel brand.” 

We converted to a condo, and the units flew out the door. That asset went from a $10 million profit to a $150 million profit – even after all of the costs to furnish it. 

We had to buy out the tenants who had signed leases. We said, “We’re going to pay you not to move in.” We paid them three times their deposits to try to make them happy. Lemonade out of a lemon. That’s the story of the Elser – It was 100 percent interest rate driven.

What’s your biggest challenge?

We have a new administration, and we’re very worried. This is a guy who wants to kick all the asylum seekers out of the country, and that’s a big percentage of the construction industry. We need the workers. 

This is a guy who wants to tariff everybody. Tariffs get passed onto consumers. Our suppliers have already signaled to us that if steel and wood and concrete get tariffed, our building costs are going to go up. We could be in a position where if you’ve already sold your building before you’ve bid the construction, higher costs could squeeze your profit margin down to nothing. 

I don’t know how many of those policies will happen, but I take them seriously. Brave new world – but we’ve been in business since 1991, and we’ve managed to survive this far.

Jeff Ostrowski can be reached at jostrowski@commercialobserver.com.