Florida's hot residential real estate market is changing gears - simmering down in some areas, changing focus in others.
Rising material and labor costs are forcing developers to adjust, particularly in the high-rise market. Some have put projects on hold or repriced units to reflect higher construction costs. Overall condo sales, meanwhile, have slipped. "The residential condo market just is not there anymore now that the speculator left," says Jack McCabe of McCabe Research & Consulting in Deerfield Beach.
The trend is particularly pronounced in south Florida, where speculators have fueled one of the most prolific condo markets in the nation. In January, angry buyers sued the Fort Lauderdale-based developers of Promenade Condominiums in Boynton Beach after the company returned their deposits. Developers canned the project in December, citing "meteoric rises in construction costs" and a shortage of labor and material caused by the spate of hurricanes in 2005. In February, another south Florida developer, the BBB Group, pulled the plug on its plans to build a $150-million, 49-story luxury condo tower along Biscayne Bay in Miami. Surging costs and slowing demand are making it more difficult for high-rise projects to secure financing.
As some developers, particularly novices, find their expected cost basis has escalated, they're shopping their projects to other developers with deeper pockets and more established connections to contractors.
Other first-timers are managing their inventory differently. Enrique Dillon is building an eight-story condo called The Whitney in downtown West Palm Beach that will be topped off sometime this month. Rather than selling all the units during the grand opening and the week afterward as many developers have done during the torrid market, Dillon is selling his 210 units on a staggered schedule that allows him to adjust prices to reflect changes in the costs of construction and other variables that affect his bottom line. He also required buyers to put 20% down and prohibited the reassignment of contracts. "It might be a little more conservative approach, but it's definitely more secure," he says.
Ken Simonson, chief economist for Associated General Contractors of America, predicts 10% to 20% increases this year in the cost of everything from fuel and asphalt to PVC pipes because of a spike in petroleum and natural gas prices. Hurricane Katrina affected the whole range of construction inputs, from the cost of labor and fuel to key supplies manufactured in the region.