In 2003 I pitched the idea of developing in Miami to a group of developers from New England. The group had never heard of “pre-construction” selling and wanted to learn more. In the Northeast US, institutional investors have a higher level of confidence in demand statistics and are willing to put money into development without sales. TO these developers, the idea of selling prior to building sounded like a dream. Pre-construction is a relatively new concept. Traditionally, first you build, then you sell. Go to New York and you will find that this is the way condo development is done. For example, the William Beaver House in Wall Street is nearing completion without having been 50% sold. If you build it, they will come! However in Florida, demand is so speculative that banks are not willing to give construction loans without pre-sales. If they come, then you build it.
In real estate people traditionally shop for property they can take possession of within 30 to 60 days. We live in a world where people are accustomed to instant gratification. In order to convince the public to buy a condo today only to take possession in several years, developers (in FL, NV, AZ and other highly fluid markets) must give an incentive. In recent years, this came in the form of a discounted price. Buy a pre-construction condo for 10%, - 20% less than the comparable property across the street. Today, this incentive is gone. In the hottest markets across the country, especially in my Miami market, buyers can pick up a new condo (built 2004-2008) at lower prices than developers can afford to sell pre-construction condos for. The market is upside down. Until this boom’s inventory is absorbed, we will not see successful launches of new Miami pre-construction projects.
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