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.”