Miami Report: Partly Sunny?

Will Miami-Dade contractors keep busy amidst condo bust?

By Jim Parsons

Many construction markets might envy the kind of “slowdown” that Miami-Dade County is experiencing. Although short-term prospects for the area’s signature high-rise condominium market are as flat as an Everglades vista, activity in other sectors seems to be buoying the spirits of most major contractors at least for now.

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“Everyone seems to have plenty of work through 2008 and beyond,” says Len Mills, president of the Associated General Contractors’ South Florida chapter in Sunrise. He adds, however, that “some backlogs for 2009 are smaller at this point than people would like.”

Indeed, many contractors that were part of the high-rise condo boom have successfully joined the competition for office, retail and private-sector work, according to Dan Shaw, executive vice president of the Associated Builders and Contractors Florida East Coast Chapter in Coconut Creek.

“They claim that business is good and that their numbers are still working,” Shaw says. “The people who are struggling with the slowdown either weren’t prepared for it or haven’t experienced one.”

Planning ahead has paid off for firms like Coastal Construction Group of Miami. President and CEO Thomas P. Murphy Jr., says his firm began preparing for a downturn at the height of the condo boom. Having secured $1 billion of new business for 2008, Murphy says that of Coastal’s 12 major Gold Coast projects scheduled to start in the first half of the year, “not one is a condo.”

That comes as little solace to those construction firms for which condominiums have been their stock in trade.

“So many of us contractors have made a good living over the last 10 years doing these beautiful high-rise condos, and now it’s all but halted,” says Mike Neal, president of Coscan Construction in Fort Lauderdale. He adds that unlike large national firms that have always been diversified in multiple sectors, local firms tend not to go too far outside their residential focus. Still, he says that “the good companies with good reputations will get a fair shake” in the pursuit for noncondo projects.

A mixed market

Opinions differ on just how long opportunities will abound in Miami-Dade’s nonresidential sectors.

Office and commercial construction, for example, has been relatively strong with projects such as Coastal’s 15-story, 250,000-sq-ft headquarters for Bacardi U.S.A. in Coral Gables and the 1-million-sq-ft, mixed-use Brickell Financial Center in downtown Miami being built by John Moriarty & Sons of Hollywood.

And although observers say vacancy rates remain low, Kent Long, vice president of business acquisition for Balfour Beatty Construction in Plantation, says a change in the demand curve may be on the horizon. “Projects appear to be shifting from larger, Class A buildings of about 400,000 sq ft to smaller projects between 100,000 and 150,000 sq ft,” he adds.

There is also activity at mixed-use projects such as 1111 Lincoln Road in Miami Beach, where Balfour Beatty is constructing a uniquely designed, 300-space parking garage with ground-floor retail. “Every column is angled, and the levels are different heights,” Long says of the project that is testing his firm’s technical skills. “We’re using a lot of BIM to assess constructability.”

And while other parts of the U.S. may lament the U.S. dollar’s lackluster performance against other currencies, Miami-Dade’s standing as an international tourist destination appears as strong as ever, which is good news for construction in the area’s hospitality industry.

“Tourism is up all over Florida, particularly with overseas visitors who are taking advantage of the weak dollar,” says Bob Moss, president of Moss & Associates in Fort Lauderdale, which is one of several firms with new hospitality projects on its schedule. Among them are the $32 million, 83,000-sq-ft SoHo Beach House hotel/condo development in Miami Beach and the Ritz-Carlton Club and Residences in South Beach, which will combine nearly 154,000 sq ft of new construction with renovation of the historic Seville Beach Hotel.

Miami-Dade’s higher education sector also remains active. Moss & Associates is working as construction manager at risk for the University of Miami’s Interdisciplinary Wet Lab Research Facility, a 10-story, 180,000-sq-ft research and laboratory structure on the university’s medical campus.

At Florida International University, Odebrecht Construction of Coral Gables will complete the school’s new 18,000-seat football stadium in time for the start of the 2008 season. The Miami-Dade County Commission has also approved $10 million in funding for an ambulatory care facility for FIU’s new College of Medicine.

On the public side, Parsons-Odebrecht Joint Venture is leading the $1 billion, 2.4-million-sq-ft expansion of Miami International Airport’s North Terminal topping the list. Still, Odebrecht CEO Gilberto Neves says he worries that a looming reduction in Florida’s property taxes could negatively impact governmental construction budgets and curtail a growing list of municipal infrastructure needs.

“Improvements are needed everywhere you look,” he says. “The governments will have to start being creative and consider strategies such as public-private partnerships to get things done.”

The property tax issue could also curb what has been a robust school construction program in Miami-Dade. “Whatever happens, there’s no doubt that budgets are going to be tighter,” says Ray de la Feuilliez, vice president of business development for James A. Cummings of Fort Lauderdale. The company has four school projects under way for Miami-Dade County Public Schools, including a 350,000-sq-ft high school and a 155,000-sq-ft middle school on a 56-acre campus in Hialeah Gardens.

The market’s greatest question mark is the yet-to-be-determined fallout from the combined effects of the nationwide housing slump and the subprime mortgage crisis, particularly as it relates to condominium construction. Several industry observers had speculated that the sector might show signs of life as early as 2009.

“People tell me owners aren’t giving up and going elsewhere,” AGC’s Mills says. “They’re waiting to see how everything shakes out.”

Neves adds, “People are more cautious, which at this point is a good thing.”

And though the high-rise condo market may be shadow of its former self, the sector is hardly idle. Balfour Beady is nearing completion on the second of its two towers at Midtown Miami, while Moss & Associates has the 52-story Mint and 45-story Ivy at Riverfront moving toward their respective completion dates. Also due in ‘09 is Trump Hollywood, a 986,000-sq-ft, 42-story high-rise being built across the border in Hollywood Beach by Coastal Construction.

What happens after that is when things will really get interesting, Coscan’s Neal says.

“Everyone in a real estate-related industry will be closely watching what happens as a boatload of new units are completed this year,” he adds. “Will they close, or will developers have to hold on to them?  The well-capitalized developers will be able to handle it, but there is still a lot of inventory to come on the market. Dade County will need two to three years to absorb what’s been built.”

Neal says that despite the uncertainty, there are a handful of new condo projects in the pipeline, though he predicts that only half of them will move forward. The most promising prospects tend to be all high-end, exclusive buildings in attractive water or oceanfront locations. “Buyers for these types of units are still here,” he says.

Those condo projects that do rise in the coming months will likely also have a lower profile than their high-rise predecessors. For example, Coscan will soon start on an ultraluxury condo project with three buildings, none of which is more than 11 stories high.

“We’ll be seeing a lot more mid-rise luxury residential projects, as well as those built for the rental market,” Neal predicts.

The silver lining from the flat condo market has been an increase in available labor at all levels. “We’re seeing a lot of unsolicited resumes coming through,” Coastal’s Murphy says. “People see things winding down and want to land on their feet.”

Balfour Beatty’s Long adds, “You can really see subcontractors from the residential market looking to latch on to projects with two- to three-year build-outs. The amount of bid participation and coverage has dramatically increased as well. We used to have to scramble to get three or four bids. Now, we get twice as many.”

One step forward…

So while the construction community continues to look forward to continued activity across Miami-Dade in 2008, it will also be looking over its shoulders at the troubling issues that may finally be catching up with the market’s spectacular success.

“We’ll have growth, but not what we’ve experienced,” Neves says. “It’s not a recession but a slowdown.”

“We’re expecting this year to be good, barring a surprise,” Moss & Associates’ Moss adds, though he wonders whether the potential of tighter credit may change lenders’ attitudes toward new real estate projects. “We’ve yet to see if they (lenders) will place higher demands on developers,” Moss says.

Neal is also concerned that proposed remedies to the subprime problem may prove ineffective. “Housing prices are falling by 20 to 30%, yet many people eager to buy won’t be able to get a good mortgage,” he says.

The projects that do go up are likely to be more environmentally sound, according to Cummings’ de la Feuilliez. “Last year’s bill to make all new public buildings LEED-certified failed but could appear again,” he says. “I don’t think that will add much to budgets, but contractors will have to know about it.”

One 2008 certainty that few people are talking about currently is the potential outcome of the presidential race, even with Florida’s pivotal role eight years ago.