Live by the beach long enough, and you start to ignore the red and yellow flags that come and go with the tides. Those playing in the sandbox that is South Florida’s real estate market today find the signs of danger almost invisible, and talk in the region still focuses on its great performance, especially compared to the rest of the country.
But yellow flags that have been waving for a while are now threatening to turn red, as economic factors suggest storms. Macro indicators that include inflation, the widening wealth gap and the Trump administration’s trade and immigration policies are leading to pullbacks and hesitation for some, even if it remains below the surface of the market. “Whether it’s on the way to recession or just weakening, I don’t know,” JPMorgan CEO Jamie Dimon said of weak jobs numbers. In May, his firm’s data put the probability of a recession by the end of the year at 40 percent.
On the condo front in South Florida, the “cuspy” projects, as capital markets broker Scott Wadler describes them, are taking longer to sell. Some will be canceled, he said. At others, developers have had to kick in more equity or find partners to fill the gap.
“I have a couple of projects that are under-capitalized from an equity perspective,” he added. “[Developers] want too much leverage. Their rents are aggressive, and there’s a lack of equity in the marketplace,” Wadler, managing director of Berkadia’s Miami office, said. “But I don’t think that means that there’s going to be a recession. I think that means that equity has been tough to find, and it’s still tough to find.”
The office and multifamily sectors have already experienced their fair share of pain, caused by high interest rates and construction costs, as well as supply outweighing demand. A number of office projects were canceled or put on hold in South Florida’s urban cores, and suburban office is even weaker, as companies quashed planned expansions or halted hiring. Multifamily developers are looking to sell their sites, especially those with maturity dates looming and no other option in sight.
Restaurants, a bellwether for consumer spending, have also suffered.
Harbingers
Projects that sold out in better times have been delivered late or are still delayed, costing developers additional interest and frustrating buyers. Other more recently launched developments are struggling to capture enough presales.
Some condo developers, brokerages and agents have eliminated or reduced their public relations budgets. Sales directors on new developments have seen their projects get entirely value re-engineered by their developers. This is tough news to deliver to buyers who already have contracts signed. It’s also difficult to sell to new buyers.
And then there are the projects that have continued to sell, but where the developer needs more capital.
Wadler described a project in Palm Beach Gardens that’s under construction. The deal, he said, isn’t in distress. It has the presales needed to move forward.
“Miami is not New York. It’s not Paris. It’s not L.A. Shit here runs different.”
“The project is a little delayed, and it’s a large project, so [the developer] needs to rebalance the deal, which is happening to a lot of people,” he said. “It’s taking them an extra year, and on a big project with a big interest rate, you know, it could cost an extra $15, $20 million to rebalance the deal and pay extension fees.”
Wadler and others insist that the majority of projects are selling and able to secure financing.
“I wouldn’t say that it’s fair or legitimate necessarily to tie that to a specific recession or market dynamic,” he said. “There are many projects that I’m working on that are successfully obtaining financing and are oversubscribed.”
On the office front, Swire Properties canceled its plans for One Brickell City Centre, a Class A office tower that would have some of the largest floor plates in Brickell, in January. Swire sold the site to Melo Group, which will likely build a mixed-use residential project. Smaller office projects were shelved by other developers: In September, Michael Shvo sold his office site at 1680 Alton Road in Miami Beach via a deed-in-lieu-of-foreclosure to Infinity Collective.
Multifamily developers are also looking to move on. James Curnin’s Clara Homes made a splash when it acquired a site in Wynwood that fronts the highway. Curnin secured approval for a Live Local Act apartment tower only to list the property for sale this summer. An oversupply of market rentals has put pressure on rents.
But locals are being squeezed out. The challenges of living and working in South Florida, including traffic, flooding and the high cost of living, have gotten worse. A majority of the population is also living in aging buildings that require significant financial investments.
“People are struggling to pay their rent. People who missed the window to lock in a great mortgage or to buy a house, now they’re spending an inordinate amount of their income on rent, and inflation is killing everyone because a sandwich and a coffee cost $10,” Wadler said.
A number of experts have sounded the alarm on the widening wealth gap that’s bifurcating the market.
“The ‘haves,’ they have fixed-rate debt, and they were just lucky, and they’re in the right place. And there are businesses that are flourishing,” Wadler said. Including his. “The real estate capital markets [sector] is very active right now. I would make a general statement to say that a lot of brokers, maybe not on the sales side, but the capital markets financing brokers, year-over-year, all did better.”
The “larger economic reality” might be evident in restaurant closures, according to Ben Wolkov, an attorney who’s managing partner at Miami-based Caldera Law. Caldera’s clients include the ever-successful Sunny’s Steakhouse in Miami’s Little River.
But unlike Sunny’s, which continues to do well, dozens of restaurants closed over the summer, typically the hardest and slowest season for the industry. The closures include RedFarm, an upscale Chinese restaurant from New York that was open in Coconut Grove for only a year, and Miami Beach staple Sardinia, which was in the community for two decades.
Wolkov called it a “perfect storm.” Though some have pulled off major success, restaurants in general are also dealing with high costs of food and insurance.
“It’s the return of seasonality overlaid with macroeconomic and other factors unique to this particular summer,” he said. “Frame that against cash flow practices. For some restaurants, that’s been a fatal blow.”
Restaurant owners also suffer from another Miami-specific problem that costs residential and commercial developers time and money they sometimes don’t have: an especially lengthy permit process.
“Miami is not New York. It’s not Paris. It’s not L.A. Shit here runs different,” restaurant broker Felix Bendersky said on a recent episode of his podcast. “And if they don’t know how to navigate, there’s a good chance that they’re going to be closed before they open. Just because it works somewhere else, doesn’t mean it’s going to work in Miami.”
More than hope
The red flags shouldn’t be misinterpreted as a sure disaster. Despite the potential of a downturn, a number of residential projects are moving forward simply because demand still exists. New residents continue to move to the state, and the region’s retail and industrial markets paint a picture of a region still outperforming other major U.S. metros.
And money still pours in.
The massive wave of wealth that moved into South Florida as a result of the pandemic has fundamentally altered the region’s demographics. Billionaires, including South Florida natives Ken Griffin and Steve Ross, as well as international retail magnate Amancio Ortega, have dropped hundreds of millions of dollars on real estate and the local economies. Griffin relocated his hedge fund and sister financial firm, Citadel and Citadel Securities, from Chicago to Miami.
Griffin has contributed more than $300 million since 2022, and he recently announced a $50 million gift to Success Academy, a New York City charter school network, at a joint press conference with Florida Gov. Ron DeSantis.
Ortega, the third wealthiest person in the world, has been growing his real estate portfolio. In recent months, his family office Ponte Gadea paid about $110 million for Atlas Plaza, an anchor property in Miami’s Design District that’s home to Michael Schwartz’s Michael’s Genuine Food & Drink, one of the longest operating restaurants in the neighborhood.
Ponte Gadea is under contract to buy Sabadell Financial Center, a 30-story office tower in Miami’s Brickell neighborhood, for $275 million.
A drove of multimillionaires has followed the billionaires. If the wealth migration has slowed, it certainly hasn’t stopped.
Meanwhile, the Federal Reserve’s recent reduction in interest rates is floating the real estate world.
BH Group’s Isaac Toledano, a developer who’s partnered with condo juggernaut the Related Group, Dezer Development, Kolter Group and others, said he’s more optimistic now than he was a year ago, after the election put a lot of buyers, sellers and developers on hold. Even once activity picked up after the election, it slowed again because of President Trump’s tariffs.
Toledano is bullish on 2026, across sectors.
Most agree that the local real estate market won’t experience the lowest lows of 2008. Although it’s been difficult to secure financing, a number of condo, mixed-use and multifamily developers have closed on significant loans.
Commercial leases also continue to be signed. For many of the restaurants that do close, a new tenant is ready to come in and take the space.
“Next year, you’re going to be able to borrow money at about 5 percent. I think a lot of buyers sitting on the sidelines will start to be more active,” Toledano said. “Remember, everyone thought what we saw during Covid was going to last forever. Things usually change.”
