South Florida Report:

Multifamily slowdown finally comes to South Florida.

By Natalie Keith

For those in the construction business in South Florida, multifamily projects have been a mainstay. With 1,060 people moving into Miami-Dade, Broward and Palm Beach counties each day, condominium and townhouse projects seem as ubiquitous as sunshine.

In fact, several of the area's highest-priced construction projects, all in Miami, are multifamily projects. They include the $222.7 million, 342-unit Everglades on the Bay; the $209 million, 516-unit 900 Biscayne Bay; and the $166 million, 440-unit Plaza on Brickell.

However, with developable land becoming scarcer, the housing market slowing and the banking community putting the brakes on financing multifamily projects, construction industry officials are seeing a shift in the types of projects in the works and are predicting that future months will bring more retail and office development.

Paul Murphy of Miami-based Charleville Development Corp. is among general contractors who have been busy with multifamily projects, but he said he's seeing a slowdown.

"There are a lot of projects that aren't moving forward because of financing or other factors," he added. "It's almost like business as usual, the way it was five or six years ago before we had an explosion of projects."

Charleville is the general contractor on the $110 million Marina Blue project, which topped off in July, and the $70 million Blue project, which completed recently. Charleville was recently named the general contractor for the $83 million KUBIK, a 16-story, mixed-use condominium project at 5700 Biscayne Blvd.

The project will consist of two towers. The south tower will contain 183 bi-level units and the north tower will contain 116. There will also be 41,745 sq. ft. of commercial space for sale.

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Meanwhile, the head of another especially busy condo contractor, Coastal Construction Group of Miami, agreed that few announced condo projects will actually be built.

Thomas P. Murphy, president and CEO of Coastal (unrelated to Paul Murphy), said many people with no prior experience became "developers" during the recent condo boom, but "only few condo projects (will move forward), and those will be (from) great developers in good locations."

He added, however, "There's still a demand for good housing."

One result in the surge of multifamily activity has been a 7 percent increase in construction jobs in Florida over the past year. From June 2005 to June 2006, the number of construction jobs increased from 576,200 to 619,200, according to the U.S. Bureau of Labor Statistics.

"The bottom line is everybody is busy," said Len Mills, president of the Associated General Contractors of South Florida. "I've had meetings that are difficult to schedule because people don't have the time."

However, some multifamily projects that were previously announced have since been canceled due to the slowdown in the housing market. They include 1390 Brickell Bay and ICE in Miami, the Waves Las Olas in Fort Lauderdale and Promenade in Palm Beach County.

And that has meant a slowdown in employment. From May to June, there was a .7 percent decrease in construction employment in Florida, according to the Bureau of Labor Statistics. "It's slowing down, but not by much," Mills said.

Despite the decline in multifamily activity, construction experts said there is little reason to worry about having work in the future because activity in other sectors is expected to increase.

In addition, many projects in the public sector were put on hold to accommodate the increase in activity in the multifamily sector. "At our May chapter meeting, I had a banker say, 'bring me any type of development except for condos," Mills said.

For example, Miami-based developer Grouper Financial is developing plans to build a $125 million, 29-story Class A office building at 2222 Biscayne Blvd. It will be the first Class A office building in the Biscayne Corridor.

The 432,477-sq.-ft. project is planned to meet the growing needs of the neighborhood and will include office and retail condominiums, a health club, restaurants and a parking garage. Grouper plans to break ground on the project next fall, with completion scheduled for fall 2009.

Scott Silver, Grouper Financial's president, said the recent proliferation of condos is still creating the need for nearby office and retail space.

"There's definitely been some overzealousness with respect to the development of condominiums, but the reality is some of those units will be built," Silver said. "Some of the people who move to that area are going to want to work closer to where they live."

Broward and Palm Beach counties have also been seeing a surge in new office developments. The Hogan Group, of Tampa, broke ground earlier in the year on the 8-story, 220,000-sq.-ft. RoyalPalm II at Southpointe in Plantation.

In Palm Beach County, the county commission's approval of Jupiter's proposal to house the Scripps Research Institute at Florida Atlantic University's Abacoa campus is expected to spark much commercial development in the future. The first phase of the project will include construction of 364,000 sq. ft. of laboratories on 30 acres.

Developers have responded quickly to the commission's decision. One developer, Rendina Companies of Palm Beach Gardens, has received approval to proceed with development of 177,000 sq. ft. of office space. Catafulmo Development, of Miami, is marketing two parcels in Palm Beach Gardens for creation of more than 1 million sq. ft. of research and development space.

Design firms have also been experiencing a similar shift in activity. David Povio, division manager for Treasure Coast operations at Boca Raton-based Quincy Johnson Jones Myott Williams Architects, said the firm has experienced a slowdown in residential projects.

"Single-family is still alive and kicking but it's slowed down because the cost of land is increasing," Povio said.

He added that a lot of commercial activity is popping up, particularly with respect to tenant improvements. Since 2005, the company has completed over 1 million sq. ft. in tenant improvements.

Class A office projects included Stanford Financial Services in Boca Raton for CB Richard Ellis, which encompassed 20,000 sq. ft. of office space spanning three floors of the Boca Center Tower I, and Software FX's 9,000-sq.-ft. Boca Raton-based headquarters in the Arvida Park of Commerce.

In addition to office projects, airport projects will continue to keep the construction industry busy in the years to come. Miami International Airport is continuing work on a $5.2 billion capital improvement program undertaken to handle increasing passenger and cargo traffic. Projects included in the program include a $1.5 billion project to create a new North Terminal.

Despite the slowdown in condominium projects, there are still developers that are bullish on the multifamily sector. Key International of Miami will break ground in 2007 on the $150 million MINT project, a 53-story, 230-unit condominium project in Miami. It is the sister project to the 45-story, 510-unit Ivy at Riverfront project, which is under construction.

The units in both projects are 100 percent presold. "If you have a good project, it will sell," said Inigo Ardid, vice president of Key International.

The Numbers

Information from McGraw-Hill Construction, which publishes Southeast Construction, indicates the South Florida area of Miami-Dade, Broward and Palm Beach counties is in for some ups and downs over the next few years.

The company's most recent "Metropolitan Construction Insight" report for Miami - which includes information on all three counties - indicated the following assessment: "(The area's) unemployment rate (3.9 percent) remains below the national average, even though few jobs have been created over the past six months. The metro's largest problems stem from slowing population growth and an overpriced housing market. Both will dampen growth moving forward."

Additionally, through the first six months of 2006, McGraw-Hill Construction reported that total building construction in the metropolitan statistical area consisting of Broward, Dade and Palm Beach counties was down by about 8 percent compared to the first half of 2005. Through that period, area nonresidential and residential construction starts totaled slightly more than $6.7 billion, down from the nearly $7.3 billion reported for the same six-month period of a year ago.

However, like much of the rest of the country, South Florida's 2006 construction market is a tale of two sectors. Indeed, the residential sector is down by 15 percent compared to 2005, with a nearly $4.7 billion tally so far this year compared to the nearly $5.5 billion figure of last year.

On the other hand, nonresidential is up considerably, 13 percent, at a nearly $2.1 billion total for the first six months. That compares to the roughly $1.8 billion in new contracts started in the same period of 2005.

According to the company, South Florida residential construction reached a peak in 2005, when construction started on an estimated 52,146 units of single- and multifamily projects. (McGraw-Hill Construction classifies two-family housing as "multifamily.") That number should drop to about 46,500 units for '06, and remain further subdued until at least 2010.

"Now that the luxury condo market has peaked, expect modest declines in housing starts (and prices) over the next few years," McGraw-Hill Construction stated.

McGraw-Hill predicted the nonresidential sector will continue to stay positive in 2006, with the total of square footage added by this year's new nonresidential project starts totaling about 37.9 million sq. ft. That compares to the 34.9 million sq. ft. of new projects that started in '05. Moving forward, the three-county area should experience more than 38 million sq. ft. of nonresidential starts in both 2007 and 2008, according to McGraw-Hill Construction.

Indeed, McGraw-Hill described the future of the following nonresidential sectors this way:

Retail: "Starts will remain stable over the next five years at an average of 5.2 million sq. ft."

Warehouses: "Starts will grow to 7.8 million sq. ft. in 2007 and remain high."

Offices: "Starts will grow but remain conservative."

Hotels: "Starts will remain subdued."

Education: Though population growth is falling, "classroom size laws will keep starts healthy."