A Miami real estate analyst has officially hit the "distressed" button on the city’s condo development market.
The backlog of unsold units in new high rises across Miami is growing, the result of a sluggish market and a sign of more perils to come for upcoming developments, according to a report Thursday by real estate analyst Andrew Stearns, founder of investment group StatFunding based in Miami.
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"The Miami preconstruction condo market appears to be distressed," wrote Mr. Stearns in his bleak analysis.
"Developers may resort to mark-down liquidations or bulk sales of unsold condo units as the cycle progresses, and time will tell how doing so will affect the preconstruction and existing resale market."
Developers are responsible for paying things like taxes, maintenance fees and insurance on unsold units. Those stuck with too many empty apartments may start discounting units, price concessions that could affect the rest of the market, he noted.
To make his point, Mr. Stearns published a list of 12 new condo buildings completed between August 2015 and December 2016. On average, 15.7% of units remained unsold as of this week.
A soft condo market is hitting new condominiums differently, however. The range of unsold apartments, including those under contract, swung from just 2% of units at the Peloro Miami Beach condo tower on Collins Avenue to more than half of the units at the City Centre ‘Rise’ tower in the affluent Brickell portion of downtown, according to the report.
"The number of projects with unsold developer units continues to rise," Mr. Stearns wrote, adding that some developers have not repaid their construction loans, while others are taking out short-term financing to deal with the costs of unsold inventory. For example, the developer of Echo Aventura, a luxury waterfront building, used its unsold units to secure a bridge loan, the report noted.
Developers for the Echo Aventura building and the City Centre towers did not immediately return requests for comment.
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Meanwhile, some developers have called off or postponed new construction because of the softened market, though thousands of new units were already in the pipeline when the market began its downturn. In 2017, developers will deliver 3,456 units new units to downtown Miami, according to the city’s Downtown Development Agency. Next year, the city expects another 2,846 new units.
The oversupply and subsequent price concessions will likely affect prices for the rest of the condo market, Mr. Stearns wrote. "Preconstruction condo developers, flippers, and existing condo resellers should expect pricing pressure to accelerate."