February, 08, 2008

Once marked by low- and midrise motels, Sunny Isles Beach now hosts high-rise resorts with dozens more luxury condo towers, retail shops and waterfront restaurants coming on line. But will the local economy bust before the dust even settles on redevelopment projects? Will the dream of transforming the once sleepy 2.26-mile oceanfront strip into the "Venice of America" end with a rude awakening in the midst of a down economy?

Sunny Isles' rebirth could be stymied by what some are calling a triple threat: slowing in-migration trends, the housing bust, and the likelihood of a recession.

According to recent data from the U.S. Census Bureau, Florida's population grew only 1.1 percent in 2007 compared to 1.8 percent in 2006, the slowest pace in 10 years. What's more, David Hart, vice president of legislative and government affairs for the Florida Housing Association, has called the current market the "worst housing downturn in our lifetime." And Florida has a 70 percent chance of falling into a recession this year, according to the University of Florida's Bureau of Economic and Business Research.

Notwithstanding the gloomy news, Sunny Isles officials and developers alike insist the barrier island in the corner of Miami-Dade County is bucking negative trends and experiencing a redevelopment renaissance.

Sparked by real estate mogul Donald Trump's interest in the area, most of the redevelopment to date is residential. Commercial redevelopment, however, is following on its heels. Plus, new roadways and municipal facilities are under way to accommodate anticipated growth. Indeed, local interests are bullish on the prospects even in the wake of backlash from hurricanes, housing slumps and general economic malaise.

Sunny Isles Beach exemplifies the age-old story of location, location, location: It is bounded by the Atlantic Ocean on the east, the Intracoastal Waterway on the west, and sits midway between downtown Miami and Fort Lauderdale, seeing about 1 million vacationers each year.

"Certainly, this community will be one of the first to benefit when the general housing market begins to recover, as anticipated in late 2008 to mid-2009," says Ibis Romero, executive director of the Sunny Isles Beach Resort Association. He also notes that the city is relatively unaffected by the overdevelopment seen in other parts of South Florida.

Planned or existing condo-hotel projects in the area include M by Fortune International, Aqualina, Ocean Pointe, Sol on the Ocean, Da Vinci on the Ocean, Solis Resort, Spa & Residences, and Fantasy on the Ocean. In fact, at least 25 major developments are approved and in the pipeline.

Dezer Development, a New York firm, owns about 49 acres on Sunny Isles Beach and has teamed with Trump and the Related Group to build a hotel and two residential towers. The Trump International Beach Resort, a Trump-Dezer collaboration operated by Sonesta International Hotels, is up and running. The Trump Towers, a condo project, is completed and sold out. And the Trump Royale is still under construction; closings are slated for October. The Trump Royale is about six weeks behind schedule, but Dezer Development President Gil Dezer says sales are healthy.

"We're not holding our breath wondering what will happen," Dezer says. "Our projects are almost completely sold out." The Trump projects are selling at an average price of $600 a square foot, with an average sale between $1 and $1.2 million. Trump Royale buyers are coming in with 20 percent deposits on the parcels, and Dezer doesn't expect people to walk away from lump sums that size.

"I don't see the market crashing here or anywhere else along the oceanfront of South Florida," says a confident Dezer. "Our buyers are folks from New York, Chicago and Boston who are looking for a second home. They aren't speculative investors looking to resell. That makes a difference."

With so many residential projects rising out of the dirt, Boca Raton-based real estate investment firm Woolbright Development feels good about the prospects for its redeveloped luxury retail shopping center.

Woolbright bought the Intracoastal Mall for $48 million in 2006, and redevelopment is nearly complete. Significant changes to the center include the addition of a "restaurant row" featuring 28,000 square feet of waterfront restaurants with boat dockage, and more than $1 million in landscaping and architectural changes to modernize the center.

"There is zero retail space available in the market; everything is occupied," says Pete Schlang, director of leasing for Woolbright Development. "Even if only half the units coming on the condo market sell, that's still a tremendous increase to what was already a strong base."

Sunny Isles' population was a paltry 15,299 in 2004, according to the U.S. Census Bureau. But Schlang points to 100,000 people living within a three-mile radius who support Sunny Isles Beach retailers. He's had no trouble leasing space at the revamped Intracoastal Mall. Schlang also points to the million-plus tourist shoppers. TripAdvisor named Sunny Isles Beach the top U.S. destination for 2008, so he expects the influx to continue.

Dezer isn't so sure the Intracoastal Mall would fetch $48 million in today's market, but expects the mall to do well because it's surrounded by multimillion-dollar condos.

As for other condo projects coming online, Dezer says some developers may feel the pinch in the short-term. Condo developers who accepted 5 percent down on pre-construction prices may meet with buyers who can't close in a credit crunch. Developers who sold out entire buildings in less than a day, he adds, may find buyers pulling out just as fast when the balance comes due.

"We are in a quagmire right now, and I think a project trying to break ground today is going to have a tough time getting financing," Dezer says. "But projects already under construction will be completed. It's our butt on the line here, and we're not crazy gamblers. We take calculated risks, and we make sure they pan out. In the long run, everyone on the ocean will do fine because it's prime real estate."

Gerard Yetming, a partner and vice president with CB Richard Ellis' multi-housing group, agrees. Like others, he points to the location factor and sees continued strong demand from both national and international buyers for Sunny Isles Beach condos, either as vacation homes or long-term investments.

"It's natural that everyone is concerned about the supply coming online in Sunny Isles," Yetming says. "But it really comes back to location. There are not that many projects on the ocean. There are too many so-called vulture groups competing for these types of deals, which prevents major catastrophes in these desirable areas, no matter how bad it gets in the rest of Florida."

Author: Jennifer LeClaire