At the risk of looking silly, I am about to rep the 305 as a Global Economic Indicator. Pitbull, you listening? But seriously, I’ll really know something is wrong with the global economy when developers aren’t building 20 new sky-scrapers in Downtown Miami at any given moment.
Why would an occasionally quant-minded gentleman such as myself feel comfortable extrapolating from his local neighborhood to the rest of the goddamn planet? I base it off a little back of the envelope statistical investigation, combined with a heaping helping of anecdotal evidence as my sources, of course.
You see, one of the greatest things about Miami is the diversity of people who inhabit the city. I’ve met a range of personalities here I never would have met in Chicago or New York. Sure, there is a huge South American and Caribbean influence (which is truly entertaining) but there’s always been a strong European presence in the city, with expats preferring to park cash in assets with a view. Recently, prices have been buoyed by South Americans looking to acquire dollar-denominated assets. Even the Chinese have gotten a taste for Biscayne Bay. It’s a fun market to be a part of and watch evolve (see chart above)
The big point I am trying to make is a lot of different entities are at work in Miami at any given time. These entities are connected to global funding markets and, because of the diversity of nationalities that actually want to live, work, and own here, to global financial markets. This creates a dynamic whereby the price of credit, equity, and real estate are all linked to Miami, especially its perpetually frothy real estate market.
Returning to the price chart of the stock market vs Brickell Key condo prices, you can see a staggering 72% correlation between the price per square foot and the S&P 500. The two markets had a notable disconnect during the tech bubble of the late 90’s, with convergence in the time series afterwards.
Back in 2007 to 2008 when credit markets began to seize, new construction basically ground to a hault. Building sites were left empty, some in half finished states. Only the best funded flagship projects made it to completion, and far slower than initially scheduled. I call the buildings in the following shot the 4 horsemen because they broke ground around the time that Bear Stearns was shuttering its first mortgage backed hedge fund.
Now the global markets are rallying and Miami condo prices are on the move higher again. Developers wasted no time getting back to business, and currently a wide array of new projects are under construction, including this building in the heart of Downtown’s Brickell Financial District. No doubt some of the money from a relaxed monetary policy filtered its way into the Miami Real Estate market.
One thing that is truly different about this boom is the existence of huge projects such as Brickell City Center, which is a collection of multiple sky-scrapers arranged in a complex. These projects are selling at much higher dollar per square footage than the rest of the city for now. No telling which direction prices will converge but voices are starting to worry about the potential for oversupply.
Some projects that started before the credit crisis are just finishing now, for example the Met complex of condos and hotels just north of the river.
The evidence, both concrete and anecdotal, still points to halcyon boom times here in Miami. Ferarri’s and Lambo’s abound. Bugatti’s are no longer an endangered species. Cheap leases have put BMW’s and Audi’s on the road at a rate that makes 2006 feel like the great depression (there were a ton of nice cars on the road then too).
I am watching the progress on Miami World Center closely. This is another big complex just northwest of the American Airlines arena that up until now has been a low-income district. If this project gets underway it will be transformative to say the least, as $1000/sq ft condos move into an area that used to house the biggest homeless shelter in the city. If groundbreaking gets delayed too long it might be reflective of tighter funding conditions. But for now its too early to signal any warning.
edit: took this shot as well, realized later it was HBO’s Ballers filming on a yacht outside One Miami. That’s Brickell Key in the background.