In a sluggish condo market, these Miami developers find a sweet spot

judith The Real Deal

It’s no secret that the Miami area is facing an oversupply of shiny new condos, spacious units with sprawling terraces in skyscrapers stretching from Brickell to the northernmost tip of Sunny Isles Beach.

But a new product type has emerged that developers claim they can’t build quickly enough: more affordable units that buyers can rent out however and whenever they want, no strings attached. The projects are mostly clustered in downtown Miami and Brickell, with price points in the $300,000 range and up – a sharp contrast to the glut of $1 million-and-up condos on the market in Miami.

Miami’s biggest condo developer is even getting in on the action. The Related Group is partnering with ROVR Development to build a roughly 400-foot tower with about 350 units in downtown Miami that will have a short-term rental or hotel component. The project is still in the design stages.

A rendering of Smart Brickell

Smart Brickell

Santiago Vanegas, founder of the Habitat Group, is one of the first developers to pivot with his planned project, Smart Brickell. In mid-2017, he launched sales of the first tower, with 50 hotel rooms and 50 condos. A year later, Habitat Group had sold out the first building and was beginning sales of the second tower, with the same number of hotel rooms and condos. A third tower will have 97 rental apartments.

Yet to be built, the project at 239 Southwest Ninth Street is now almost completely sold out.

“What the customer wants today is a combination between returns, flexibility, and price,” Vanegas said. Buyers at Smart Brickell will be able to rent their units out as often as 50 times a year on platforms such as Airbnb. They can also participate in a two-year, fixed annual leaseback program.

Construction on the first building will begin in October and will be completed in the fourth quarter of 2021, including the hotel. The second tower will be delivered and start operating as a hotel in the second quarter of 2022. Habitat Group is working with Ocean Bank and City National Bank to finance construction of the project, where units will range from about 600 square feet to 1,100 square feet. Cervera Real Estate is handling sales of the condos, priced from $300,000 to $600,000.

Investors, especially from Latin America, are attracted to Smart Brickell and similar projects because they provide income while the owners are away, as well as a place to stay when they are in town. And they don’t have to worry about short-term rental restrictions that may be found in older buildings – think pre-Airbnb – or in new luxury developments where end-users wouldn’t want to live among daily or weekly renters.

At Smart Brickell, the majority of buyers at Smart Brickell are from Latin America. “Those buyers are mainly investors and they plan to get a return,” Vanegas said. The two-year leaseback will offer rents of $3.50 per square foot, which Vanegas said is about 10 percent higher than the standard rental market.