Storms Rattle South Florida Condo Boom

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Storms Rattle South Florida Condo Boom
By Hortense Leon

The condo market in Miami-Dade County, which is bursting at the seams with
new construction and intense investor demand, took an unexpected hit in
October when Hurricane Wilma ripped through South Florida. Already burdened
by rising construction costs, developers now confront the likelihood of
further price hikes and shortages of both building materials and labor.
Hurricane Wilma resulted in total insured losses of $7.2 billion, reports
the Insurance Information Institute. Those losses, coupled with higher
building costs, have made lenders increasingly reluctant to loan money on
condo projects. This latest blow could well be "the nail in the coffin,"
says Jack Winston, senior consultant with Goodkin Consulting in Miami.
With diminished building supplies, South Florida condos are beginning to
experience project delays. Before Wilma struck, Dan Whiteman, president of
Miami-based Coastal Construction Co., says that he waited three to six
months for deliveries of roof tiles. Now, he expects to receive roof tiles
in nine to 12 months.
PVC (polyvinylchloride) pipes are in particularly short supply, explains Ken
Simonson, chief economist at Associated General Contractors of America. The
raw material used to make PVC pipes is natural gas, but Hurricane Rita
knocked out about 10% of natural gas producing platforms in the U.S. Those
platforms were still offline as of early November, he says.
Even before Wilma, prices for asphalt -- a pretroleum-based product -- had
jumped 15.1% over the previous 12 months ending in September. Diesel fuel,
which is used to operate construction equipment and trucks delivering
materials to building sites, jumped 50.9% during the same period.
The biggest problem for condominium developers today is the availability and
cost of labor, says Winston of Goodkin Consulting. "Electricians,
carpenters, all kinds of skilled laborers are in short supply," he says.
Today, South Florida skilled tradesmen earn $17 to $24 an hour, says Randy
McDade of Mello Concrete Service Inc. -- 4% to 5% more than a year ago.
It is only a matter of time before some proposed condo projects get shelved,
and some projects have already experienced delays, says Jack McCabe, CEO of
McCabe Research & Consulting. How big is the development pipeline? In
Miami-Dade County, as of early November there were slightly less than
100,000 condominium units in the works, according to Integra Realty
Resources of South Florida. Of those, about 50% were proposed, 25% were in
the approval process and 25% were under construction.
If there is a pullback in development, vulture funds -- buyers of distressed
assets -- will play a waiting game, says Winston. These funds will only
become active as buildings are completed and receive certificates of
occupancy, he says, and for a lot of condominiums that day is still 18 to 24
months away.
Some banks have already cut back on their loans to condominium developers in
Miami-Dade. At Great Florida Bank in Miami Lakes, executive vice president
Vince Post says that the bank is very cautious about lending to high-rise
condominium developers in the county. "We are mostly doing townhouse and
mid-rise condominiums with a maximum of four stories and about 40 units."