It's a Mad Mad Mad Loft World
With all the high-rise condos going up downtown, from NW 36th Street to the southern end of Brickell Avenue, one has to wonder: What stunt is Miami trying to pull? This one: Entice at least 40,000 people to move downtown over the next two to four years and then rely on mass transportation to move around. It's an exciting idea. Think of the millions of dollars in new tax revenue those property owners would kick in to help the city stay financially healthy and cover its vast payroll and other expenses. Think of the money those downtown people would spend at all of those fine downtown shops, restaurants, bars, and strip clubs.
Think of the traffic. Already, without those new residents, the rush-hour parades northbound on Biscayne Boulevard and southbound on Brickell Avenue are impinging on quality of life. Bumper-to-bumper morasses are found in all directions. And most know that the closest place to hell in Miami-Dade County is found on State Road 836, I-95, and the Palmetto Expressway during the afternoon commute. But they're okay with it. They've got cell phones, radios, CD players, maybe even a DVD to comfort them. They'll be home within an hour or two. It's not as miserable as driving in Los Angeles or Manhattan. Yet.
Currently about 100,000 people work downtown and most flee by automobile as quickly as possible when evening comes. "Downtown Miami," in the city's transportation plan (and for this article), is the area east of I-95, west of Biscayne Bay, south of NW 36th Street, and north of the Rickenbacker Causeway entrance. But tens of thousands must also live downtown, according to City of Miami planners and venture capitalists.
After technology and dot-com stocks tanked three years ago, many big-dog investors across America shifted their money to real estate. Some targeted underdeveloped urban areas like Miami. As a result developers have been steadily dropping off proposals at the planning department for new high-rise projects. Among them are Netscape founder Jim Clark, who has a little money to play with after selling his browser biz to AOL in 1999 for $9.9 billion. One of his real estate group's projects is Blue, a 36-story condo planned for a lot on NW 36th Street at the western end of the Julia Tuttle Causeway. Another is Mist, a 55-story residential tower slated for the 800 block of Biscayne Boulevard, across from American Airlines Arena. Blue's units are going for $300,000 to $600,000. Mist's are expected to be $500,000 and up.
Local developers have been leading the charge. The Related Group has broken ground for One Miami, a two-tower, 896-unit structure at the mouth of the Miami River in old downtown. Just west, across the street, MDM Development Group is scheduled to transform three square blocks of parking lots into three high-rises containing 1500 units. The mood is so giddy that some developers are talking about tearing down old hotels and replacing them with lucrative new residential high-rises. Ugo Colombo is considering demolishing the aging Dupont Plaza Hotel just upriver from the One Miami site. Three blocks north on Biscayne Boulevard the 77-year-old Everglades Hotel may be torn down and replaced by ... a lucrative new high-rise condo. "Developers have at times a strong lemming-like instinct," says Andy Dolkart, president of Miami Economic Associates and a real estate market analyst. "One guy's going so other people are following."
At last count 40 new high-rise condominium and rental apartment projects, mostly luxury, were under construction or planned in downtown Miami. In Brickell the names of buildings tend to be quaint: Brickell View, Park Place, Brickell Station, Jade. North of the Miami River they have loftier names such as Platinum, Sky, Ice, and Blue, perhaps because marketers tend to call the condos that are to be inside them "lofts." Buy one and be close to the "center of chic known as the Design District, where hot new clubs and restaurants neighbor the showrooms of design superstars like Holly Hunt and Alison Spear," as one publicist assured in a recent newspaper supplement.
The Brickell area, which underwent an office building boom and bust cycle in the Eighties, will soon be high-rise saturated. Much of Brickell is currently a series of huge construction zones. That kind of density also will eventually transform the Edgewater area north of the old Omni Mall. For example a two-block area overlooking Biscayne Bay between NE 17th and 19th streets will be stacked with four residential towers. The 51-story Quantum on the Bay condo tower will be jammed right next to three high-rise luxury rental projects, including the 1800 Club, Opera Tower, and the three-year-old Bay Parc Plaza. They will hold a grand total of 2700 living spaces and their long shadows will make for an early sunset at the recently renovated bayside Margaret Pace Park, just across the street.
While city planners have been preparing to usher in the condo boom for years, they only recently unveiled a transportation plan to ensure that this brave new density doesn't create traffic so hellish that it scares away the very people planners want to lure downtown. Unfortunately the trolleys and trains proposed in the plan will likely arrive long after they are drastically needed.
But all of the high-rise construction is proceeding according to the City of Miami's Downtown Master Plan, which city commissioners approved way back in 1989. "The city commission wanted to make downtown a real living downtown where people lived and that's why they adopted this, in the late Eighties," explains Lourdes Slazyk, assistant director of planning and zoning and an author of the plan. "We waited and waited. Now it's happening." She adds, "Most of what is happening in downtown right now is actually consistent with the master plan that is still in effect for downtown. It's really still valid."
And it's really simple, on paper. "We had all this office [development]," Slazyk continues. "We wanted the residential to start bringing in day and nighttime uses and the entertainment and the retail and all of this [business] that usually follows residential [construction] more so than office," she elaborates.
In reality, however, the plan is a blueprint for one of the boldest collective real estate gambles in Miami's history. The 40 new buildings will contain, in urban planning lingo, approximately 20,000 dwelling units. Planners figure an average of about two persons per unit, so the new downtown digs could accommodate about 40,000 new residents. To get a sense of just how bullish the city's planning department is, one needs know only that 40,000 is the number of people planners over at Miami-Dade County estimate will move into the downtown area by 2020. In other words, these condos will be ready about fifteen years early.
In addition no one really knows how much demand for them exists. "I don't think that anyone would go out there and intentionally start a condominium project if they thought the market was oversupplied. But it's really difficult to keep track of where the market is at any point in time," warns Keith White, president of Reinhold P. Wolff Economic Research in Pompano Beach. "I can tell you without a doubt that no matter how much time you spend trying to figure out what all's going on, you're not going to be 100 percent accurate or even close to it."
Urban planners at the City of Miami rely on their counterparts at the Miami-Dade County Department of Planning and Zoning for population growth statistics. County demographers have recently finished crunching data from the 2000 U.S. Census and updated their population projections for the Miami-Dade County area. According to the census tally, about 97,000 lucky souls already live in downtown Miami. By the year 2010, the county projects that the number of downtown residents will increase by 9347 to 106,650. For these newcomers to move into high-rises, there would need to be about 4700 units. That means that when the high-rise residential projects currently planned or under construction are completed in 2006 there will be a surplus of about 15,000 units. If the county's conservative census-based projections remain valid, that is just about the number that will be needed by the year 2020, when the downtown population reaches 136,000.
What on earth could City of Miami planners be thinking? For starters, about engineering an unprecedented major population shift. They and developers are banking on their abilities to lure people to live downtown at a far faster rate than ever before. In fact city planners believe that by 2020 as many as 67,000 people could be lured into living in downtown. That projection falls under the "Visionary Scenario" in the city's new Miami Downtown Transportation Master Plan, which foresees light rail, trolley cars, shuttle buses, and water taxis as the means for curtailing the use of the 67,000 additional cars that would likely accompany those new residents. A slightly less heady prognosis -- the "Enhanced Scenario" -- anticipates about 46,000 new residents (or 23,000 new housing units). This model assumes one economic upturn and one downturn will occur between now and 2020. A "Conservative Scenario" is based on the county's census data projections of about 30,000 new residents (or 15,000 new units).
Despite all the unknown quantities, one number is certain: About 80,000 people already commute by car to jobs downtown. The other 20,000 arrive by other means (mainly Metrorail or bus). Another certainty: A sharply higher percentage of commuters had better be riding on mass transit or there will be hell to pay. The city's new transportation master plan is supposed to ensure there isn't.
But Clark Turner, the city's transportation coordinator, won't mind if drivers feel the pain. "I'd love to have a city so dense that you can't use a car during the week," says Turner, a septuagenarian who helped create the 1989 Downtown Master Plan with Slazyk. In Turner's view, an attractive development model for Miami is Manhattan.
Turner does note that density without transportation alternatives would at some unknown point scare potential residents, and hence condo developers, away from Miami. "The planning exercise here is to say, 'What are we going to have to do to make sure that the congestion doesn't get so bad that the market goes somewhere else?'" Turner submits. "And so that's what the improvements are designed to do." And if alternatives to cars do not arrive in a timely fashion? "It'll go to the point where congestion gets bad enough that you can't really move around conveniently," Turner predicts. "And then if things don't happen to alleviate that congestion the market will put that development elsewhere, not in downtown."
So enthusiastic are Miami's city planners that they believe it is reasonable to expect a huge increase in downtown employment between now and 2020. The Enhanced forecast projects 30,000 new jobs by 2020. The Visionary: 48,000. Conveniently, all of these new employees could fit into the 40 new high-rises now planned or under construction.
There is one big flaw in these two scenarios. "Downtown is not a growing employment center," observes Andy Dolkart. "Our growth from an employment perspective has largely been outside of downtown. We've built more arenas than office buildings in the last fifteen years. We've built two arenas." Dolkart adds: "The real growth in jobs in this community has actually been west of the airport."
Fortunately the visionaries at the City of Miami have several phenomena working in their favor. One is urban sprawl. Any intelligent person knows that it must stop, for everyone's sake. It also must cease for very practical reasons: a national park to the west and the Atlantic Ocean to the east. More density is inevitable because development can only proceed in a finite area.
Also traffic congestion is getting so bad that it is driving people to take action, other than honking and screaming at other drivers. In previous years, Dolkart says, "people complained about traffic but it really wasn't at the level where it motivated them to make some decisions."
One of the most compelling phenomena is the large number of Miami-Dade residents in the baby boom generation who are still working. They range in age from their late forties to mid-sixties. "Many of them are living in single-family houses," notes Dolkart. "But as their children get older they don't need the back yard and the swing set and the swimming pool anymore."
Worsening traffic jams may be just enough to push them to relocate downtown. "Particularly with [congestion] an issue, they may make decisions to change their lifestyle and live in something that is more convenient, that gets them closer to a more energized environment," Dolkart imagines. "We've seen that [happen] in Boston and Philadelphia, Chicago and other cities. We've never had a large number of people in this community in that age group ... now making decisions about what they're going to do. And it's a growing segment of our population." Some of the downtown condo projects under way will succeed because they capture that demand, Dolkart adds. "The problem that we have is that we don't know how deep that market is. And we also don't have any reason to believe that once that initial wave of pent-up demand is taken care of, that [more] demand is going to continue to be there." Another mystery: How many people who want to live downtown can afford a half-million dollars for, say, a one-bedroom pad. "Most of it is ending up being pretty pricey product," says Dolkart. "So you're talking about a segment of the market that by definition is at the top of the pyramid."
The dollar's recent decline vis-à-vis the euro could provoke a blip in Europeans interested in buying condos. South Americans represent another, though unpredictable, source of condo purchasers. "A lot of the McMansions that are being sold in Pinecrest right now are with South American money, and a fair amount of it is Argentinean," Dolkart reveals. "And that's frankly folks that are looking to hedge their bets. If they have the money they may in fact buy up here even though the economy in their country sucks at this point."
The big secret of this boom is that no one really knows for sure how it will pan out. Numerous real estate agents say privately that they expect a glut in the luxury condominium market. Even professional analysts are having trouble monitoring the situation. "Condominiums have always been a difficult market to analyze, partly because it's really hard to keep up on units to be on the market," White says. "It changes dramatically from week to week. I think that's one reason over the years ... that [the condo] market has tended to get overbuilt every now and then."
One way to avoid a glut would be to base development plans on population growth. The worst-case scenario, from a real estate developer's perspective, is simply a matter of calculating past population growth and projecting it into the future. "If you're going to have a certain amount of household growth, how many housing units are you going to need to accommodate that growth and what kind of housing?" White says, outlining the analysis for this conservative approach. "A certain amount of [the growth], based on historical trends, is going to be condominiums. Then what price ranges? And then when you get done with that, you still have the big question mark because of that unknown element of investor-buyers."
Investor-buyers are people who purchase a condo in order to sell it for a profit, rather than use it as a primary residence. "That's where the market can really get in trouble. It's just so difficult to measure," White cautions. "And then someone comes along and practically sells out a building in a weekend and then boy, everybody jumps on that, and thinks it could happen to their [building] too."
There is a hunch among experts, though, that it won't happen to everyone's building. Yes, the bad stock market, demographics, and low mortgage rates continue to fuel Miami's high-rise condo boom. "Obviously, the low interest rates help, as does the prospect of a retiring baby boom generation," affirms author Andrew Tobias, who invested heavily in small apartment buildings and houses on Miami's Upper East Side in the Eighties and Nineties. (He writes a daily financial advice column on his Website and is currently treasurer of the Democratic National Committee.) But Tobias ominously notes a third factor: "The natural tendency is for developers to get carried away until, eventually, the cycle goes bust." Detecting the end of another cycle, he sold most of his holdings over the past year (for a several-million-dollar profit), believing mortgage rates had bottomed out, and that therefore the prices he could get had peaked.
Dolkart and others believe some of the downtown projects will not be profitable, at least not for many years. "The initial buildings will in fact do well," he speculates. Initial buyers will tend to be lawyers, accountants, and other executives who work downtown, want to live downtown, and can afford to pay mortgages for condos priced at $300,000 and up. He notes that some people may become "reverse commuters," that is, live downtown but still work elsewhere. "At the end of the day the reason to live downtown or anywhere is to be in an environment that fills your needs. And one of your needs is going to be getting to work," he explains. "And I can tell you there aren't 20,000 folks who work downtown and want to live downtown right now."
For the people who bought preconstruction condos downtown as a safe investment, the outlook isn't rosy, either. Mortgage rates are creeping up, which means the number of prospective buyers will fall along with condo prices.
That doesn't dampen Slazyk's faith in developers or the 1989 Downtown Master Plan. "The developer is the one that's going to develop something that the market is going to support," she assures. "We don't stop somebody by using zoning because we disagree with what their market studies say." While she says there is a new master plan in the works, it won't be finished until after the latest building cycle. So for now at least, come boom or bust, the developers remain the masters of the plan.
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