July 24, 2016
by Christopher Zoller
The initial shock of the “Brexit” vote (England and Wales’ recent decision to leave the European Union) has come and gone, along with the expected turmoil in the global economic markets. The feared collapse of the EU economy has not, and probably will not, happen; the British pound has rebounded from its short tumble in the immediate aftermath; and the sun continues to rise in the east. Brexit now becomes a political struggle between the EU and the British government, which will take roughly two years of negotiations to straighten out their trade agreements.
There has been a great deal of speculation about Brexit’s impact on Miami and South Florida from a variety of voices, offering both positive and negative perspectives. From my personal analysis of the tea leaves, Brexit presents some fascinating opportunities for our city’s real estate sector — as long as global and historical trends stay generally consistent.
In uncertain situations, smart money seeks stability, safety — and value: From an American perspective, the immediate repercussions of Brexit have been the surge in our nation’s stock market and the continued strength of the dollar. Looking farther down the road, one can anticipate that perceived instability in Europe (and other parts of the world) will drive a tremendous amount of interest and investment toward the United States. Our country has always been a safe haven for global investors, and in this era of uncertainty, solidity will be paramount. As the long-term consequences of Brexit come to be fully realized, I anticipate that many foreign investors will actively seek to reposition their assets to our comparatively stable economy — and as it has for many years, Miami offers unique appeal to these investors.
Miami’s remarkable value proposition: In Miami, these investors will find the same financial and personal safety as other major American cities, along with the other well-discussed factors that draw people to our shores: weather, beaches, nightlife, lifestyle, culture, etc. — as well as an absence of any state income tax. The “smart money” will continue to realize what we have been telling people for years: that Miami offers the absolute best real estate value of any world-class city, including New York, Paris, Hong Kong and London.
The facts bear this out: As reported in Global Property Guide, figures for June 2016 indicate that the average London apartment costs about $2,909/square foot. In Miami Beach, it is $770/square foot and in Miami, only $475/square foot, per the Southeast Florida Regional MLS and TrendGraphix.
Miami’s status as a primary “gateway” city to the United States, with more and more direct international flights coming to our airport every year, also holds significant appeal to global investors. In fact, among the four major U.S. gateway cities (New York City, Los Angeles, San Francisco and Miami), our city’s real estate is the most affordable.
Furthermore, while Miami has not recovered to its 2008 market levels, prices have steadily increased since 2011. According to the July Case-Shiller/S&P report, Miami real estate prices rose 6.4 percent in May 2016 vs. May 2015, beating average U.S. price increases by 1.5 percent.
This incomparable value also spills over to commercial properties, where interest from Asian, Middle Eastern and European investors has risen dramatically. Recent examples include China City Construction and the New York-based American Da Tang Group’s joint purchase of a 2.39-acre construction site at 1430 South Miami Ave.; China City Construction’s purchase of an acre in the 6700 block of Collins Avenue (which has already received preliminary approvals for a condominium project); Zurich North America (an affiliate of a major Swiss insurance company) just closed on its $57.5 million purchase of the 2121 Ponce office tower in Coral Gables; Sumitomo Corporation of Americas (the Western Hemisphere division of Japanese multinational trade company Sumitomo Corp.) purchased the iconic Miami Tower for $220 million; and Al Rayyan Tourism Investment Company (based in Qatar) paid $64.5 million for the Viceroy Hotel, and already owns the St. Regis Bal Harbour.
Orlando may experience short-term pain: Unfortunately, while I anticipate these opportunities for Miami and our immediate region, I also believe Brexit will sting our northern neighbors a bit. Even before the vote, the British pound (like almost all foreign currencies) was losing value to the U.S. dollar. On July 17, 2015, its value was $1.56; by July 16, 2016, it had closed at $1.32. (The lowest post-Brexit close was July 7 at $1.29.) The 15 percent drop in the past year might make a few British tourists and investors take pause, but it will not stop those who seek safe and solid investments in either a great vacation or a great return. So while “the Mouse” and surrounding Orlando real estate may suffer from less British investment, the growing value and return on equity in Miami real estate, commercial and residential, will attract more foreign capital, even if current exchange rates are down a bit. (Watch for strength in our commercial and multifamily real estate.)
I leave you with this interesting fact: According to the Miami Association of Realtors and our local MLS, purchases of single family homes and condos over $1 million by UK citizens have doubled since January 2015 — even, as mentioned above, the pound was weakening against the dollar. Perhaps another sign that Brexit could spell a real “Miapportunity.”