Boom or Bust: Miami

Forbes recently listed Miami as America’s second most over priced real estate market. Now CNBC lists Miami as number 4 in its top five metro areas in (property value) appreciation.

CNBC analysis goes on to report:

“But there continue to be puzzling stories in the national mix that appear to defy employment and land supply. Take, for example, Miami. Florida is leading the housing bust, with existing single-family home sales in March down 28% statewide from a year ago. Prices statewide are down 4%, but not so in Miami…While single-family home prices in the city are flat, condo prices are up 18% over last year, despite the fact that the Miami skyline is still teeming with cranes.”

If you read the Forbes list you saw two of its targets on the downside of the CNBC list (San Diego and D.C.), but Miami, a Forbes target, is on the upside of the CNBC list. The articles are both looking at property value appreciation in the same city but drawing two very different conclusions.

The Forbes conclusion is that the prices in the Miami market are too high to sustain further growth. Forbes formed their conclusion by looking at the median household income of Miami-Dade county but ignoring the city’s appeal to domestic and foreign buyers.

The CNBC report looks at the property value increases as positive and the reality on the ground as highly active. The conclusion is that Miami’s real estate market, particularly the condo sector, is defying the odds and continuing to increase in value.

Does Miami fulfill world class criteria? What criteria would Miami have to meet? What source(s) does one rely on for information? All of these are intriguing questions that merit consideration.

Wikipedia has an interesting set of criteria for being considered a world class city, although it seems to come from the Globalization and World Cities Study Group. The criteria includes: City population, metropolitan population, percentage of foreign-born residents, expatriate cost of living, metro system ridership, passenger air traffic, number of billionaire residents, and gross metropolitan product.

On Wikipedia’s chart of global cities, Miami only appears in one of the criterion columns. It is number one on the “foreign-born” segment. Other U.S. cities included on the list are New York City (appearing in 6 of the 8 columns), Los Angeles (appearing in 4 columns), and Atlanta, Dallas, Houston, Chicago, Washington D.C., and Philadelphia (appearing in 1 column each).

There are other factors such as skyline height averages and density. You’ll be pleased to know that Miami’s skyline ranks third in the U.S. behind NYC and Chicago (18th in the world) according to the 2006 Almanac of Architecture and Design. The presence of monuments tend to contribute to a city’s global and cultural status (Miami has none). Seaports are another important factor (Miami’s is the most busy cruise ship port in the world). Not surprisingly, major cultural and learning venues as well as major parks and public spaces (plazas) are factored in to the set of criteria. Thank heavens for the Museum Park plans and the newly completed PAC.

Wikipedia goes on to describe different classes of world class cities on a 12 point and letter scale (alpha, beta, gamma). NYC is the only U.S. city ranked Alpha with 12 points. Los Angeles and Chicago, also considered Alpha, have 10 points. San Francisco, considered Beta, ranks fourth with 9 points. The remaining U.S. cities are ranked Gamma: Boston, Houston, Dallas, and Washington D.C. each have 6 points. Atlanta, Minneapolis, and Miami end the U.S. list with 4 points each.

Miami lacks in public transportation, public spaces and parks, cultural and learning venues, as well as monuments. The Magic City does have a strong showing with its port, international airport, and foreign-born population. As it stands, America’s southernmost metropolis will increase its standing with Museum Park and the new Cesar Pelli-designed Performing Arts Center. The city’s population is increasing significantly as well. Miami International Airport will increase air traffic and traveler conveniences with a $5.2 billion expansion. Traffic flows are going to be less clogged due to billions in highway and road improvements.

The most encouraging sign of Miami’s growing preeminence is its booming skyline. Currently ranked in the world’s top 20 skylines and expected to climb even further up the list. There is no doubt that Miami is on the world class track. In fact, it is evident that the city fulfills the fundamental requirements for being considered world class at the present time. Inexplicably, there are many that doubt this claim. The Banana Republic stigma is not easily shaken off.

More Info from the Brookings Institute

The information on the chart below comes from Housedata.info

It indicates the increase in housing prices in Greater Miami since 1975. Pretty neat.

The Green Movement and the Three R’s

The purpose of building Green is to change the way a building consumes energy and water as well as increase the use of recycled materials in construction. The result is less waste in the environment and lower operational costs for the building. Just like buying a diamond can be simplified by understanding the four C’s (Cut, Color, Clarity, and Carat Weight), the simplification of the Green Movement begins with understanding the three R’s (Reduce, Reuse, and Recycle).

Reducing Energy Consumption and Power Dependence

The reduction element is in mitigating energy consumption by employing unique building features such as integrated photovoltaic cells, which harness solar power (in some cases up to 5% of the overall electricity used). In maintaining the reduction theme, features such as “low-emissivity” coating on exterior glass windows which filter solar heat but allows light to enter the interiors keeps the interior temperate and reduces A/C usage—this is a feature of the proposed Brickell Financial Center. Another example of energy conserving in the BFC project is the plan for “punched” windows which are set twelve inches from the exterior thus allowing for physical shading and temperature reduction.

Other Green buildings are incorporating wind turbines that generate power and also serve to help cool the buildings. Chad Oppenheim’s COR project in the Design District is a local example of this type of groundbreaking technology. Again, the theme is energy reduction and sustainability. Buildings such as NYC’s Solaire are designed to reduce up to 35% less energy and 65% less electricity during peak demand. Some Green buildings are implementing geothermal heating, which harnesses stable warmth through pipes dug deep into the Earth. Geothermal heating reduces the use of electricity for heating purposes. Radiant cooling slabs, used in Europe for over two decades, is another Green energy conservation element (outside of Europe, it is used in mostly Canadian projects at this point).

“Normally these consist of small diameter plastic tubing mats embedded into plastered walls and ceilings, or integrated into suspended ceiling panels. Another system is the Swiss BATISO concept (an acronym for Batiment Isotherm–constant temperature building). This uses plastic tubing cast into the building’s concrete structure. Warm and cool water is pumped through the tubing to control the concrete slab temperature to create radiant cooling and heating. Coupled with a displacement ventilation system, much of the heat from lights and equipment can be removed from the space directly, resulting in a very stable indoor climate.” View Source

All of the aforementioned not only benefits the unit owners with decreased maintenance fees but the city power grid as well. Who knew Green buildings could do their part in preventing blackouts.

Reuse and Recycle

The Reuse and Recycle elements are found in the reusing of waste materials for construction and recycling water for conservation. A good example of reuse is the Big Dig House, which is a private residence in Boston that is composed of over 600,000 lbs. of recycled building material from the Big Dig public works project which has cost of over $15 billion—making it the most expensive public works project in U.S. history. There are different types of reusable material that can be used: salvaged, post consumer, pre-consumer, agricultural waste material, etc.

Without getting into the details of the material types, they range from bricks, lumber, and millwork (salvaged) to automobile tires (post-consumer) to PVC scrap (pre-consumer) and straw, the stems left from cereal harvesting, agricultural oil waste (agricultural). For simplicity I have left out other types of recyclable building materials. One has to wonder why this is not seriously considered by Miami-Dade planning officials due to the massive amounts of material waste being generated daily from the dozens of large-scale infrastructure improvement projects going on throughout the County.

Water Conservation

For the purpose of water conservation, Green buildings can have several unique features such as storm and waste water reclamation systems, rainwater runoff collection cisterns, low flow urinals and dual flush valves. The water collected from rain runoff can be used for irrigation, plumbing, and aquifer refilling. This, again, represents a level of sustainability that can only empower the building as a community and decrease its operating expenses.

Healthier Living Environments

Importantly, Green buildings can create a more healthy living and working environment by providing cleaner air and water filtration systems. Even during the a green building’s development the materials used are less likely to pose a health risk. In order to attain a higher LEED rating, green builders avoid using adhesives, sealants, and compounds with green house emitting gases (VOC’s).

Green Roofs

Interestingly, green buildings, which take a more scrutinizing approach towards design and engineering, have even come to embrace green roofs. That is rooftops with lush greenery/landscaping. This, to me, seems rather ingenious, on an aesthetic level alone. I’m an advocate of green (bushy) parking garages. Here we’re talking green (bushy) roofs. Objectively, from the standpoint of a resident in a distant high rise, it is monumentally beneficial to not have to see nearby bleak roof tops with exposed cooling towers and ventilation systems diminishing the view.

Instead, the green roof tops will appear as an extension of the natural landscape and the cooling towers, external piping, and ventilation systems on the roof would be more concealed. From the standpoint of a resident inside a green roof building, having a green roof can absorb rainfall (reduce leaks and messy water run off), reduce heat in the summer, provide added insulation from cold in the winter, and add to the natural wildlife habitat. The process of maintaining such a roof, which might feel like a natural preserve, is beyond me. Imagine having to replace a cooling tower on a green roof. The project might be much more costly just due to the removal and replacement of the green element. Still, the idea is fundamentally sound and rather exciting to ponder.

Developers and Consumers

With all the talk of global warming and the rapid modernization of China’s adverse effect on the environment, people are becoming more apt to be environmentally conscience. Still, the natural tendency for people is to care about their wallet first and then worry about everything else. So, with an added 2-5% increase in construction costs for developers and Florida lacking green incentives, how can one expect for builders to accommodate Green developments? Furthermore, the added cost implies an increase in the purchase price for the consumer. So, how then can one expect for the consumer to be receptive to a green product versus not? The answer might be rather simple. There is a crisis with condominium maintenance fees.

Is the Solution to the Maintenance Fee Crisis Green?

The maintenance fee crisis is usually derived from underestimated utility expenses in a building’s initial operating budget. The overages are more often than not felt with electricity first and water second. A unit owner can often find themselves in a tight spot, having to pay maintenance that is sometimes 25% higher than what was originally promised, as early as the first year alone. This also poses a legal problem for developers who are blamed for the maintenance increases. A Green building would incontrovertibly be better suited to reduce the likelihood of a maintenance fee increase. With that in mind, the buyer has to realize that although the purchase price of a green unit is higher at the onset, the cost of maintaining it in the long run will more than pay for the difference. Government incentives can boost developer participation which will in turn increase demand for green-related products, materials, and services, thus bring their costs down.

The growing U.S. Green Movement is felt most in Chicago, New York City, and Seattle. However, recently Florida has picked up on the Green wave and Miami Mayor Manny Diaz has embraced it in a platform-like manner. The next installment of this article will deal with the Green movement’s progress in Florida, particularly, Miami.

(To be continued…)

Images: Mouth of the Miami River in 1896 (above) and 2007 (below)

Getting Started

At a time when Miami has exceeded NYC in construction, analyzing the Magic City’s evolution in comparison to other great U.S. cities becomes rather interesting. This series aims at following Miami’s emergence from obscurity into what has arguably become the Gateway to the Americas. Miami’s emergence is tracked parallel to other U.S. cities in order to see a unique picture of Miami’s historic evolution and its special role in 21st Century urban America.

Image: Third Seminole War

A Lonely Fort

Before there was Miami there was Fort Dallas. The defensive U.S. Army outpost was built in the midst of a war against a band of renegade Indians. They were the Seminoles: remnants of various tribes from the continental north that had fled south into the cover of Florida’s vast swamplands. In 1836, when Ft. Dallas was erected in the heart of what would later be Miami’s Central Business District, it was at the farthest edge of the American frontier. Florida had yet to be incorporated into the Union.

Map: Fort Dallas

Boston, San Francisco, and Chicago in 1836

In this period of U.S history, the American West had already seen development. A year before, Yerba Buena, a port located on a magnificent harbor, was renamed San Francisco. St. Louis had a population in excess of 6,300. Chicago, which would incorporate a year later, had an estimated population of 4,000. Boston, long since an important hub, had expanded across the Charles River to form the neighborhoods of Cambridge, Charlestown, and South and East Boston.

Map: Boston 1830’s

New York City in 1836

New York City at this stage was mostly concentrated along the southern portion of Manhattan Island. For the time, the City was sprawling. Parts of it had already expanded across the bay into what is now the Brooklyn Heights area. Stunningly, if you view a map of the Big Apple in 1836, the area that is now Midtown Manhattan was largely hilly and forested. Still, by that time, a forward thinking street grid had been planned for the area up to what is now 155th street. New Yorkers ambitiously planned for the City’s inevitable expansion in advance of it.

Map: New York City 1840’s

Still no Miami. Just war.

Meanwhile, Fort Dallas stood dangerously isolated in a hostile area near hauntingly beautiful turquoise waters. The same clear waters that would later lure millions of international visitors into them offered solace to the small group of men. A year prior, while marching east from Tampa, Major Francis Dade was ambushed and killed by the Seminoles along with two army companies (an event to which Miami-Dade County attributes its name). The Seminole Wars would last until 1858. Florida was a militarized state because of the wars. It’s no coincidence that there are so many Florida cities named after forts (i.e.: Ft. Lauderdale, Ft. Walton Beach, Ft. Pierce, Ft. Myers). Progress was severely hampered during the period. In fact, due to the U.S. Army’s scorched-earth policy, the peninsula’s entire population had dwindled to an estimated 35,000. Most of them confined to the northern part of the peninsula. Even before it had a name, the odds were stacked against Miami.

Image: San Francisco mid-nineteenth century

Miami is Incorporated in 1896

Miami would not be incorporated until 1896 when railroad tycoon Henry Flagler stepped into the picture after having been lured by Miami native Julia Tuttle. Ironically enough, Miami’s official existence is attributed to a major project by a wealthy developer. The project was the Royal Palm Hotel. Rumored to have been lured by a simple basket of oranges, Henry Flagler became Miami’s original developer. At the time, there were families that lived in the area. The Brickell family lived south of the Miami River. Julia Tuttle owned land north of it. The city, however, was well short of bustling.

Image: View of Early Philadelphia from the River Delaware

Miami Connected to the U.S.

During this same time, while Miami was centered around a single luxury hotel, Philadelphia was massive. Traveling on a boat along the ship channel on the River Delaware the city would have impressed one with its endless rows of centennial buildings. The spires of the Old Christ Church and Franklin Square would have risen in the foreground. The Masonic Temple’s tower and two spires would have loomed in the background. The Delaware River would have been busy with sailboats and steamboats. On the other hand, Miami barely had a town center and was sparsely stretched from Coconut Grove to Lemon City. However, in 1896, one year after the great freeze, there came a great turning point for the infant city. The railroad came to town. From then on, a diverse assortment of people would gradually stream into the fledgling southern town. For the first time, Miami was connected to the rest of the country.

Up until the 1890’s, Miami had no place in the class of America’s rising cities. Boston, Philadelphia, New York City, Chicago, and San Francisco were at the top of the class. It was at the turn of the 19th Century that Miami officially entered the mix but would not be noticed for decades to come. As it was in 1896, few knew the city even existed. (to be continued…)

I was pleasantly surprised to see a recent BoB article, Know Your Competition: Panama City (Part II), get read over 500 times, this morning alone, by readers of a prominent Panama investment blog. This proves how receptive investors in Panama are to the notion of competing with Miami. A link to BoB’s article appears on Prima Panama’s blog, the country’s foremost real estate and resort investment blog. The article’s true purpose is to increase awareness among well informed Miamians that their city is not alone in vying to be the legitimate Gateway to the Americas. Panama investors are keen to notice.

According to an article featured on Azobuild.com (A to Z of Building), Miami’s economy is the thirteenth largest in the U.S. (including states) and has outpaced Chicago and positioned itself behind Beijing in office market growth. Miami’s $7.2 billion trade surplus is the second largest in the U.S. The data was compiled via the U.S. Census Bureau. According to the same source, the Greater Miami area out performed New York and London in terms of investment growth. Miami has already surpassed the Big Apple in new construction activity and currently leads the U.S.

Wikipedia has an article on Manhattanization, which references Miami’s version of it as a great example of the urban phenomenon. Wikipedia, humorously enough, also has an article on the emerging Biscayne Wall.

According to the Beacon Council, 46% of all trade with Central America goes through Miami’s Customs District along with 30% of all Caribbean trade and 20.6% of all the trade with South America. As far as total U.S. exports go, Miami dispatches 49% of all trade to Central America, 42% to the Caribbean, and 38% to South America. Brazil tops the list of Miami’s trading partners with almost $5 billion in yearly trade. According to Florida FTAA, Miami is home to over 500 multi-national headquarters, about half of which specifically target Latin America.

The continued progress of Miami will bode well with domestic and international investors down the line and help sustain what is being considered “over-development” by some. The Magic City continues on its world-class track.

The Real Deal, a New York based real estate publication, has an interesting article regarding office tower development in Miami. I have said in the past that Miami’s current residential boom will likely be followed by a commercial development surge. This seems only natural as, historically, throughout the nation, high density development has been primarily commercial/office. Miami has broken the mold with its mostly residential high density explosion in construction. Now, with the announcement of three new office towers (Brickell Financial Center, Met 2, and 1450 Brickell) the residential status quo could be shifting in favor of office space. The Brickell financial Center has already drawn the attention of MSNBC for its environmental friendliness.

This trend, should it continue and mature into a boom in office development, will likely result in taller skyscrapers than the residential boom has produced thus far. Also, the office towers are all inland and not on the Bay. This is another sign of skyline maturation since Miami’s urban development during its brief existence has been largely confined to bay areas. Two of the three office projects are in Brickell. Again, this signals a potential shift of the Central Business District (CBD) to the south of the Miami River. With so much activity, forecasting urban development patterns becomes rather challenging, but the latest news is good and all should hope that this office-condo pattern continues.