The financial crisis in Europe and economic turmoil in the United States have not diminished the appetites of international investors as they look for real estate acquisitions in South Florida, according to Austria’s former federal finance minister.
But those investors, especially foreign buyers who have capitalized on the region’s distressed property market, may become spooked by an eventual pricing recovery, especially in the condo sector.
Europeans were “astonished” by the timing of Standard & Poor’s downgrade of U.S. government debt after Congress agreed to raise the nation’s debt ceiling earlier this month, Andreas Staribacher said. Staribacher, who served as Austria’s finance minister in the mid-1990s and is a licensed certified public accountant in both Austria and the U.S., spoke Tuesday at a Hallandale Beach event hosted by the Aventura Marketing Council and mckafka Development Group.
Europeans were paying especially close attention to the debt ceiling debate, as the continent’s financial fate is as closely linked to the U.S. and other nations as it was 70 years ago, Staribacher said in an interview with the Daily Business Review.
“We learned in the last two or three years that any hiccup in major markets leaves scars in other markets,” he said. “This is the first time since World War II that the interconnection between the financial markets is so intense.”
But European real estate investors view the economic problems in the U.S. as far less severe than at home, Staribacher said. And the euro continues to show strength against the U.S. dollar, and U.S. real estate prices are “cheap” by comparison.
Europe is less conducive to property ownership, said Staribacher, who estimated that home ownership in Europe is about half of the level in the U.S. Lenders often require European buyers to provide at least 30 percent in equity up front, he said.
Staribacher owns a condominium in Pompano Beach that he said he uses as a vacation home.
“The U.S. is still a stable, reliable market,” he said. “South Florida prices are at — or have reached — the bottom. It’s a good place to invest in.”
European, and other international real estate investors, are currently fueled by a desire for “hard assets like gold”, according to Austrian Stephan Gietl, co-founder of mckafka.
Gietl, along with mckafka co-founder Fernando Levy-Hara, an Argentina native, began a bulk condo buying spree in 2009. Since then, mckafka has acquired a combined 307 units in four South Florida condo buildings for a total of $40 million. Many of these have already been sold to individual buyers, particularly to international investors from Europe and South America who prefer to acquire condos already occupied by renters.
Taking advantage of low prices, mckafka investors have earned as much as 30 percent annually on their purchases, Levy-Hara said.
The local condo market has made significant strides in the last six months, however, and the opportunity for short-term windfalls might have already passed.
While mckafka still looks for bulk condo buying opportunities, Levy-Hara acknowledges the sector “is not as cheap as it was 18 months ago.”
“People are now bidding 50 percent more and nothing happens,” he said.
Thus, the company is shifting to its next strategic phase: buying vacant land and building multifamily projects.
The Edgewater and Wynwood neighborhoods north of downtown Miami are a primary focus of mckafka’s land-acquisition plan. The company is in negotiations for property purchases in that area and in Aventura.
During Tuesday’s event, Levy-Hara put out a call for potential investment partners in future mckafka developments.
The latest Miami Downtown Development Authority report on central business district condominiums indicates available inventory in the area, considered an epicenter of South Florida’s residential bust, is rapidly shrinking and prices are on the rise.
According to the authority’s second quarter report, only 4,200 units out of more than 22,000 developed since 2003 are unsold. Sale prices are up 4.8 percent in the first six months of 2011, from $356,094 in the first half of 2010 to $373,116 and the district’s population of 70,000 marks an 80 percent increase from 10 years ago.
The condo pricing stabilization, and in some cases appreciation, is causing international buyers to get “cold feet” and walk away from potential purchases, according to Peter Zalewski, a principal with Condo Vultures, a Bal Harbour-based real estate consulting firm.
“Foreign buyers want to pay 2010 prices,” Zalewski said.
The trend is starting to drive investors to the condo resale market, which Zalewski says is up 25 percent in downtown Miami.
Price appreciation in South Florida’s urban and coastal markets could be welcome news for developers stuck with unsold condos in suburban areas, such as the Kendall neighborhood in unincorporated Miami-Dade County and western Broward County.
Potentially sensing that movement, an affiliate of Miami-based Crescent Heights of America paid more than $50 million — or about $210,000 per unit — in May for about 240 units in Tao, Sunrise’s first high-rise condominium structure.
“The best thing for suburbia is prices stabilizing in the east,” Zalewski said. “If buying as a straight investment, then [international investors] will buy in suburbia.”