Greater Downtown Miami · Brickell Flatiron, is reportedly experiencing high sales volume. In...

Greater Downtown MiamiMid-Year Residential Market Study Update

August 2018

Prepared for the Miami Downtown Development Authority (DDA)By Integra Realty Resources (IRR)

Greater Downtown Miami Mid-Year Residential Market Study Update Prepared for the Miami Downtown Development Authority (DDA) by Integra Realty Resources (IRR)

August 2018

For more information, please contact IRR-Miami/Palm BeachThe Dadeland Centre9155 S Dadeland Blvd, Suite 1208Miami, FL [email protected]

2 Introduction

4 Greater Downtown Miami Market Submarket Map

5 What’s Changed Since Year-End 2017?

10 Submarket Analysis

12 Resale Condominium Pricing

15 Rental Market Statistics

18 Conventional Apartment Rents

20 Conventional Rental Market Supply

23 Condo Development Process Appendix

Contents

2 | Integra Realty Resources

Introduction

Integra Realty Resources – Miami/Palm Beach (IRR-Miami) is pleased to present the following Residential Real Estate Market Study within the Miami Downtown Development Authority’s (Miami DDA) market area, defined as the Greater Downtown Miami market. This report updates IRR-Miami’s findings on the local residential real estate market through July 1, 2018.

Key findings from this mid-year study are as follows:

• While everyone wants to see a continued “economic extension” prompted by tax cuts, strong wage growth, and overall positive economic news, Greater Downtown Miami’s new construction market continues to wind down the under-construction inventory of condominiums. The final push of condominium deliveries in Greater Downtown will happen towards the end of 2018, namely in Edgewater and the Arts & Entertainment District.

• Condominium rents and velocity year over year experienced normalized increases of 2 to 3 percent on all but the 3-bedroom product.

• The continuing story of condo pricing declines is now set squarely in the resale condominium market. While average resale pricing declined again, and may even decline a bit further, the average pricing is quickly nearing the replacement cost threshold.

• Newer resales will not retreat as quickly because the sellers are new buyers with a higher average cost basis. As a result, new project sales will be slower overall in the coming 12 to 18 months. This does not portend economic doom despite the market naysayers.

• The market champions who believe money will continue to flow into new condo developments against a wall of resale inventory can only credibly make that argument if the development offers something that’s not available in the resale market.

• Average rental rates downtown rebounded from a down-year in 2017. This “rent wobble” was largely due to project deliveries in 2017 which needed to stabilize, and the market rents in 2017 reflected increased pre-leasing activity and higher vacancy as projects competed with one another.


• The “rent wobble” of early 2017 could reasonably be expected to occur again in early 2019 following the pending conventional multi-family deliveries expected at the end of 2018. Year-over-Year rents retreated -1.8% - 3.9% on a price per SF basis for one and two bedroom units. Studio units were the stand-out winner in 2018 with 16% average rent growth, and new projects coming to market with smaller average unit sizes and lower overall “chunk rents” may find similar success.

• While market-makers are plotting how to time the market, the largest fundamental decision is your own view on the length of continued economic expansion. How long can it last? How deep will be the retreat?

• The Integra mid-year 2018 report reflects the sum of all hopes (bulls) and fears (bears) in the market. There are many on both sides. No matter whether you are a bull or a bear, the condominium development market is standing on solid ground as of midyear 2018.

Respectfully,

Integra Realty Resources (IRR) – Miami/Palm Beach

Anthony M. Graziano, MAI, CRE, FRICS Senior Managing Director

Dan Bowen Market Research Analyst

Introduction


The map opposite illustrates the boundaries of the Miami DDA, as well as each submarket within the Miami DDA market.

Greater Downtown Miami Market Submarket Map


The headline change is the market since Q4-2017 was the completion of 1,145 units at SLS Lux, Aria on the Bay, and Hyde Midtown. This drops the total number of units remaining under

construction downtown at 3,849, down from nearly 5,000 units at YE 2017.

The development pipeline in Brickell has largely closed out and the last project under construction, Brickell Flatiron, is reportedly experiencing high sales volume. In Edgewater, most of the product under construction, largely comprised of The Related Group’s Paraiso District projects, is pre-sold and slated for delivery in the second half of 2018. This year will also mark the substantial close out of the Arts & Entertainment District when Canvas delivers, further diminishing the construction pipeline across Greater Downtown (Figure 1b).

Some developers are reading the tea leaves and trying to be the first project “back” in a submarket when value trends turn upward. In Brickell, Una started taking reservations, while Smart Brickell launched directly into contracts. Okan Tower and YotelPad opened sales offices at their respective sites in the CBD making the submarket one to watch in 2019 (Figure 1a).

What’s Changed Since Year-End 2017?



Figure 1aGreater Downtown Miami Current Growth – Contracts and ReservationsSubmarket Building Avg. SF Units Status

Brickell Una 2,478 135 Reservations

CBD YotelPad 563 215 Reservations

CBD Okan Tower (former Sterling) TBA 389 Reservations

Edgewater Bentley Edgewater Condo-Hotel 905 207 Reservations

Brickell One River Point 1,284 350 Contracts

Brickell Smart Brickell 632 100 Contracts

# in Contracts 350

# in Reservations 596

Figure 1bGreater Downtown Miami Current Growth – Under Construction and Q2 CompletionsSubmarket Building Avg. SF Units Status

A & E Canvas 892 513 Under Construction

A & E 1000 Museum 5,389 83 Under Construction

Brickell Flatiron 1,334 549 Under Construction

CBD Paramount Miami 1,793 512 Under Construction

CBD Aston Martin Residences 2,000 390 Under Construction

Edgewater Gran Paraiso 1,549 317 Under Construction

Edgewater Paraiso Bay Tower I 1,360 360 Under Construction

Edgewater One Paraiso 1,682 272 Under Construction

Edgewater Paraiso Bayviews 1,044 388 Under Construction

Edgewater The Edgewater 778 30 Under Construction

Edgewater 26 Edgewater 645 86 Under Construction

Edgewater Elysee 3,383 100 Under Construction

Edgewater Missoni Baia 2,950 249 Under Construction

# Under Construction 3,849

Brickell SLS Lux 1,250 450 Complete

Edgewater Aria on the Bay 1,317 648 Complete

Midtown Hyde Midtown 944 410 Complete

# Completed Since Prior Report 1,145 1,103



As this report was heading to press, Swire announced it was moving forward with plans for two large Brickell City Centre expansion sites near the river, and whispers of larger plans in Wynwood

began to emerge.

If there is a theme in the first half of 2018, it is that there are two camps of professionals in the market firmly staked out in their thumbs up or thumbs down position. For lack of a better term, these are the market’s bulls and bears.

The bears see devastation in the making as we enter a late cycle development period, one of the longest economic expansions in US history, and few indications that currency and international demand will return anytime soon.

The bulls believe that Miami has reached critical launch velocity in its downtown urban lifestyle, critical mass, and residential appeal; and that continued massive liquidity in the equity and debt markets will remain long-term. The bulls believe that the new Miami developers are emerging that will build without 50% presales, and who will use primarily their own equity with strong private or public balance sheets. The bears counter this is just a sign of late cycle mechanics that makes the fall even worse.

What the bears cannot deny is that the on-going predictions of the market’s demise do not account for the declining inventory of new construction being successfully delivered. What the bulls cannot deny is that even as projects close-out, many units (25%+) immediately return to the market for resale. This is having a depressing affect on the average resale value and the total resale listing inventory, which is abnormally high.

What is evident in the composition of the remaining product under construction starting in 2019 is a much more highly differentiated market, with product offerings in the $350,000 range, to as high as $8 Million. Instead of shooting for a massive middle-market, the majority of the remaining pipeline will cater to ultra-luxury, or competitive alternatives for local (primarily domestic) urban dwellers who buy versus rent.



On which side do you land? Whichever you are, bull or bear, the fact is that any economic stress that might cause a mis-step in the new construction market will have almost no impact relative

to the last downturn. By the end of 2018, the total number of units under construction will be less than 2,500 units city-wide, a pipeline that is less than 10% as large as the pipeline during the last reversal of fortune.

This extended economic rebound following tax reform, coupled with high liquidity in all sectors, has mostly absorbed any massive shocks to the development pipeline.

Figure 2

Current Greater Downtown Miami Condo Pipeline – Q2 2018Submarket Complete Under Construction Contracts Reservations Proposed Totals

A & E 0 596 0 0 2,291 2,887

Brickell 4,939 549 450 135 5,160 11,233

CBD 352 902 0 604 5,838 7,696

Edgewater 1,698 1,802 0 207 1,296 5,003

Midtown 410 0 0 0 0 410

Wynwood 11 0 0 0 448 459

Total (2018 Midyear) 7,410 3,849 450 946 15,033 27,688

Total (2017 Q4) 6,312 5,002 520 344 15,016 27,194

Total (2017 Midyear) 5,180 5,078 1,225 505 14,381 26,369

Figure 2 outlines this continued decline of projects imminently entering the pipeline. This should allow a 24-36 months stabilization of existing resales, which could bring prices back to equilibrium. Property resales in newer buildings will be slower than older resales primarily because the seller’s cost basis is higher. Predictions of deep discounts in resale pricing on newly delivered developer-product abound, with the potential of bulk offerings continuing to make social media headlines. Nonetheless, no major announcements on bulk deals are evident.



From trough to peak, the market topped out in Q2 2016 with a total of 7,499 units under construction. We survived the danger-zone of stalled projects, or major pockets of standing developer inventory.

Integra’s estimate of “Proposed” projects counts all announcements, approvals, and conceptual plans ever put forth for vacant or redevelopment sites in the city. To be sure, there is significantly more to come in Wynwood and Midtown than currently in the proposed count. However, if this last peak demonstrated the normalized development pace, Miami has another 2-3 cycles of 6,000 – 8,000 units downtown.

The ”proposed” pipeline as tracked by Integra is not imminent. Many of these projects get tabled or redesigned through multiple market cycles. This represents the long-term (25+ year potential) of the by-right landscape downtown, not current proposals that will emerge in the near-term 5-year time horizon.

Figure 3

Greater Downtown Miami Condo Market Size – Q2 2018Submarket Current Market Current % Potential Long % Growth Size [1] Growth Growth Term Growth Longterm

A & E 4,052 596 15% 2,291 57%

Brickell 24,782 1,134 5% 5,160 21%

CBD 6,640 1,506 23% 5,838 88%

Edgewater 5,750 2,009 35% 1,296 23%

Midtown 1,388 0 0% 0 0%

Wynwood 111 0 0% 448 404%

Total (2017) 42,723 5,245 12% 15,033 35%

[1] Long-Term Growth is the remaining Conceptual units, net of current growth [2] Current Growth is all Under Construction, Contracts and Reservations[3] Long Term Growth: 25+ year potential

Figure 3 outlines the critical mass by submarket. By the close of 2019, the city will have nearly 48,000 condominium units available in downtown plus another 11,500 conventional apartment units (Figure 9a). Despite new activity in Little Haiti, Little Havana, Coral Gables, and Dadeland, a compelling case can be made that downtown has reached critical residential mass unmatched anywhere in the county, or region, even accounting for condo units that are not occupied full-time.


Submarket Analysis

BrickellSLS Lux has been completed, and additional information about Smart Brickell has allowed us to report a definitive number of condominiums with 100 units currently taking contracts. Una, a new bay-front project near the Rickenbacker Causeway, has launched reservations. On the rental side, the Panorama Tower – Florida’s tallest building – has delivered and is currently in lease-up with its first residents now occupying the tower.

CBDThe Aston Martin groundbreaking in late 2017 was a boost of enthusiasm in an otherwise quiet market for new groundbreakings. Sitting at the mouth of the Miami River with Biscayne Bay and Brickell Key views, the power of the Aston Martin brand will be on display. Following other branded projects in the market, Aston Martin is targeting an ultra-lux buyer on a prime waterfront site.

Paramount Miami reports stronger-than-projected presales. This ambitious mixed use project at full build-out could become a new focal point for development in the CBD.

Completion of conventional rental projects X Miami and Muze Met Square is imminent. Some say the X Miami (formerly Vice) project will test the market’s for smaller unit size in exchange for a lower “chunk” rent. This will be an interesting contrast to Panorama finding the highest end of the rental market in the city’s tallest residential building.

Arts and EntertainmentSquare Station, a 710-unit conventional rental, has been delivered, and completion of the condominium project Canvas is considered to be imminent. Art Plaza also broke ground on 655 conventional apartment units.

A summary of the key changes to date:


EdgewaterAria (648 units) has been completed, and deliveries at Related Groups’ Paraiso projects are expected to complete shortly starting with Paraiso Bay. Despite Related’s strong record of success in Edgewater, one of downtown’s most notable and active players is waiting on the sidelines following the completion and close-out of the majority of its Edgewater portfolio by the end of 2018.

MidtownMidtown 29 completed in the first half of 2018, and work is ongoing at Midtown 6 and 8, all representing conventional rental product. Condominium Hyde Midtown also delivered in the current period.

WynwoodThere are currently two ongoing rental developments in Wynwood – Wynwood 25 and the Bradley (formerly Wynwood 26). There are no condo projects in the pipeline as Wyn26 has been canceled after the developers reportedly failed to secure financing.

OvertownMiami-Dade County is currently conducting an RFP for the redevelopment of Block 45, a county-owned parcel centered at 152 Northwest 8th Street near the Historic Overtown Metrorail station in an area currently dominated by state and county offices. This development will likely be majority retail and affordable housing but may contain some market-rate rentals. Sawyer’s Landing (Block 55) is also proposed for 115 units of workforce housing and 220,00- SF retail.

Submarket Analysis

Figure 4

Average $/SF Sale Price Trend – Greater Downtown Miami Resale Market


Resale Condominium Pricing

0

$100

$200

$300

$400

$500

2009

$221

2010

$224

2011

$240

2012

$305

2013 2014 2015 2016

$372

2017

$431 $426$405

1H 2018

$392

$457

Figure 5 shows that resale pricing continued to dip slightly in 2018, returning in between 2013-2014 levels on a per square foot (PSF) basis. This appears to be mainly driven by an ever-increasing

inventory of new listings even as sales velocity increases has ticked up in the past year. May and June of 2018 represent two of the three strongest months since 2015 in terms of sales volume. This uptick in velocity may be in response to softening pricing, but can also be largely characterized by the markets’ recognition that pricing is unlikely to fall much below $350/SF which is generally seen as replacement cost.

Figure 5

Greater Downtown Miami Condo Listings (Built 2001+) by Month

(Zip codes: 33127, 33128, 33129, 33130, 33131, 33132, 33136, 33137)

Date For Sale New Listing Sold PendedJul-13 1,273 338 164 198Aug-13 1,320 333 163 164Sep-13 1,424 328 159 145Oct-13 1,524 366 130 156Nov-13 1,583 306 143 106Dec-13 1,591 280 134 121Jan-14 1,645 419 108 175Feb-14 1,684 375 105 156Mar-14 1,822 446 159 157Apr-14 1,904 422 148 149May-14 1,918 387 144 155Jun-14 1,926 351 146 146Average 1,635 363 142 152

Jul-14 1,939 345 132 120Aug-14 1,932 340 118 155Sep-14 1,931 356 135 147Oct-14 2,006 410 131 140Nov-14 2,078 342 114 104Dec-14 2,152 357 124 99Jan-15 2,127 399 109 136Feb-15 2,146 408 106 153Mar-15 2,264 499 140 143Apr-15 2,428 518 112 155May-15 2,481 413 152 139Jun-15 2,539 452 133 124Average 2,169 403 126 135

Jul-15 2,568 438 130 144Aug-15 2,546 410 126 128Sep-15 2,619 465 136 139Oct-15 2,726 511 128 108Nov-15 2,792 396 104 109Dec-15 2,747 346 126 100Jan-16 2,859 536 90 84Feb-16 2,976 528 83 123Mar-16 2,980 431 111 121Apr-16 3,045 469 95 110May-16 3,041 412 88 136Jun-16 3,057 454 120 100Average 2,830 450 111 117

Date For Sale New Listing Sold PendedJul-16 3,032 374 92 86Aug-16 2,990 396 105 114Sep-16 3,064 457 86 85Oct-16 3,121 407 81 77Nov-16 3,167 389 88 82Dec-16 3,124 353 94 104Jan-17 3,198 553 68 90Feb-17 3,258 452 85 100Mar-17 3,304 530 114 142Apr-17 3,264 403 111 109May-17 3,277 467 142 160Jun-17 3,251 422 117 120Average 3,171 434 99 106

Jul-17 3,268 440 119 105Aug-17 3,317 464 128 118Sep-17 [1] 3,264 285 73 62Oct-17 3,302 437 95 104Nov-17 3,370 473 85 100Dec-17 3,408 395 126 106Jan-18 3,400 571 91 120Feb-18 3,497 500 100 109Mar-18 3,542 410 108 135Apr-18 3,513 427 139 164May-18 3,518 472 138 160Jun-18 3,505 400 109 117Average 3,409 440 109 117

[1] Hurricane Irma.



Source: Trendgraphix, compiled by Integra Realty Resources, Inc.

Despite recent increases in velocity, Figure 5 shows the impact that the continued flow of new listings is having on the resale market in greater downtown Miami.



The average listings per month column (Figure 5) shows the persistently high average asking inventory, and the peaks and valleys of the summer versus winter selling season. Notably,

Hurricane Irma severely disrupted deal-flow in September, and disrupted the overall market for six months or longer. Despite a shortfall of 130 sales based on prior year norms, the market sales and pended listings is up YTD over 2017.

The listing inventory is not likely to start declining until the balance of the condo construction pipeline delivers, gets relisted, and the market has time to stabilize back to average listing inventory in the 2,800 units per month average.

Admittedly, the listing per month also includes condos that are listed for sale or rent, so when rented, these listings come off the for-sale market even though they were not pended and sold. A good deal of this inventory build-up is not solely related to the state of the condo market as much as a weakening of the for-rent market which is exposing buildings to remain in the for-sale listing statistics longer.

Unfortunately, the near-term outlook that residents will flock back to the condo rental market en masse represents a pretty strong bet against the quickly expanding conventional rental market. A detailed examination of rental market statistics indicates sufficient vacancy and new product deliveries that support the conclusion that resale listing inventory is not likely to decline anytime soon.

The good news is, with very remote chances of major project failures and no significant overhang of developer-owned units following delivery, the private market for condominiums can likely withstand any major price volatility.

The smart money is betting that average resale condo pricing may continue its gradual decline with an equilibrium point of $360+/- per SF. We are very near the inflection point without near-term signs of market distress. It’s hard to argue there could be any better time to buy as pricing edges down late cycle.


Rental Market Statistics

IRR’s reporting in Summer 2016 and Summer 2017 provided in-depth analysis of the rental demand and pricing for both conventional rental properties and the shadow rental market comprised of condo

inventory available for lease. After decreasing in 2017, condominium rents recovered across most size categories in 2018, although they remain below the 2016 high-water-mark of $2,677 per month.

The condo rental market in Figure 6 indicates that average rents are down $50-$100 per month from the high of 2016. This is not such a dramatic shift in rental pricing. On a percentage basis (Figure 6a), condo rental pricing by unit type, excluding 3-bedrooms, experienced a healthy 2%-3% growth in both price per unit and price per SF. The three bedroom units at the top end of pricing ($4,500+ per month) retreated on pricing -5.9% (price per SF); and -1.1% in relative monthly price.

Some of this retreat in rents in 2017 and rebound in early 2018 was a result of conventional projects in lease-up coupled with condo inventory delivering, and coming to market for lease.



Figure 6

Average Condo Leasing Price – Greater Downtown Miami Studio 1 BR 2 BR 3 BRYear Overall $/Unit $/SF $/Unit $/SF $/Unit $/SF $/Unit $/SF

2012 $2,255 $1,421 $2.64 $1,804 $2.33 $2,625 $2.13 $4,340 $2.25

2013 $2,371 $1,504 $2.67 $1,926 $2.30 $2,819 $2.21 $4,427 $2.51

2014 [1] $2,481 $1,632 $2.92 $2,008 $2.48 $2,908 $2.32 $4,346 $2.60

2015 [1] $2,582 $1,698 $3.03 $2,139 $2.62 $3,008 $2.45 $4,773 $2.89

2016 [1] $2,677 $1,683 $2.97 $2,165 $2.66 $3,009 $2.46 $4,675 $2.72

2017 [1] $2,522 $1,628 $2.96 $2,008 $2.49 $2,942 $2.38 $4,573 $2.77

2018 [1] $2,584 $1,661 $3.08 $2,083 $2.57 $2,944 $2.46 $4,521 $2.61

[1] Midyear.

Figure 6a

Average Condo Leasing Price – Year-over-Year Changes Studio 1 BR 2 BR 3 BRYear Overall $/Unit $/SF $/Unit $/SF $/Unit $/SF $/Unit $/SF

2013 5.1% 5.9% 1.4% 6.8% -1.4% 7.4% 4.0% 2.0% 11.8%

2014 4.6% 8.5% 9.4% 4.3% 7.5% 3.1% 4.8% -1.8% 3.5%

2015 4.1% 4.0% 3.6% 6.5% 5.8% 3.4% 5.7% 9.8% 11.1%

2016 3.7% [2] -0.9% -2.0% 1.2% 1.5% 0.0% 0.4% -2.0% -6.0%

2017 -5.8% -3.3% -0.3% -7.3% -6.4% -2.2% -3.3% -2.2% 2.0%

2018 2.5% 2.0% 4.1% 3.7% 3.1% 0.1% 3.4% -1.1% -5.9%

[2] Increase in overall prices reflects larger unit mix (including 4 and 5 bedrooms not reported in detail).

When looking at condominium rentals within the individual submarkets, we that most (except for A&E) are performing well; Brickell and Edgewater saw 6%-12% price increases with notable

increases in year-over-year volume. The CBD and Midtown experienced flat or slightly declining average rents, but also with a large jump in volume of leases.

Figure 7Condominium Rental Rates (YTD 2018)

Overall Overall Year-over-Year Total # Leases/ Year-over-Year # of HouseholdsSubmarket Asking Achieved Price Change Month Volume Change (2018 est.)

Brickell $3,695 $2,677 6% 236 34% 19,053

CBD $2,887 $2,270 0% 101 44% 8,180

A&E $5,338 $3,213 -17% 10 -35% 8,188

Edgewater $3,334 $2,716 12% 79 84%

Midtown $2,738 $2,442 -3% 18 42% 7652 [1]

Wynwood $2,700 $2,538 <1 -

[1] Wynwood, Midtown, and Edgewater were not broken out in the 2016 population report.

Source: MLS




Conventional Apartment Rents

Within conventional rental communities, the picture is generally one of stability. Rent growth remains below inflation for most property and price categories among class A- and B

communities, with studios and one-bedrooms reporting average rent declines.

In the conventional market, as property technology (#proptech) evolves, the use of daily pricing systems for apartment projects is creating efficiency in market pricing to more finely tune rental rates based on availability by unit type and other characteristics. During periods of high vacancy when projects are in lease-up, these systems adjust pricing to solve for market pricing equilibrium. This partly explains the 2017 dip in conventional rental pricing. A review of the upcoming late 2018 deliveries could have a similar affect on short-term rents heading into the fourth quarter of 2018.

Figure 8

Overall Downtown Conventional Rental Rate Survey (2,474 Total Units, Class A- and B)

$/Unit Studio 1 BR 2 BR 3 BR Average SF $/Unit $/SF SF $/Unit $/SF SF $/Unit $/SF SF $/Unit $/SF

Q3 2014 $1,976 638 $1,585 $2.49 864 $1,605 $1.86 1221 $2,106 $1.73 1752 $2,622 $1.50

Q2 2015 $2,121 638 $1,856 $2.91 864 $1,774 $2.05 1221 $2,241 $1.84 1752 $2,707 $1.55

Q2 2016 $2,123 638 $1,937 $3.04 864 $1,772 $2.05 1221 $2,257 $1.85 1752 $2,652 $1.51

Q2 2017 $2,164 638 $1,906 $2.99 864 $1,831 $2.12 1221 $2,274 $1.86 1752 $2,751 $1.57

Q2 2018 $2,175 638 $1,867 $2.93 864 $1,823 $2.11 1221 $2,305 $1.89 1752 $2,752 $1.57

Q3 2014 - Q2 2015 7.3% 17.1% 10.5% 6.4% 3.2% % Change

Q2 2015 - Q2 2016 0.1% 4.4% -0.1% 0.7% -2.0% % Change

Q2 2016 - Q2 2017 0.7% -1.6% 3.4% 0.7% 3.6% % Change

Q2 2017 - Q2 2018 0.5% -2.0% -0.5% 1.4% 0.0% % Change

As shown in in Figure 8, the Class A-/B remained relatively steady despite the addition of new Class A inventory and condo units available for lease. Studio and 1-Bedroom rents retreated modestly, 2 Bedroom average rents grew 1.4% year over year, and 3-Bedroom rents remained level.

Figure 8aOverall Downtown Conventional Rental Rate Survey (Class A, Sample Size Varies as Projects are Delivered)

Average # of Studio 1 BR 2 BR 3 BR Rent Units SF $/Unit $/SF SF $/Unit $/SF SF $/Unit $/SF SF $/Unit $/SF

Q2 2018 $2,175 2,474 638 $1,867 $2.93 864 $1,823 $2.11 1,221 $2,305 $1.89 1,752 $2,752 $1.57 Class A- & B

Q2 2018 Class A $2,466 4,774 510 $1,873 $3.67 845 $2,164 $2.56 1,150 $2,796 $2.43 1,624 $3,916 $2.41

Q2 2017 Class A $2,360 2,349 516 $1,615 $3.13 775 $2,064 $2.66 1,095 $2,711 $2.48 1,437 $3,960 $2.76

Class A Premium 13.4% 25.3% 21.4% 28.8% 53.5% (%) – PSF

YoY Change 4.5% 17.2% -3.9% -1.8% -12.5% (% ) – PSF

Studio rents jumped 17.2% on a price per SF basis, one and two-bedroom rents retreated -3.9% and -1.8% respectively. The largest decline in rents per SF was in the three-bedroom rents, although those units on average jumped in average size nearly 200 SF as Panorama entered the rent survey results. The survey uses a rolling sample as new units enter the market, so large swings in average unit size can overstate a decline on a price per SF basis.

Overall average rents on a gross basis increased 4.5% on average year over year. However, average weighted price per SF declined by 2.2%. Renters this year will be getting more size for their money. Class A-/B three bedrooms are a bargain at the moment with an average $2,752 per month, with three bedroom condo options averaging $4,421, and conventional Class A projects averaging $3,916 per month.


Conventional Apartment Rents


Conventional Rental Market Supply

Figure 9a illustrates the current status of Miami’s under construction rental pipeline. The past 12-months, the market has delivered over 2,400 units at Square Station, Solitair, Panorama,

2500 Biscayne, and Midtown 29. Another 1,600 units will deliver in the coming 6-9 months, likely forcing average rental rates to wobble during the lease-up of new deliveries, with a normalized uptick in rents by next Summer.

Unlike the condo development market where debt constraints and/or the cost of capital slowed many developers, the market for capital (debt and equity) for new urban multi-family remains robust. Just about the only market indication holding back new multi-family development has been the 2017 rent wobble, and perhaps some discipline on the part of lenders to price risk based on future supply concerns. This story is playing out in many submarkets around South Florida, and in most major markets across the U.S.

A housing shortage due to undersupplied single family development continues to provide tailwinds to multi-family housing demand. Large multi-family developers and institutional investors prefer not to build into a wall of new construction deliveries. At the same time, the window is closing for cheap(er) long-term capital, so the race has been on. By the end of 2018, that race in downtown Miami will have largely been won.

IRR Miami predicts new construction will slow as new employment growth plateaus. Core population growth will still contribute to new demand, but the structural 7%-9% vacancy in the market is sufficient to absorb near-term (24 month) demand without significant new multi-family construction.

Like condominium projects in 2017, next year will be a much harder year to justify new multi-family construction in downtown Miami. Every market could use a pause without a hard reset. As we head into late 2018, the conventional rental development market will have its thumb largely on pause.



Figure 9aGreater Downtown Miami Rental Pipeline - Under Construction and Complete Projects

Submarket Building 2018 Q2 Status # Units Completion Date

Arts & Entertainment Art Plaza Under Construction 655 TBDBrickell MaiZon at Brickell Under Construction 262 Q4 2019CBD Muze Met Square Under Construction 391 Q3 2018CBD Park Line MiamiCentral Under Construction 816 Q4 2018CBD X Miami (formerly Vice) Under Construction 464 Q3 2018CBD Caoba (fka 7th St Promenade) Under Construction 444 Q3 2018CBD 7th Street Promenade Tower 2 Under Construction 429 TBDEdgewater Biscayne 27 Under Construction 330 Q4 2019Edgewater Modera Edgewater Under Construction 297 2019Midtown Midtown East Phase 1 Under Construction 500 TBDMidtown Midtown 6 Under Construction 447 TBDMidtown Midtown 8 Under Construction 387 TBDWynwood Wynwood 25 Under Construction 289 TBDWynwood The Bradley Under Construction 175 2019-2020Arts & Entertainment Melody Complete 500 2016Arts & Entertainment Square Station Complete 710 Q2 2018Brickell Solitair Brickell (former Brickell Bayview Center) Complete 438 Q1 2018Brickell Panorama Complete 821 Q2 2018Brickell SoMa Complete 418 2015Brickell Broadstone at Brickell Complete 372 2017Brickell Brickell View Terrace Complete 76 2016CBD Flagler on the River Complete 250 2014CBD Monarc at Metropolitan 3 Complete 462 2015Edgewater 2500 Biscayne Complete 156 Q2 2018Midtown Midtown 5 Complete 400 2017Midtown Eve at the District Complete 197 2017Midtown Midtown 29 Complete 309 Q1 2018 Total # of Units Under Construction 5,886 Total # of Units Completed YTD 2018 2,434 Total # of Units Completed in 2016-2017 1,545 Total # Units Completed 2014-2015 1,130 Conventional Market Size/Rent Survey 2,474 Total # Units U/C or Proposed 24,110

Figure 9bGreater Downtown Miami Rental Pipeline - Proposed ProjectsSubmarket Building 2018 Q2 Status # UnitsA & E School Board Proposed 1100 Melody II Proposed 630 The Arts Proposed 550 Miami Plaza Proposed 425 Omni Station Proposed TBD 70-90 NE 17th St Proposed 225Brickell One Brickell II Proposed 500 TBD Allen Morris/Related Proposed TBD 1111 Brickell (Yacht Club Phase II) Proposed 897 Brickell Fire Station Proposed 196 1430 Brickell (TBD) Proposed TBD Tobacco Road Proposed TBD El Eden Micro Units Proposed 132 Possible Redevelopment - 1809 Brickell Proposed TBD Smart Brickell Rental Proposed 89CBD Luma at Miami World Center Proposed 439 Lynx Tower Proposed 483 Miami World Center Block E Proposed 418 Miami River Village Proposed TBD Grand Station Proposed 300 Nexus Riverside Proposed 462 Nexus Riverside Central Proposed 900 54 West Flagler Proposed 391 225 SE 2nd St Proposed TBD M-Tower Proposed 440 Miami Station Tower f/k/a Krystal Proposed 153 200 NMA Proposed 328 533 NE 2 Ave Proposed 150 One Bayfront Plaza (RENTAL) Proposed 1361 400 Biscayne (RENTAL) Proposed 690 Potential Olympia Theater Proposed 300 5 Plaza Proposed TBD Macy’s Redevelopment Proposed TBD Knight Center Towers Proposed TBD 2nd & 2nd Proposed 637Edgewater 1900 Biscayne Proposed 429 1836 Biscayne (Possible Condo) Proposed 352 700 Edgewater Proposed TBD AR Edgewater Proposed 171 Quadro 3900 Biscayne Proposed 198 Ellipsis Proposed 34 The Village Proposed TBD Miami 18 Proposed 1400 2000 Biscayne (Rental) Proposed 393 1775 Edgewater Proposed 444 2501 Biscayne Proposed TBD Modera Biscayne Bay Proposed 296 “25” (RENTAL) Proposed 93 Prince Choice Redevelopment Proposed TBDMidtown Midtown East Phase 2 Proposed 212 Midtown 7 Proposed 391Wynwood 2801 NW 3rd Avenue Proposed 264 2110 N Miami Ave Proposed 163 Wynwood Plant Proposed 306 Westdale Wynwood Proposed 202 Wynwood Plant Proposed 306 Wynwood 26 Proposed 176 222 Wynwood Proposed 35 2110 N Miami Ave Proposed 163 Total # of Units Proposed 18,224



Proposed

The proposed phase is the initial phase of the development process; a conceptual plan for a new building or project is initiated by a developer or property owner. The developer may release a press release or a news story with an initial rendering to gauge the interest in the project, but the project size may change over time to conform to market demand and/or as site due diligence constrains the process.

Reservations

The reservations phase is the second phase of the development process; the developer and architectural/design team produce additional renderings and floor plans; the sales centers are opened and the finishes, amenities, and features of the project are disclosed. The developer files with the State of Florida to be able to take reservations and deposits for units during this stage. This begins the pre-sale phase during which reservations are taken.

Contracts

The contracts phase is when the initial proposition and reservation of a completely undefined development idea meets the actual contracting for sale upon the receipt of further deposits. The architectural and construction drawings are completed; the developer obtains government permitting and approvals. The final unit floor plans are defined as the reservations are converted to sales contracts with additional buyer deposits upon filing of the Master Declaration of Condominium. Changes to these documents are costly, and therefore the development plan tends to be more static following this phase.

The Contracts stage is typically the make-or-break stage of development as the project was either well-received by buyers, investors, and lenders, or it was not. If the developer has as a sufficient number of sale contracts, buyer deposits, and a commitment for financing, the project’s construction will most likely commence. If the project was not well-received, either by a lack of pre-sales, or insufficient equity from initial investors or debt financing, a project may be scrapped, shelved, or significantly altered in another future attempt (either later in the cycle or in the next one). Projects which fail the Contracts stage may move all the way back to Proposed during this process.

Under ConstructionThe site improvements and vertical construction have commenced. At this stage of development, the project has secured sufficient pre-sales with significant deposits and most likely a financing commitment. These projects will enter the market under a reasonably definitive timeline of 24-48 months, depending upon the scale of the project and surrounding infrastructure requirements.

Completed

This is the final stage of the development process; as the construction of the units is completed, CO’s (Certificates of Occupancy) are issued, and the closing of the unit sales are finalized.


Condo Development Process Appendix

The information provided herein is for informational purposes. This publication does not render legal, accounting, appraisal, counseling, investment, or other professional advice. Should such services or other expert assistance be needed, it is recommended that the services of a competent person or firm, having access to the details of the situation, be employed.


Disclaimer & Acknowledgment

Cover: Photo used with permission by Miami DDA.Page 2: Photo credit: © 2015 IRR-Miami/Palm Beach.Page 4: Photo credit: © 2015 IRR-Miami/Palm Beach. Map courtesy Miami DDA.Page 5: Photo credit: © 2015 IRR-Miami/Palm Beach.Page 10: Brickell, artist’s rendering of Brickell CityCentre used by permission of Swire Properties Inc. CBD, photo courtesy Miami DDA. Arts and Entertainment, photo courtesy Miami DDA.Page 11: Edgewater, photo credit: © 2015 IRR-Miami/Palm Beach. Midtown, photo courtesy Miami DDA. Wynwood, photo credit: © 2014 IRR-Miami/Palm Beach. Overtown, by Ebyabe, Wikimedia Commons.Page 12: Photo credit: © 2015 IRR-Miami/Palm Beach.Page 15: Photo credit: © 2015 IRR-Miami/Palm Beach.Page 18: Photo credit: © 2015 IRR-Miami/Palm Beach.Page 20: Photo credit: © 2015 IRR-Miami/Palm Beach.


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