After Ian: South Florida’s construction costs, insurance to rise

  Amid South Florida’s development boom, shell construction contractor L & R Structural has had plenty of work. The firm is slated to start an Edgewater condominium tower and a pair of apartment buildings in downtown Miami early next year. But L & R’s Richard Marquez’s mind isn’t at ease. The company has secured some, but not all, of the workforce it needs to complete the 40-plus-story towers, Marquez said. As for materials, L & R can procure the concrete ahead of time, but that’s a commitment on paper, not a definite reality. L&R Structural’s Richard Marquez (L&R Structural) “Just because I secured it with my vendor,” he said, “doesn’t mean my vendor is going to be able to produce it at the same time I requested it.” Over the past two-plus years, developers and construction firms have been dealing with a shortage of labor and materials, largely created by supply chain bottlenecks, pushing up development costs and sometimes stalling projects. Now, a new kink came along: Hurricane Ian. Construction costs in Miami-Dade, Broward and Palm Beach counties are in for more hikes, experts say, even though the area avoided the storm’s wrath. The Category 4 hurricane pummeled southwest Florida, just as some materials’ prices were beginning to stabilize or drop. Costs had grown 25 to 35 percent during the pandemic in some cases. On top of that, a handful of railroad bridges on the west coast of Florida that transport building materials were damaged, forcing suppliers to use trucks, which is more expensive. Integra Investments’ Nelson Stabile (LinkedIn) “Before the hurricane, I was somewhat hopeful for 2023,” said developer Nelson Stabile, president of the Builders Association of South Florida. “But now, after the hurricane, we will see some upward pressure on the costs.” Stabile, a principal at Miami-based Integra Investments, said the firm locked in pricing on appliances, kitchen cabinets and flooring for a rental project in Biscayne Shores. Electrical gear and elevators are also taking longer than usual to secure. But labor is — and will be — the biggest challenge, he and others said. “Definitely we are concerned,” said Marquez, a vice president at L&R. “The only thing you can really do is either match or incentivize the workers’ [pay] to either maintain them here or attract other personnel from other areas.” The overruns won’t blanket the industry, but will depend on factors that include a project’s stage of development, experts said. Some dispute that further increases will result from Ian. Attorney David Haber (LinkedIn) Still, uncertainty surrounds not just the cost of materials and availability of labor, but also the price of insurance premiums on commercial property, and builders’ risk policies, the experts said. Premiums already had been steadily increasing. “If they already contracted with contractors, it will not [impact them],” said David Haber, a Miami-based real estate and construction law attorney. “If they are about to go into contract, it will.” Double whammy On Sept. 28, Ian made landfall at Cayo Costa with 150 mile-per-hour winds and brought up to 15 feet of storm surge, killing more than 120 people. Fort Myers Beach, Cape Coral, Naples, Sanibel Island, Pine Island and nearby areas were especially impacted. The storm then moved through central Florida, also flooding inland cities. The insured property damage will exceed $60 billion, according to the Insurance Information Institute, a New York-based industry association. As southwest Florida rebuilds, South Florida will feel a double whammy on materials and labor supply. Construction workers in South Florida have already started to take jobs on the west coast, but it’s not yet clear how many will temporarily move. Gus Cabrera of the Latin Builders Association (LBA) The immediate need is for contractors that can shore up roofs and other portions of buildings that otherwise withstood Ian, said Gus Cabrera, president of Coral Gables-based Latin Builders Association. Then, at least a year from now, rebuilding will begin on structures that Ian toppled or washed away, prompting a second wave of local workers to head to the Gulf Coast. Some of the battered areas “had that nostalgic, old-Florida feeling” but will likely be rebuilt under more stringent codes, said Cabrera, who vacationed on the Gulf Coast. “It’s difficult for me to think those will come back in the same state as before.” A lot of insurance money will be dispersed in southwest Florida, said attorney Haber. And when property owners have gaping holes in their roofs, who would haggle about pricing? Attorney Ralf Rodriguez (Cozen) Yet, finding housing for contractors in southwest Florida after the hurricane’s destruction could be difficult, said Ralf Rodriguez, a construction law attorney based in Miami. Still, it’s an opportunity for smaller contractors who can’t compete with big ones in South Florida. Miami’s high housing costs may play a role. Both Miami and Cape Coral, in heavily hurricane-battered Lee County, experienced a rent increase of more than 21 percent in August, year-over-year, according to the Waller, Weeks and Johnson Rental Index. But the average Miami rent hit $2,910 that month, more than Cape Coral’s $2,186. Alta Developers’ Raimundo Onetto (LinkedIn) Developer Raimundo Onetto, whose project pipeline includes a 35-story, 400-unit apartment tower in downtown Fort Lauderdale, isn’t concerned about the effects of the hurricane on his workforce. His Miami-based Alta Developers has been working with the same group of contractors and subcontractors for 15 years. “They are not going to risk a long relationship because they are going to have a better job in Tampa or Fort Myers,” Onetto said. Based on conversations with general contractors, he knows cost hikes for materials are coming. He has heard a gamut of reasons: shipping issues, manufacturers are losing workers to better-paying jobs at Amazon. And, after all, the pandemic and the supply-chain bottlenecks it brought aren’t over. Yet, Ian hasn’t been among the reasons, Onetto said. If past hurricanes are a benchmark, material shortages are expected. Demand would stretch from windows and doors to appliances and sand, which is mixed with cement, sources said. “The reality,” said Cabrera, of the Latin Builders Association, “is the material demand for reconstruction in southwest Florida will come at a cost for other parts of Florida — the parts that are active.” Insuring for disaster Developers already had been dealing with challenges securing insurance for new projects prior to the hurricane, attorneys and brokers say. That will likely get worse when carriers adjust pricing next year, taking the hurricane and other natural disasters into account. Lenders typically require insurance, unless it’s raw land. Insurance issues led to a delay in an office sale in Boca Raton, and other deals took longer as clients had to switch lenders to close, due to the inability to bind an insurance policy as the storm approached. Ryan Garzon, a partner at Keyes Coverage Insurance Services, said the reinsurance rate has more than doubled since before Covid. Commercial tenants with gross leases are the most vulnerable. “Come January, there’s going to be massive increases. It will be tough for the next three or few years, unless we have another storm,” he said, in which case it will be more expensive and harder to find insurance for a longer period of time. Property owners are even asking their lenders to accept limited types of insurance, including windstorm, to help them save on policies, said commercial broker Jonathan de la Rosa of Marcus & Millichap. Rising insurance rates have become a “systemic problem” affecting cash flow for owners and buyers, said commercial broker Tony Arellano of Dwntwn Realty Advisors. Policies that used to cost 80 cents to 90 cents per foot a few years ago now cost about a dollar more. Multifamily properties are more sensitive to insurance increases, compared with retail and office. “Insurance costs went up 8 or 10 percent every year for the last few years,” he said. “We don’t anticipate costs to ever go down.” Remedies elusive Some developers and general contractors have come up with ways to work around rising construction costs and supply chain issues. Others are resorting to litigation as a means to resolve delays, attorneys say. Mark Migdal + Hayden’s Etan Mark (LinkedIn) Etan Mark, a lawyer and partner with Mark Migdal + Hayden, said it’s more effective for contractors and subcontractors to work in provisions that protect them from cost increases for materials, than to sue. “Right now, most developers are sophisticated enough to know that if you think it’s going to take three months for inspections, you budget for nine months,” he said. “The world moves quickly, and it’s very hard to predict what the next ‘force majeure’ act is going to be.” LKLSG’s Erin Bohannon (LKLSG) Attorney Erin Bohannon of the commercial law firm LKLSG, is seeing an increase in pre-litigation disputes, and agrees that price escalation clauses are key. “That’s really how developers, general contractors and subcontractors can protect themselves, by being proactive,” she said. Additional construction costs post-Ian could come as the industry also deals with high interest rates. The Federal Reserve is expected to keep raising rates this year in an effort to curb inflation. Something has got to give at some point, Cabrera said. Local governments could lower property taxes, but eventually state lawmakers might have to chime in as well, he said. As for Marquez, his L & R is used to dealing with caps on the amount of concrete it can purchase from vendors, much like the caps on water bottle sales at grocery stores. “Until the vendors tell us there is no more reason to worry, and everything has been corrected in the market,” he said, “you are absolutely worried.” (Photo Illustration by The Real Deal with Getty Images) The post After Ian: South Florida’s construction costs, insurance to rise appeared first on The Real Deal South Florida.

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South Florida Housing Market Update & Mortgage Rates 2022

South Florida real estate market here in May of 2022, and what's going on, What's happening, how is this gonna impact you? What we're gonna do is we're gonna look at where we are now as opposed to where we are a year ago. That's probably gonna be the easiest way to do a same comparison, just to give everybody kind of the current state of real estate nationally. I think it's the best place to start. Hi, I'm Kev. And I'm Sue. So welcome to living in Fort Lauderdale with Kevin Sues. We're local realtors, and as much as we love making videos about South Florida here and showing everybody all the great, wonderful things about where we live and where we work, what we really love doing is to sit down with books and help them figure out what the next steps are in the real estate transaction. Are you buying? Are you selling? Are you renting? Are you looking to invest? Are you looking to do all the. Let's chat. Let's sit down and talk about it. With interest rates last April approaching 5%. Something we really haven't seen since 2010, 2011 timeframe. That's throwing a big wrinkle into what's going on. Also, the recent surge in interest rates has actually had a trickle down effect. What's happening is that every time the interest rates go up, that adversely impacts buyer's ability to qualify. Let's say that you're approved for a $500,000 purchase and you're gonna put 20% down, so you're gonna be financing $400,000. Now they're gonna qualify you based upon a certain interest rate. Maybe that interest rate a year ago. In the low threes to high twos, you qualified no problem for that $400,000 mortgage. Now that the interest rates are up over five, it's gonna cost you more. It's gonna cost you more in interest, so your monthly payment goes up. Since your monthly payment goes into the overall calculation for your being able to qualify for the mortgage, it means you actually qualify for less because at $400,000 that you were going to borrow a year ago at two and three quarter percent or 3%, you now have to borrow it at four and three quarter. Or 5%. So that's a big difference in doing that. So that's the first impact of it. Are we seeing that across the nation as well? We are seeing it across the nation, but in some cases it impacts a little bit more based upon what the overall price of property is. If the price was, the property remained somewhat constant, if they had remained somewhat constant, and it wouldn't be as much of an impact. In conjunction with that, as we're seeing that property values are still going back up. Reason for that is twofold. Number one is that there is still a significant shortage of. Both nationally and here in South Florida. Second thing that we're seeing, the reason for the shortage, A lot of folks initially thought that they weren't gonna sell because of Covid. Then they held back on what they were gonna do. Then when Covid passed and everybody came out going again, the price of everything had gone up. So even though they wanted to sell their property at the height of the market, they'd have to pay to replace something at the height of the market. We saw that we had clients that. Hey, let's sell our house, but where are we gonna go? Exactly. That's the number one thing that people said to us. I love to sell my home right now and take advantage of these historically high prices in some cases, but where am I gonna go? What am I gonna do? Am I gonna have to pay a historically high price when I buy a place? And we do have some suggestions, and some of the folks that we've worked with, they're very happy with what they've done the way I've done. If you have any questions or any suggestions of your own, please feel free to drop us a little note in the box below and we'll get back to you as soon as we can. We welcome all. Feedback, all kinds of questions and all kinds of suggestions. Existing home sales are down about 3%, 2.7 to 3% nationally. Some areas have been a little more stable. Other areas like South Florida, the spikes are a little bit higher. Inventory still remains low prior to all this stuff going on. We were used to seeing, in many cases, we're used to seeing. 5, 6, 7, sometimes even eight or 10 homes available in a given area over a 30 day period set an equilibrium as far as sellers were looking to sell, but they knew they had competition to sell. The buyers were looking to buy, but they knew they had other options to buy. Just a happy equilibrium. Second thing that you're seeing, property values, even though they're higher, they're still much more reasonable than they are in other areas of the country. So people are taking the opportunity to basically move and everything else because there's a lot more latitude given by employers. There are a lot of socio. Issues that are going on right now, which we're not gonna get into, but those are also giving people reason to look at where they're living. Are they happy with what they're living? And they're taking this as an opportunity to go ahead and move. Another thing that is coming into play is, and we saw this starting last year as the inventory started to trickle into the market, you're seeing what we refer to as the bidding wars. And you're seeing that there are so few houses that are still coming on the market and so many buyers that wanna buy. You're seeing houses that are. For well over asking price and you're seeing people getting into bidding wars. We had talked to one of our clients who basically was so happy to finally get into a place they had put 11 offers in on different places, and they were finally able to help them get an offer in and get it accepted and everything else. Is that still happening in the south? Florida real estate market. Yes, it is still happening. There's a good news, bad news for both sides of the house. The good news is that if you're looking to sell your property, you still have an opportunity to get your property sold. Because there's so little inventory in the market, you still have an opportunity to get at a very competitive price to your property. From the buyer perspective, the good news is that there are properties available despite what some folks have said, that there's not. But you're going to have to do your homework. You're gonna have to get rid of those traditional ideas about walking in, making a cash only offer and expecting the seller to take it. Most of the transactions that we've been involved with, whether it's cash or finance, it almost becomes irrelevant because all the sellers are looking for the buyers to become eminently qualified, and they wanna make sure that they're pre-approved and everything is ready to go. To frame this, put things in perspective, I'm gonna  give you a quick overview of some of the key metrics, maybe the six or seven key metrics nationally, and then I'm gonna drill down to how that relates to what's going on here in South Florida. And. Things that everybody needs to be knowledgeable about. When you're looking at making your next real estate transaction, what are we seeing about pending sales? They decreased about 17% nationally, and that is due to basically the same reason that you're seeing new listings down. The inventory is still very low and actuality, the inventory's actually lower this year than it was last year. There were a lot of folks that pent up demand for doing something because of covid from 2020. Put a lot of people in a position where they. What their property is on the market. They've seen the trickle down effect of everything that's going on. They see higher interest rates. They're seeing some new regulations coming in. They're seeing all kinds of changes in what's happening. And of course, this being a midterm election year, there's a little bit of concern over what may or may not happen, who may or may not do what everything else. It is a consideration that people have when they make their decisions. And oh by the way, who do we have here? Beauford popping in. One of the things you also see is nationally the medium price for homes increase 20%. That's a huge increase. There's never really been periods of time, other than going back to the pre-crash of 2008 where you saw real estate values on a national scale increase that significantly. What's also happening is that because there's lesser inventory, shorter time to market, what you're seeing is we call it the median time to under contract. It's the midpoint when a house is. Property is listed and it goes under contract that's decreased almost 17%, which means that things are being picked up quicker, they're selling quicker, and they're closing quicker. And a lot of that is due to either people who have made a decision on what they're gonna do and they wanna move, or it's buyers that have been waiting for so long to be able to find something and do something. Oh, so the turnaround time is much quicker. That's great. It is. It is a lot quicker. But again, a lot of this is off predicated. That we are seeing actually less inventory available this year than last year nationally. So with all that going on and everything else nationally, let's talk about what's happening here in South Florida. We're gonna look at some of the key metrics and some values around those for South Florida, but South Florida being what it is and having a very high ratio of single family homes as principal residents as to condos and townhouses as principal residents, and a lot of also single family homes, condos and townhouses. As investment properties or second properties, it almost creates, I'll use the term. So we're gonna break it out between property types, because that seems to be the distinct denominators that most folks realize and most folks understand. For the purpose of this, we're gonna talk about two groups, single family homes. Then we're gonna talk about condos and town homes. Those are two different areas that when folks are looking for homes, that's usually the first distinction they come out with. Do I wanna live in a condo or town home, or do I want a single family home? What we've seen from the standpoint of new listings, for example, new listings are way down here. What we're seeing now is that here in South Florida, inventory is down 50. Over what it was last year, and it wasn't really all that high last year. If you translate that into a monthly perspective, one of the areas that we've done some listings in is out in Coral Springs, for example, last year, certain areas of Coral Springs may have had as much as six or seven properties available at any given month. What you're seeing now is that maybe two, two and a half, sometimes three are available, and what happens then is that it just makes it much more difficult. It causes all kinds of reevaluation of things. Sellers are asking a lot more for their.  because they can, Buyers are a lot more concerned about it because what they could qualify for last year is a lot more than what they can qualify for now. So that's also impacting it. You're not seeing the sales going as quickly as they were, so people aren't moving. And as a result of that, you're not seeing a lot of the properties come on the market. As quick before, everything went a little uncertain with. The inflation and with whether you think we're in a session or not last year, we forecasted some degree of normality starting around the Q4 2022. I don't see really anything changing materially until maybe the end of the first quarter of 2023 or even the second quarter of 2023. And what that's gonna do is that's gonna really impact a lot of folks' plans because where we are now is traditionally the season when folks they wanna buy and they wanna sell. Because if they're gonna move, they're gonna move during the summertime, right? Once school is out okay, and they wanna be in their new place by the time school arrive to put their child. One of our dear friends and clients is going through that same thing right now. They're trying to get their property ready to sell here in South Florida, and they wanna get it done in time so they can move into their new home and make sure that they have time for their kids to get into school and get settled in. You don't wanna move one day and then the next day your kids go off to school. You wanna give 'em a chance to get in, settle down and stuff like that. Yeah. You need some breathing room. In cases like that, you wanna reach out to professionals like us, to realtors like us that can sit there and work with you and figure out what the time scale needs to be taken into consideration, the market conditions and everything. Basically, at the end of the day, we have a lot less inventory available and what that really does and what that really causes is a lot of concern because if you wanna sell your property and you're not seeing a whole lot of property available, then that kind of puts you in a position where you have to re rethink whether you're gonna sell, especially if you're going to be. If you're gonna be doing it locally. Now, if you're coming in from outta state, that creates a whole new, a whole separate set of issues because you may or may not be having a similar situation to the same level or the same measure that we're having here in South Florida. So if you're coming from an area where there is a lot of inventory available, you're gonna wanna sell so that you can get out of it, so you can take advantage of it. But if you're coming from an area where there's not a lot of inventory available, you've probably gotten top dollar for the sale of your current residents or your previous residents. And now you're wondering around. Where do I move? What do I move to, and stuff like that. This is actually probably a good opportunity to bring in something that we've actually been suggesting to folks. It's a little hint, and we can help you with this. We recently did a video on investing in short term rentals here in South Florida. It's not a bad idea. What we do is we have a lot of folks who are at that in between stage. I've sold my property, I put an offer on another property, and getting ready to move in and stuff like that. But you know what? I gotta get the hell outta where I'm at right now. So the people who. And move in, and I really don't wanna be living in a hotel. We're seeing a huge increase in the number of folks that are doing shorts stays and vr b o or shorts stays in Airbnb. That's one of the things that's also driving up the activity here of the purchase and investments in Airbnb and VRBO O'S type properties. One question, and everybody's probably asked. Game, we've seen this. Is there gonna be a housing crash in the South Florida market? I don't believe there is, and neither do. The economists with Keller Williams, who we work for, the number one reason there was a housing crash before is that a lot of properties have been leveraged to the extent to where they were more than a hundred percent leveraged. Of value. What we're seeing now is that people have gotten a lot smarter than what they're doing, and the majority of the properties down here either have a lot of equity, either all equity or they have a lot of equity, and there's very low debt on it. Even if the market was to correct itself, which because of the increase in the number of folks that are coming into Florida, South Florida specifically, I don't really see that happening. There are still a huge number of folks that are coming down here for either the high. Or people are taking us an opportunity. They've gotten top dollar on their property. They're coming down here and they're buying a primary residence. They're saying, Hey, what? I still got a lot of money left over. Let me go ahead and buy something and I can turn around and rent out. It's a sign and business strategy. Even then, we didn't see the magnitude of correction in South Florida that many other parts of the country saw a number of years ago. I'm not saying it didn't happen, it's just it was not as severe as it was in other parts of the country with lower inventory when it comes to sales. That's the inverse. The lower the inventory, the higher the sales price and the sales price. We look at it from two perspectives. We look at the median sales price, which is basically the midpoint. What we're seeing from the median sales price for condos and townhouses. We're seeing this median sales prices of about 20% over last year, and for single family homes, it's up over 25% from last year. Now, that's a huge increase regardless of whether you're looking at the single family. Or you're looking at condos and town hustles, that's a huge increase in the media sales price. Now, the average sales price, it's not quite as bad for single family homes. We're seeing about a 9% increase in the average sales price, and for condos and town hustles, we're still seeing in the 22 or 23% increase in the average sales price. It's still very much a seller's market down here in South. Florida pending sales mean an offer has been made and it's been conditionally accepted, if you will. That period of time of pending is decreasing over the last year. Now the other thing that we're seeing is what people are paying over list price or asking price. Last year for single family homes, we saw people paying about an average of 96 to 98% for single family homes. Now, this year, we're seeing up over a hundred percent. So many cases we're seeing sellers getting actually more than what they listed for. We've seen a swing of about 3% condos and townhouses. We saw last year an average of about 95% of what folks were listing 'em for Now we're seeing around 98, almost 99%. We've been fortunate, our last five sales have been over what we've listed for, and we did such a proficient job with not only the sellers, but also with the buyer and with the buyer's agent. What do we see in our close? Because the inventory is less, we're seeing about 25% less closed sales this year than we saw last year, and that's pretty much in line with what we're seeing as far as the inventory. Even though we are seeing higher sales prices and we're seeing shorter times to close, we're still seeing a lot fewer closed homes. Aggregate got a question. Everybody's always asking, Are there good deals to be found? There are good deals to be found. There are two rules to thumb that everybody I think needs to keep in mind here in real estate. Number one is that the ultimate value of a property is not determined by the seller, is determined by the buyer because the value of something is determined by what you're willing to pay for it. The second thing, and it goes on, is that it's all driven by kind the law of supply and. . The greater the demand, the higher the prices, the greater the supply, the lower the prices. Now, when you have a significant imbalance between demand and supply, you're going to see people paying more for things. What we're seeing is that in addition to the number of properties being sold this year, being less than last year, Even with the increase in the average sale price of properties, because a number of properties that are being sold is so much less, we're seeing the overall volume is still a lot less than it was last year. That volume number has a tendency to have a negative or detrimental effect on the overall economic viability of the overall economic perception of a given area. I'm gonna talk about what is known as a housing affordability in debt. It's the percentage of median household income that you have available to qualify for the homes that you're looking at. So basically what you wanna do is you wanna look for the highest number you possibly can for single family homes here in South Florida. Last year specifically was 91. This year it's 57. A lot of it is due to rising interest rates. It's due to increased prices. Property taxes have gone up, insurance has gone. A lot of the costs that are associated with home ownership have gone up. There are a lot of folks now that are either making less than or equal to or less than what they were making last year, despite the fact that the prices of everything has gone up. Now, if you look at condos and town homes, it's even more significant. Last year we're at 175%. You could almost qualify double for what it is you were looking for. So for this year, it's still above a. This is probably the most significant thing because what this is going to do is this is gonna help determine the viability of what it is you as a buyer can expect to have for buying the home of your dreams or the home of your choice. And you sellers. You need to be aware of this because even though you may have an opportunity to sell your property at a higher price point in the market because of higher prices, because of higher interest rates, And because of uncertain economic conditions, which you're going to see is a lot of folks may not be able to qualify. So whereas maybe last year you had seven out of 10 people who could qualify to purchase your home even at the same price this year, that may have dropped down to five out 10 or maybe even four out of 10. That's how significant this index is. I still think the real estate is a very good investment. I think it's one of the best investments that you can be in long term. It gives you a place to live, a sense of permanency, a sense of ownership, and you're building wealth.  More people have become millionaires and billionaires through real estate in this country than any other. With all of the uncertainty around interest rates and around the economy going on, what you really need to do is you really need to work with an expert who knows the area, not just a geographical area, but who understands what's going on in the economy, understands the indicators those are coming, and that's us. Reach out to us. Let us know. If you have any questions, any comments, any concerns, please feel free. We welcome all kinds of feedback, all kinds of comments. We're here to answer any questions you guys may have. Send us a text, give us a call, shoot us an email. There's a. Above on our video on town homes in Tamarack and condos. We hope you found our videos both informative and interesting that you'll consider subscribing to us and we'll catch next week. Catch next week.

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