Residential real estate round table: the boom times are upon us but for how much longer and who will be able to afford to live in South Florida? A special report

South Florida CEO, Jan-Feb, 2005

SouthFloridaCEO: There is an unprecedented level of residential real estate development underway from Miami to Fort Lauderdale to West Palm Beach. With so many projects proposed, will all of them be built? How is it affecting your lines of business?

Ronald A. Shuffield: We hope they're all built, because we'll get to sell them then. I tell our sales people, "Next time you drive past a crane driver, stop and hug his neck, because it's inventory for us to sell." I think that most of the projects that I'm aware of seem to be going forward. We have a lot of discussions about "are we building too much," and there may be a point out there a couple of years from now where we end up with some extra inventory, but we have such huge demand coming in our direction. Our population in these three counties is a little over 5 million people, yet our market place is about 100 million people: We're now selling from the southern tip of Chile all the way up to Canada. The baby boomers, too, out in the northeast are probably the big story right now. Droves of those people are coming, and we're already seeing, this season, even more people coming from those markets than ever before. Will some of these buildings be built? That will depend on the strength of the development, but I think that the market's there for it.

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William P. Thompson: Sales is not the problem. Everybody knows that. What used to take years [to sell] is now being done in days. Getting the building built is the challenge--even for us. We think we can build it faster and cheaper and higher in quality than anybody, but getting it out of the ground, getting a decent price, getting the concrete there on time .... Demand is really out stripping the supply of materials. Will they all get built? They can't. There's just not enough material. So some of them won't get built because of higher prices or delays, or whatever the case may be. The other day we had the discussion that we were breaking ground on six jobs. We controlled every rig in town. We needed more rigs. So another guy just came in from Tampa. There will be an influx of subcontractors that will come. But will they be good enough, will they be able to operate effectively, and how fast will they come? Nobody really knows. It's a major transition for certain subcontractors to make a move from one area to another area.

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SFCEO: You bring up a good point. Certainly there are other hot areas: Sarasota, Fort Myers and Port St. Lucie. Are those areas drawing our resources away?

Thompson: I think it's the other way around. There's a subcontractor market over there [but] it's not as deep as what we have in South Florida, because they're not building 40-, 50-story towers at the pace that we are. When we go over there, we're taking subs with us. WCI, for example, brought one of its contractors over to build the Bal Harbour project, and it's kind of their first venture into the market. It's very challenging for a contractor to move into a new market, and it means a lot of variables for them and a lot of risks.

Gus Gil: Actually, there are two separate markets--tract homes and high rises--when it comes to contractors. The contractors that do 50-story towers are not the ones that are out there doing tract homes. In Lee County, and all those up there past West Palm, the trend you see is more tract home building. So they're not really taking away from our sub-base. We probably take a little bit more from them than they do from us, on that end.

SFCEO: Gus, you're president of the Latin Builders Association, are your members struggling to meet demand?

Gil: What you see now is a lot of the tract homebuilders are becoming high-rise developers, including myself. We're venturing out and starting to do a tower--a mid-rise out on the bay here. Not having enough land is forcing all these developers to come back inward and start developing these areas. Then it creates a little more competition for the other developers that have mainly done high-rise. For example, Lennar just created their own new division and they're still doing work out west, but there's only so much land out there and the urban boundary isn't going to be moved any time soon, even though there's a lot of talk about it. There's a big issue coming out of Tallahassee--the governor's office is bringing out a growth management bill--which is very interesting. We want to be proactive with it, see if we can open up some of the areas down south to try to create a little bit more affordable homes out there, because prices have gone crazy.

SFCEO: When you say down south are you talking about 8th Street, the Everglades?

Gil: Well, 8th Street that's pretty much getting to the fringe. I would imagine Chrome Avenue eventually would be the line going out west. Now that's my personal opinion. I don't think you're ever going to see it past Chrome Avenue. But it's a very hot political issue.

Jacques Claudio Stivelman: Bill [Thompson] emphasized that the problem is supply and demand. I think that the ultimate problem is the cost of construction. That's what really worries developers a lot. Whoever doesn't build what they're supposed to build, will be out of the market. I mean, you cannot just play with everybody and play with your buyers and just not build. Already two or three big developments have cancelled reservations. In my opinion, that's embarrassing. You have always seen situations where buyers just reserve and then cancel. They want to see what is going on before they go and convert into contracts. But it's a two-way road, because the developer also can cancel a reservation because of a cost increase. You may see more of that--maybe even the end of the reservation process and instead really going directly to contract, where you will have more control over the prices of your future construction.