Greater Downtown Miami · Foreign buyers took advantage of the over-supplied market during...

Greater Downtown Miami Annual Residential Market Study

Prepared for the Miami Downtown Development Authority (DDA) by Integra Realty Resources (IRR)

April 2018

Greater Downtown Miami Annual Residential Market Study

Prepared for the Miami Downtown Development Authority (DDA) by Integra Realty Resources (IRR)

April 2018

For more information, please contact

IRR-Miami/Palm BeachThe Dadeland Centre9155 S Dadeland Blvd, Suite 1208Miami, FL [email protected]

2 Introduction

5 Greater Downtown Miami Market Submarket Map

6 Greater Downtown Miami Condo Pipeline

7 What changed? Q2-Q4

8 Greater Downtown Miami Market Sizing

10 Greater Downtown Miami Market Condo Delivery and Absorption of Units

15 Analysis of Condominium Resale

17 Currency Exchange and Purchasing Patterns

18 Current Cycle Completions

19 Major Market Comparison

20 Condominium Rental Activity

24 Conventional Rental Market Supply

28 Land Prices Trends

29 Conclusions

30 Condo Development Process Appendix

Contents

2 | Integra Realty Resources

Introduction

Integra Realty Resources – Miami | Palm Beach (IRR-Miami) is pleased to present the following Residential Real Estate Market Study within the Miami Downtown Development Authority’s (Miami DDA) market area, defined as the Greater Downtown Miami market. This report updates IRR-Miami’s findings on the local residential real estate market through January 2018.

Key findings are as follows:

• The downtown Miami residential market has been expanding rapidly since 2012. This coming year will mark the high point of the residential expansion, with close to 2,800 condominium units and nearly 4,000 conventional Class A rental units delivering in 2018.

• Higher levels of resale condo inventory and slower absorption on resales resulted in the second consecutive decline in condo resale pricing. This is coupled with declines in condominium rental pricing for the first year since 2010-2011, reflective of both higher turn-over in the condominium rental sector, and increasing competition from new conventional rental projects entering the market.

• The effects of Hurricane Irma are still being felt as deal-flow and momentum were disrupted at the close of Q3-2017. This disrupted both traffic and sales on new projects, and construction timing due to supply chain and labor issues. Remarkably, the market continued to move, albeit more slowly. With good fortune, the physical damage was fairly limited, owing to a combination of luck and forward planning for storm resiliency.

• The recently delivered conventional inventory is demonstrating strong occupancy (90%-95%) while older Class A-/B+ rental occupancies are slightly higher (96%-100%). While condominium rental rates declined for the first time in years (-4%), this change was surprisingly muted considering the number of conventional rental units that entered the market in 2017.

• IRR presents a new snapshot of unit mix and sizes, with studio units at 10%-14% of total unit mix; 1 Bedrooms 45%- 55%; 2 Bedrooms 33% - 43%; and 3 Bedrooms < 10% of total project mix. The unit mix varies slightly by submarket, with smaller average unit sizes in Brickell overall.

Millicento


• Foreign exchange rates improved on 2017, recovering on both stronger international productivity and a weakening dollar. This has yet to set-off an international condo buying frenzy like we experienced in 2013-2014, but it is an encouraging sign following three sustained years of foreign currency erosion which adversely affected sales. Foreign buyers took advantage of the over-supplied market during 2010-2012, and may see good buying opportunities again in 2018-2019 as resale pricing retreats back towards replacement cost.

• The downtown condominium market is becoming more highly differentiated on price and product, and is showing strong demand for higher end product. Well capitalized developers starting recent projects are targeting luxury and ultra-luxury buyers at price points rarely experienced in downtown. This differentiation is good for the market since the higher-end $1 - $2 Million product will not likely enter the shadow rental pool.

• Downtown Miami has emerged as a top-tier location relative to other markets within Miami-Dade county, well below the pricing on Miami Beach which includes oceanfront product averages, but on par/slightly superior to Aventura and Coral Gables on pricing. The declines in pricing experienced downtown were similar to county-wide market movements and were not unique to downtown.

• The past year marked a high point in downtown land transactions not seen since 2014, with a total of 15 major transactions. The majority of these sites were reportedly slated for rental or hotel development with few buyers identifying their intent for condo development. Notably, of the last 10 major land transactions in downtown, 40% were backed by foreign buyers from Israel, China, Columbia, and the Netherlands

• Integra’s overall report card for the downtown market is mixed, but encouraging. The bulk of the remaining deliveries will occur in the coming 12-18 months. This hurts the supply-side grading, although this is a positive trend for buyers. Despite stockmarket volatility in early 2018, local and national economic indicators remain positive, with wage growth likely accelerating into a tighter labor market. This favors continued strong rental demand. Developers and investors have activated the land market, but construction costs and supply must moderate before new major project announcements are likely.

Introduction

• The rumors of the death of the Miami residential market proved once again greatly exaggerated in 2017. Lack of lender distress, strong development sponsors, and heavy institutional equity behind the rental developments all kept the market moving despite sluggish foreign demand. The coming twelve months will represent another inflection point where buyers (both foreign and domestic) can and should capitalize on the markets’ supply-side concerns.

• Provided continued strength in the US debt and equity markets in the coming year, the next round of project planning is about to commence, with developers planning for 2021-2022 market deliveries.

Respectfully,

Integra Realty Resources (IRR) – Miami/Palm Beach

Anthony M. Graziano, MAI, CRE, FRICS Senior Managing Director

Dan Bowen Market Research Analyst


Introduction


The map opposite illustrates the boundaries of the Miami DDA, as well as each submarket within the Miami DDA market.

Greater Downtown Miami Market Submarket Map


The following chart summarizes IRR Miami’s update of the current condo activity within the entire Greater Downtown Miami Market area, including the number of units, submarket location, and

phase of development. The chart illustrates the different stages of the condo development process, including Proposed, Reservations, Contracts, Under Construction and Completed as identified in our prior annual report.

These classifications are significant because they provide a framework for how projects move through the development cycle.

Figure 1

Current Greater Downtown Miami Condo Pipeline

Submarket Complete Under Construction Contracts Reservations Proposed Totals

A&E 0 596 0 0 2,291 2,887

Brickell 4,489 999 520 0 5,287 11,295

CBD 352 902 0 0 5,406 6,660

Edgewater 1,050 2,505 0 344 1,389 5,288

Midtown 410 0 0 0 195 605

Wynwood 11 0 0 0 448 459

Total (2017 Q4) 6,312 5,002 520 344 15,016 27,194

Total (2017 Midyear) 5,180 5,078 1,225 505 14,381 26,369

Greater Downtown Miami Condo Pipeline


What changed? Q2-Q4

As outlined within IRR’s mid-year 2017 report, the 2017-2018 condo deliveries were going to clear much of the product pipeline. By the end of 2017, over 1,132 additional units delivered in the

second half of the year, 722 were in Brickell including: 1010 Brickell (+387 units), Echo Brickell (+180), Brickell Ten (+155) and Hyde (+410) in Midtown.

For the first time since IRR started tracking the downtown pipeline, the number of projects actively selling through reservations has gone to zero with the exception of one condo hotel project (Bentley Edgewater). All active sales offices now are going straight to contracts.

Active market participants report that well-capitalized developers may move forward on some of the contracted projects without the typical 50%-60% pre-contract ratio, signaling strength and confidence by this new wave of developers with strong equity. It’s a fine line between confidence and over-confidence, and developers so far have shown restraint as key indicators have slowed.

Groundbreakings were announced for Aston Martin (+390), Missoni Baia (+249), Elysee (+100), and Gran Paraiso (+317).

Smart Brickell (+170) and One Riverpoint (+350) are now taking contracts, while the construction pipeline in Brickell is now at its lowest level in over a decade, with fewer than 1,000 units under construction.

Midtown and Wynwood have no active new projects in the development or contract pipeline. There has been little meaningful construction since the announced ground-breaking of Spark in Edgewater, but it remains in the under-construction category as of this report. Wyn 26 has been canceled after the developer reportedly failed to secure financing.

The current cycle has officially passed the mid-point on deliveries, with over 6,300 units delivered, and approximately 5,000 units under construction, with another 850+/- potentially commencing construction. Approximately 60% of the projects under construction will deliver in 2018, with the balance of the under construction pipeline delivering in 2019 through early 2020.

Brickell House

The balance of deliveries in 2018 will mark the high-point of all downtown deliveries since the commencement of the market recovery in 2012. By 2019, fewer than 1,200 new units will be finalizing delivery. Based on the current contract pipeline, there will be little competition for new downtown projects by 2020.

Despite speculation in the media over the past 24 months that the downtown market was being overbuilt, continued strength in the U.S. economy coupled with a recovering global economy has provided the stability lacking during prior cycles. As noted in prior IRR reports, the 2013-2018 pipeline of construction also represented a significantly smaller delivery profile than the prior cycle 2004-2009 with Q2-2016 being the high-point in units under construction at 7,500 units. Since mid 2016, more inventory has been delivered than has entered the construction pipeline.

The desirability of downtown Miami as a livable downtown has also enhanced the success of residential projects downtown, both for-sale and rental.


What changed? Q2-Q4


Greater Downtown Miami Market Sizing

As in prior years, Wynwood and the CBD represent the two submarkets with the largest expansion potential over their existing base, as demonstrated by their highest long-term growth percentage

(planned units versus current growth).

The 2017 delivery of Brickell Heights, Echo, and Brickell Ten reduced the current growth in Brickell to a healthy 6% of current inventory. The Edgewater submarket will experience a 56% increase in units in the coming 24 months, which bodes well for commercial activity in Edgewater and Midtown.

The coming year (2018) will be a critical turning point for Edgewater as it surpasses the CBD in terms of total units in the market, and arrives as the second largest condominium submarket behind Brickell.

Figure 2

Greater Downtown Miami Condo Market Size – Q4 2017 Current Market Potential Long Term % GrowthSubmarket Size [1] Current Growth % Growth Growth Longterm

A & E 4,052 596 15% 2,291 57%

Brickell 24,332 1,519 6% 5,287 22%

CBD 6,640 902 14% 5,406 81%

Edgewater 5,102 2,849 56% 1,389 27%

Midtown 1,388 0 0% 195 14%

Wynwood 111 0 0% 448 404%

Total (2017) 41,625 5,866 14% 15,016 36%

[1] Long-Term Growth is the remaining Conceptual units, net of current growth [2] Current Growth is all Under Construction, Contracts and Reservations


Figure 3

Greater Downtown Miami Historical Condo Development (2001-2017)Year Built Number of Units Delivered Cumulative Deliveries

2001 436 -

2002 319 436

2003 183 755

2004 2,272 938

2005 1,953 3,210

2006 1,860 5,163

2007 4,500 7,023

2008 10,111 11,523

2009 306 21,634

2010 530 21,940

2011 346 22,470

2012 96 22,816

2013 0 22,912

2014 566 22,912

2015 1,227 23,478

2016 2,202 25,680

2017 2,231 27,911

Total Delivery 27,911

11 Year Cycle (2001-2011): 2,043

16 Year Cycle (2001-2017): 1,744

IRR Miami Estimated Typical Annual Demand +/- 2,000

The table above shows historic condo deliveries and absorption since 2001. Over an 11 year cycle, the market delivered and absorbed over 2,000 units per year.

In the past 16 year cycle, the average is slightly less at 1,744 units per year.

Greater Downtown Miami Market Condo Delivery and Absorption of Units



IRR has previously concluded to normalized annual absorption of 2,000 units per year. Including the 410-unit Hyde Midtown, 2,231 units were delivered in 2017, in line with historical delivery patterns.

IRR had previously forecast (in 2015) that 2016 would be a year when pent-up demand would begin to decline, forcing projects to compete more aggressively on quality, location, or both. Since mid 2016, project sales slowed as a result of changing global demand and increases in the competitive supply of new projects.

The following figure shows pent-up demand estimates since 2013 based on annual demand of +/- 2,000 units against delivered units.

Figure 4

Greater Downtown Miami Condo Demand Current Cycle Projected Normalized Cumulative Delivered Units Demand @2,000 Pent-Up Demand

2013 0 2,000 2,000

2014 566 2,000 3,434

2015 1,227 2,000 4,207

2016 2,202 2,000 4,005

2017 2,231 2,000 3,774

2018 2,899 2,000 2,875

2019 1,061 2,000 3,814

2020 667 2,000 5,147

2021 TBD 2,000 TBD

2022 TBD 2,000 TBD



This coming year will represent the bottom of the pent-up demand curve in Greater Downtown Miami, and if average historic demand returns, IRR concludes that pricing will stabilize and

start to increase again by early-mid 2019. This has implications in the resale market as well.

IRR’s interviews with sales offices, project developers and their brokers infer approximately 1,800 – 2,000 units available for sale (currently under construction). While sales in 2017 were slower than desired, explicit pricing concessions remained muted. The market offered enhanced commissions to brokers, guaranteed leasebacks, and developer or alternative financing to drive sales. While these concessions may remain for most of 2018, the change in supply/availability by 2019 signals a shift back to a stronger market for developers.



Figure 5Current Greater Downtown Miami Under Construction PipelineSubmarket Name/Location # Units Avg Price Avg SF Avg $/SF

A&E 1000 Museum 83 $6,940,000 5,389 $1,288

A&E Canvas 513 $450,000 892 $504

Total A&E 596

Brickell Flatiron 549 $1,000,000 1,334 $750

Brickell One River Point 350 $2,900,000 2,117 $1,370

Brickell SLS Lux 450 $750,000 1,250 $600

Brickell Smart Brickell 170 $360,000 838 $430

Total Brickell 1,519

CBD Paramount Miami 512 $1,080,000 1,793 $602

CBD Aston Martin Residences 390 $1,750,000 2,045 $856

Total CBD 902

Edgewater Aria on the Bay 647 $790,000 1,317 $600

Edgewater 26 Edgewater 86 $310,000 645 $481

Edgewater Bentley Edgewater Condo-Hotel 207 $600,000 905 $663

Edgewater Elysee 100 $2,310,000 3,278 $705

Edgewater The Edgewater 30 $340,000 778 $437

Edgewater Gran Paraiso 317 $1,210,000 1,549 $781

Edgewater Paraiso Bay Tower I 360 $780,000 1,360 $574

Edgewater One Paraiso 272 $1,150,000 1,682 $684

Edgewater Missoni Baia 249 $1,580,000 1,956 $808

Edgewater Spark 56 $690,000 1,378 $501

Edgewater Paraiso Bayviews 388 $900,000 1,464 $615

Edgewater Naranza 137 $483,400 935 $513

Total Edgewater 2,849

Total/Average 5,866 $1,220,000 1,660 $735

[1] Pricing reflects published pricing averaged against all floorplan options.



A review of secondary pricing sources coupled with broker and sales office interviews provides an array of average pricing and sizes by project. Distinguishable from prior reports is the

level of diversity in end unit pricing across the balance of the new inventory. Historically, the unit sizes, amenities, and project design targeted price points in the $500,000 - $800,000 price range, with few projects demonstrating average pricing over $1 Million.

The current projects offer pricing below $500,000; over $1 Million; over $2 Million, and the stand-out 1000 Museum with average pricing over $6 Million. This pricing diversity offers benefits to market stability (not every project is competing with every other project), but also reflects a maturing downtown which is attracting higher-end buyers. The higher priced projects are also much less likely to enter the shadow rental pool upon completion.

Figure 6

Average $/SF Sale Price Trend – Greater Downtown Miami Resale Market


Analysis of Condominium Resale

0

$100

$200

$300

$400

$500

2009

$221

2010

$224

2011

$240

2012

$305

2013 2014 2015 2016

$372

2017

$431 $426$405

$457

The resale market retreated further in 2017, the second year of average price declines. Average pricing held level at $403-$405 PSF between the midyear 2017 and this annual report, with sales

volume increasing in the second half of 2017.

The market has so far avoided the worst predictions of doom and remains vibrant, registering well over 1,000 transactions of post-2000 urban condos in 2017. The average monthly available listings remain above 3,000 units, which suggests a 36 month supply (excluding new projects availability) at current velocity. Resale market pricing should recover once the excess resale inventory burns off. Current average resale pricing is nearing replacement cost. IRR considers it unlikely average pricing will retreat below $350 per SF, but acknowledges that to stem further average price declines, either demand must increase, supply\listings must slow or both; otherwise additional resale pricing declines could follow into 2018.


Analysis of Condominium Resale

Figure 7

Current Resale vs. New Product Pricing $/SF n Existing n New

BrickellA&E

$482

CBD

$500

$430

Edgewater Wynwood

$725

Midtown

$359 $364 $365 $409

$626

$509

$691

0

$200

$400

$600

$800

The market should remain more or less stable throughout 2018, reflecting the end of the 2016-2017 price corrections. Provided continued strength in the US economy, and improvements in global currency and a return of Miami’s foreign buyer pool, we expect price declines will abate by early 2019.

The spread between new and resale prices widened as of the close of 2017. This widening was a result of retreating resale prices on existing product, and the entry of new product at higher price points (overall and on a per SF basis). This widening spread also supports the likelihood that resale pricing is nearing the bottom.

The CBD, Edgewater and Midtown resale averages were all relatively consistent at $360 - $365 per SF, with Brickell and A&E resale lifting the average resale pricing overall. Brickell also weights the average pricing upward given the total number of transactions that occur in the submarket because of the overall market size.


Currency Exchange and Purchasing Patterns

Figure 8

U.S. Dollar vs. Foreign Currency Exchange - At USD $1.00 Purchasing Purchasing Purchasing Power Power Power Cumulative % Change % Change % Change % Change Country Currency Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 (2016-2017) (2013-2016) (2010-2013) (2010-2017)

Brazil Real 0.599 0.513 0.464 0.426 0.373 0.249 0.310 0.320 3.23% -27.23% -28.88% -46.58%

Argentina Peso 0.243 0.220 0.183 0.124 0.117 0.074 0.063 0.052 -17.46% -49.19% -48.97% -78.60%

Mexico Peso 0.081 0.076 0.078 0.075 0.068 0.056 0.047 0.055 17.02% -37.33% -7.41% -32.10%

Colombia** Peso 0.547 0.560 0.535 0.503 0.420 0.310 0.340 0.360 5.88% -32.41% -8.04% -34.19%

Venezuela Bolivar Fuerte 0.233 0.233 0.165 0.159 0.159 0.158 0.100 0.100 0.00% -37.11% -31.76% -57.08%

Canada Dollar 1.005 0.982 1.009 0.939 0.847 0.697 0.750 0.820 9.33% -20.13% -6.57% -18.41%

Europe Euro 1.318 1.290 1.316 1.372 1.188 1.090 1.050 1.250 19.05% -23.47% 4.10% -5.16%

China Yuan 0.151 0.158 0.159 0.164 0.163 0.152 0.150 0.160 6.67% -8.54% 8.61% 5.96%

Russia Rouble 0.033 0.031 0.033 0.031 0.017 0.013 0.017 0.018 5.88% -45.16% -6.06% -45.45%

N/A Bitcoin 817.1 302.0 429.8 958.2 14,341.0 1,396.60% 17.27%

Source: Google Public Data/SIX Financial and Coinbase, obtained 1-2018 (note: standard bitcoin price indices began in mid-2013)

In contrast to the deterioration seen from 2013-2016, benchmark currencies recovered ground in 2017 as the US dollar weakened. Only Argentina saw a continued deterioration, while both Europe and

Mexico saw double-digit improvement.

The international buyer pool remained two sides of the same coin. On one hand, the lack of new international buyers has dampened sales, while at the same time, international sellers are seeking to exit and capitalize on economic opportunities in their home country, resulting in increasing condo inventory available for sale.

Some market participants remain encouraged that the international buyers will return in force. Sales inquiries and traffic from international buyers reportedly saw an early uptick in Q1-2018. Europe and Canada are the two likely early returning buyer pools, though Colombia, Chile and Argentina all likely play a bigger factor in 2018.


Current Cycle Completions

Figure 9

2012-2017 Completions

Submarket Building # Units Delivery

Brickell MyBrickell 192 2014

Brickell Brickell House 374 2014

Brickell Millecento 382 2015

Brickell Nine at Mary Brickell 369 2015

Brickell Brickell Heights - East 358 2016

Brickell Brickell Heights - West (BH02) 332 2016

Brickell Le Parc 128 2016

Brickell Brickell CityCentre - Reach 390 2016

Brickell Brickell CityCentre - Rise 383 2016

Brickell SLS Hotel & Residences 450 2016

Brickell The Bond 328 2016

Brickell Cassa Brickell 81 2016

Brickell Brickell Ten 155 2017

Brickell Echo Brickell 180 2017

Brickell 1010 Brickell 387 2017

CBD Centro 352 2016

Edgewater 23 Biscayne 96 2012

Edgewater Bay House 165 2015

Edgewater Icon Bay 300 2015

Edgewater The Crimson 90 2016

Edgewater Biscayne Beach 399 2017

Midtown Hyde Midtown 410 2018

Wynwood 250 Wynwood 11 2015

Total of Above 6,312


Figure 10

Major Market Comparison – $/SF n 2013 n 2014 n 2015 n 2016 n 2017

$158$184$177$185$191

$271$383$399$396

$352

$325

$328$341

$274

$386

$372$431$456

$426$405

$869$541

$1,253

$1,124$1,025

Doral

Aventura

Coral Gables

Downtown Miami

Miami Beach

0 $300 $600 $900 $1,200 $1,500

$0 $300 $600 $900 $1,200

Major Market Comparison

Although it remains a bargain when compared to Miami Beach, Downtown Miami saw the most consistent pricing growth and the second-highest pricing performance of any luxury-condo submarket

on the Miami mainland 2013-2015, with three consecutive years of annual increases in average PSF price.

The 2016 pricing retreat was evident market-wide throughout Miami, and with the exception of Doral, continued into 2017. The downtown market averages will very likely continue to outpace other mainland Miami-Dade markets as higher-priced downtown product will elevate the market average pricing relative to other inland markets the same way Miami Beach’s oceanfront product elevates the pricing metrics in that market.


Condominium Rental Activity

Figure 11

Greater Downtown Miami Condominium Average Leasing Price n Rental $/Unit n % Change

2012 2013

$2,255

5.1%

0%

4.6% 4.9%

2014

$2,371

2015 2017 2016

$2,603

$2,630

$2,525$2,481

$2,000

$2,100

$2,200

$2,300

$2,400

$2,500

$2,600

$2,700

0

2%

4%

6%

-6%

-4%

-2%

1%

-4%

IRR’s reporting in Summer 2017 provided in-depth analysis of the rental demand and pricing for both conventional rental properties and the shadow condo market. This update focuses on condo rentals,

in line with the prior annual reports.

Condominium lease rates in the greater Downtown Miami increased sharply from 2012-2015 before stabilizing in 2016 at a 1% YoY increase. However, 2017 marks the first year condominium average rents have declined (-4%).

Rental volume increased significantly, from 273 transactions per month in 2016 to 325 per month in 2017, as the universe of rentable units grew and condo landlord/owners adjusted to more condo product, and a sharply increasing level of new Class A conventional inventory.



Figure 12

Greater Downtown Miami Condominium Rental $/Unit by Submarket

Brickell CBD A & E Edgewater Midtown0

$1,000

$2,000

$3,000

$4,000

$5,000

$2,294$2,438

$2,619$2,627

$2,505$2,606

$3,005

$3,442$3,889

$4,072$3,896

$4,223

$2,123$2,241

$2,342$2,408

$2,445$2,305

$2,006$2,281

$2,321$2,532 $2,675

$2,448

$2,119$2,364

$2,572$2,654 $2,584

$2,758

n 2012 n 2013 n 2014 n 2015 n 2016 n 2017

% YoY Change -2.14% -5.74% 8.40% -8.48% 6.75%

$ Change -$56 -$140 $327 -$227 $174

Figure 12 illustrates the average monthly lease price ($) for each submarket. The Arts & Entertainment district continues to command the highest pricing, and indeed has set a new pricing

record because of a number of large unit transactions including three transactions over 3,000 square feet. A similar phenomenon in Midtown is also driven by larger units transacting.



Figure 13

Greater Downtown Miami Condominium Rental $/SF by Submarket


$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$2.18$2.37

$2.57$2.63

$2.58 $2.54

$1.93$2.18

$2.30$2.46 $2.49

$2.38

$2.10$2.25

$2.55$2.58

$2.49 $2.47

$2.30

$2.47

$2.70$2.87 $2.69 $2.78

$2.11$2.26

$2.40$2.51

$2.51 $2.46

n 2012 n 2013 n 2014 n 2015 n 2016 n 2017

% YoY Change -1.40% -2.13% 3.13% -4.47% -0.87%

$ Change -$0.04 -$0.05 $0.08 -$0.11 -$0.02

The figure below presents the average PSF asking lease price versus the achieved lease price and the average number of executed leases for each submarket. While A&E and Midtown have both set

records for overall pricing, on a PSF basis they both remain in line with or below the prior two years, reflecting larger unit sizes. As for asking rents, the following table (18a) shows trends with gross and PSF asking rents. Since 2015, asking rents have remained fairly level, moving up and down slightly, but in general those for 2017 are stronger than those for 2016.



Figure 13a

YoY Asking Rent Changes (Gross and PSF) by Submarket

Brickell CBD A & E Edgewater Midtown

0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$3,372$3,436 $3,709

$5,044 $4,826

$5,508

$3,102 $2,827 $2,857

$3,450 $2,915 $3,561 $3,707

$3,028 $3,068


$1.00

$2.00

$3.00

$4.00

$3.04 $3.07$3.17 $3.16 $3.10

$3.45

$2.78 $2.70 $2.83 $2.83 $2.62 $2.83 $2.74 $2.75

$2.47

n 2015 Asking n 2016 Asking n 2017 Asking


Conventional Rental Market Supply

Figure 14aGreater Downtown Miami Rental Pipeline – Under Construction and Complete ProjectsSubmarket Building 2017 Q4 Status # Units

A&E Melody Complete 500Brickell SoMa Complete 418 Broadstone at Brickell Complete 372 Brickell View Terrace Complete 76 Solitair Brickell (former Brickell Bayview Center) Complete 438CBD Flagler on the River Complete 250 Monarc at Metropolitan 3 Complete 462Edgewater 2500 Biscayne Complete 156Midtown Midtown 5 Complete 400 Eve at the District Complete 197 Pearl Midtown 29 Complete 309A&E Square Station Under Construction 710Brickell Panorama Under Construction 821 MaiZon at Brickell Under Construction 262CBD Muze Met Square Under Construction 391 Park Line MiamiCentral Under Construction 816 X Miami (formerly Vice) Under Construction 464 Caoba (fka 7th St Promenade) Under Construction 444 7th Street Promenade Tower 2 Under Construction 429Edgewater Biscayne 27 Under Construction 330 Modera Edgewater Under Construction 297Midtown Midtown 6 Under Construction 447 Midtown 8 Under Construction 387Wynwood Wynwood 25 Under Construction 289 Total # of Units Under Construction 6,593 Total # Units Completed 2016-18 2,448 Total # Units Completed 2014-2015 1,130 Conventional Rent Survey (Class A) 2,474 Conventional Rent Survey (Class A-/B) 2,344 Total # Units U/C or Proposed 25,297

Figure 14a illustrates the under construction, proposed, and recently completed rental pipeline in Greater Downtown Miami. The most recent deliveries are Solitair (+438), Midtown 29 (+309) and 2500 Biscayne

(+156 units), with Panorama and Muze (formerly Avant at Met Square) set to deliver in early 2018.

With nearly 3,600 conventional rental units delivered since 2014, downtown Miami has become the fastest growing rental submarket in South Florida. With an additional 6,500+ units under construction, the conventional rental pipeline is set to outpace condominium construction by 2019. This level of conventional rental supply has become a catalyst that is driving expansion of commercial and recreational opportunities downtown.



Integra’s survey of unit mix and average unit size of new projects reflects a new edition to the annual report. Some markets have been combined due to a limited number of projects in a

specific submarket. Overall, the unit mix reflects the core demand from young urban workers with a predominance of studio and one bedroom units representing 60%+ of total units. This mix also considers smaller unit sizes to keep gross monthly rental rates down.

Figure14bGreater Downtown Miami Rental Completions – Unit Mix # Units in Survey % Studio Avg SF % 1 Bed Avg SF % 2 Bed Avg SF % 3 Bed Avg SF

Brickell 1404 14% 493 51% 768 32% 1106 3% 1173

CBD/A&E 1212 2% 674 45% 802 43% 1094 9% 1415

Midtown/Edgewater 1062 10% 605 54% 764 33% 1134 3% 1581



Figure 14cGreater Downtown Miami Rental Pipeline – Proposed ProjectsSubmarket Building 2017 Q4 Status # Units

A&E 17 Edgewater Proposed 240

14 Plaza Proposed 760

School Board Proposed 1000

Melody II Proposed 630

The Arts Proposed TBD

Art Plaza Proposed 655

Miami Plaza Proposed 425

Awana Forest Proposed TBD

70-90 NE 17th St Proposed 225

Brickell One Brickell II Proposed 500

Brickell Market Place Proposed TBD

TBD Allen Morris/Related Proposed TBD

Megacenter Brickell Proposed 57

1111 Brickell (Yacht Club Phase II) Proposed 897

Brickell Fire Station Proposed 196

1430 Brickell (TBD) Proposed TBD

CBD Luma at Miami World Center Proposed 439

Lynx Tower Proposed 483

Miami World Center Block E Proposed 418

Miami River Village Proposed TBD

M-Tower Proposed 440

Grand Station Proposed 300

Nexus Riverside Proposed 462

Nexus Riverside Central Proposed 900

54 West Flagler Proposed 391

225 SE 2nd St Proposed TBD

M-Tower Proposed 440

Miami Station Tower f/k/a Krystal Proposed 153

200 NMA Proposed 328

533 NE 2 Ave Proposed 150

One Bayfront Plaza (RENTAL) Proposed 1361

400 Biscayne (RENTAL) Proposed 690

Potential Olympia Theater Proposed 300

The Sterling Proposed 362

5 Plaza Proposed TBD

Submarket Building 2017 Q4 Status # Units

Edgewater 1900 Biscayne Proposed 429

1836 Biscayne (Possible Condo) Proposed 352

700 Edgewater Proposed TBD

AR Edgewater Proposed 171

Quadro 3900 Biscayne Proposed 198

Ellipsis Proposed 34

The Village Proposed TBD

Miami 18 Proposed 1400

2000 Biscayne (Rental) Proposed 393

1775 Edgewater Proposed 444

Midtown Midtown East Phase 2 Proposed 256

Midtown 7 Proposed 391

Midtown East Phase 1 Proposed 208

Wynwood 2801 NW 3rd Avenue Proposed 264

2110 N Miami Ave Proposed 163

222 NW 24th St Proposed 80

Wynwood Plant Proposed 306

Wynwood 26 Proposed 176

222 Wynwood Proposed 35

Westdale Wynwood Proposed 202

Total # of Units Proposed 18,704



Figure 15

Greater Downtown Miami Class A and A- Occupancy DashboardClass A Average Rounded to Nearest Percent

Monarc 90.6% 91.0%

Soma 94.3% 94.0%

Eve at the District 94.4% 94.0%

Broadstone 88.1% 88.0%

Melody 99.2% 99.0%

Midtown 5 94.9% 95.0%

Class A in Lease-Up

Solitair

2500 Biscayne

Midtown 29

Class A- Average Rounded to Nearest Percent

Camden 96.4% 96.0%

25 Biscayne Park 98.4% 98.0%

Filling Station 100.0% 100.0%

Second Plaza 95.6% 96.0%

IRR has completed a survey of estimated occupancy rates for conventional rental properties in greater downtown Miami. The table below consists of data aggregated from several public and private sources.

In general, occupancy is higher for Class A- properties versus the newer deliveries. Occupancy for stabilized properties is at a healthy level of around 95%, ranging from 88% to over 98%. This is associated with a market that’s generally in balance and is successfully absorbing new deliveries.

We expect the majority (+4,000) of under-construction deliveries to occur in 2018, with 763 units expected to deliver in 2019.


Land Prices Trends

2017 was a busy year for land transactions in Greater Downtown Miami, with over a dozen large-scale transactions including a number in Brickell (El Eden, Taplin, Maizon, 90 SW 8th Street, Perricone’s, and the Mexican consulate).

Figure 16

Greater Downtown Miami Land SitesLocation Submarket Sale Price Transaction Date Planned Use 444 Brickell Brickell $104,000,000 Dec-13 Mixed-Use700 NE 26th Terrace Edgewater $41,187,000 Feb-14 Residential Condo200 SE 2nd Street CBD $23,100,000 Mar-14 Apartment/Mixed-Use30 SE 8th Street CBD $28,500,000 May-14 Residential Condo1151 NW 1st Avenue A & E $53,700,000 Jun-14 Mixed-UseEpic Marina Site CBD $125,000,000 Jul-14 Residential CondoSW 3rd Avenue Brickell $97,500,000 Jul-14 Mixed-UseChetrit Miami River Site Brickell $85,048,000 Jul-14 Special Area Plan (Mixed Use)1400 Biscayne A & E $57,300,000 Oct-14 Mixed-Use3000 Biscayne Boulevard Edgewater $19,200,000 Oct-14 Mixed-Use3201 NE 1st Avenue Midtown $14,000,000 Oct-14 Mixed-Use300 Biscayne Boulevard CBD $80,000,000 Dec-14 Residential CondoCapital at Brickell Brickell $74,740,000 Dec-14 Mixed-UseNWC NE 2nd Ave & 17th St. Edgewater $64,000,000 Jan-15 Mixed-Use501 NE 1st Avenue CBD $8,250,000 Jan-15 TBD1021 SW 1st Ave Brickell $26,000,000 Feb-15 Mixed-Use2201 N Miami Ave Wynwood $15,000,000 Mar-15 Mixed-UseEdge Brickell $18,000,000 Jul-15 Condo Hotel230 SW 3rd St CBD $14,250,000 Aug-15 Residential Rental2900 NE 2nd Ave Midtown $55,000,000 Nov-15 Residential Rental175 SE 25th Rd Brickell $48,000,000 Nov-15 Residential Condo350 Biscayne Blvd CBD $65,000,000 Nov-15 Mixed-UseRosenberg Wynwood Wynwood $18,000,000 Jun-16 Mixed-UseUPS Site CBD/Overtown $31,000,000 Jul-16 Mixed-Use27th & 2 Wynwood Wynwood $30,750,000 Sep-16 Mixed-UseWynwood Land +/- 1 Acre Wynwood $53,500,000 Oct-16 Mixed-UseEdelstein Wynwood Sites Wynwood $13,125,000 Oct-16 Mixed-UseDoronin/Jesuit Sites Edgewater $54,000,000 Nov-16 Residential CondoMidtown 8 Midtown $25,000,000 Nov-16 Residential RentalWynwood 29 Portfolio Wynwood $12,000,000 Nov-16 Mixed-UseEl Eden Site Brickell $18,400,000 Jan-17 Mixed-UseTaplin Site/1428 Brickell Brickell $50,000,000 Jan-17 Residential TBDMarriott Marquis Site CBD $45,000,000 Mar-17 HotelModera Edgewater Edgewater $21,700,000 Mar-17 Residential Rental501 NMA Site CBD $18,095,000 Mar-17 Residential TBDWynwood Two Sites Wynwood $11,000,000 Mar-17 RetailMaizon Sites Brickell $14,101,600 May-17 Residential RentalS&S Assemblage Edgewater $33,000,000 Jun-17 Residential TBDFive Plaza CBD $10,000,000 Jul-17 Residential Rental90 SW 8 St (LAND) Brickell $29,450,000 Jul-17 RetailMexican Consulate (LAND) Brickell $31,750,000 Aug-17 Residential TBDMidtown 6 Site Midtown $27,900,000 Aug-17 Residential RentalVillage/Naranza Sites Edgewater $10,640,000 Aug-17 Residential CondoPerricone’s (Land) Brickell $16,180,167 Sep-17 HotelEdgewater Site Edgewater $18,400,000 Sep-17 Residential TBD400 Biscayne Church Site CBD $55,000,000 Jan-18 Mixed-Use


Conclusions

Although pricing decreased somewhat in the first half of 2017, Miami’s overall economy and market remain strong, and the second half in particular saw signs of improvement relative to the first half. Improvements

in international currencies have made Miami more affordable to European, Latin, and Chinese buyers.

Greater Downtown Miami Residential Report Card Subject 2014 2015 2016 2017 Comments

New Demand/ A+ A

B-

Pricing

Resale A-

A-

B-

Demand/ Pricing

Rental A- A

A-

Demand

Local Economic B+ A A

Conditions

Inventory B B- C

Spikes

International B

C

C+

Stability

Construction B-

C-

B-

Costs

Domestic B-

B

C-

Housing Market

Lifestyle C+

C+

B+

Amenities

Affordability C C- B-

Land Pricing C- D

C+

Wage Growth D C+ B

B-

New demand remains slow, but declining pipeline and diversity in pricing are positive.

C+

Inventory levels are still building; prices retreated for second

consecutive year. The grading reflects seller perspective; buyers should view resale pricing as A+.

Conventional occupancy is strong with new rental product absorbing B+ quickly. Condo rental pricing retreats for first time in five years. New conventional rental deliveries in 2018 may pose short term pricing declines.

A

Local economy remains healthy. Residential construction projects slowing, but overall conditions robust.

C

2018 will be the critical bulge of new deliveries in both condo and conventional apartments.

B

Weakening USD has made Miami condos more affordable to

international buyers. Global economic conditions generally improving.

B

Tariff changes could increase construction material costs, but pipeline slack should bring construction pricing back in line with project feasibility.

B-

Countywide market rebounded in 2017; supply and pricing

are stable in most sectors.

B+

Local demand drivers remain strong.

B+

Decreasing resale prices benefit affordability and new conventional 2018 rental supply expanding, which should favor affordability.

C+

Increased velocity of land sales, particularly in Brickell, but land pricing remains high.

B+

Local economy remains vibrant, and US tax breaks coupled with strong job growth signal probable wage increases.

Proposed

The proposed phase is the initial phase of the development process; a conceptual plan for a new building or project is initiated by a developer or property owner. The developer may release a press release or a news story with an initial rendering to gauge the interest in the project, but the project size may change over time to conform to market demand and/or as site due diligence constrains the process.

Reservations

The reservations phase is the second phase of the development process; the developer and architectural/design team produce additional renderings and floor plans; the sales centers are opened and the finishes, amenities, and features of the project are disclosed. The developer files with the State of Florida to be able to take reservations and deposits for units during this stage. This begins the pre-sale phase during which reservations are taken.

Contracts

The contracts phase is when the initial proposition and reservation of a completely undefined development idea meets the actual contracting for sale upon the receipt of further deposits. The architectural and construction drawings are completed; the developer obtains government permitting and approvals. The final unit floor plans are defined as the reservations are converted to sales contracts with additional buyer deposits upon filing of the Master Declaration of Condominium. Changes to these documents are costly, and therefore the development plan tends to be more static following this phase.

The Contracts stage is typically the make-or-break stage of development as the project was either well-received by buyers, investors, and lenders, or it was not. If the developer has as a sufficient number of sale contracts, buyer deposits, and a commitment for financing, the project’s construction will most likely commence. If the project was not well-received, either by a lack of pre-sales, or insufficient equity from initial investors or debt financing, a project may be scrapped, shelved, or significantly altered in another future attempt (either later in the cycle or in the next one). Projects which fail the Contracts stage may move all the way back to Proposed during this process.

Under ConstructionThe site improvements and vertical construction have commenced. At this stage of development, the project has secured sufficient pre-sales with significant deposits and most likely a financing commitment. These projects will enter the market under a reasonably definitive timeline of 24-48 months, depending upon the scale of the project and surrounding infrastructure requirements.

Completed

This is the final stage of the development process; as the construction of the units is completed, CO’s (Certificates of Occupancy) are issued, and the closing of the unit sales are finalized.


Condo Development Process Appendix

The information provided herein is for informational purposes. This publication does not render legal, accounting, appraisal, counseling, investment, or other professional advice. Should such services or other expert assistance be needed, it is recommended that the services of a competent person or firm, having access to the details of the situation, be employed.


Disclaimer & Acknowledgment

Cover: Photo courtesy of Miguel Gonzalez.Page 2: Photo credit: © 2015 IRR-Miami/Palm Beach.Page 5: Photo credit: © 2015 IRR-Miami/Palm Beach. Map courtesy Miami DDA.Page 6: Photo credit: © 2015 IRR-Miami/Palm Beach.Page 7: Photo credit: © 2015 IRR-Miami/Palm Beach.Page 9: Photo credit: © 2015 IRR-Miami/Palm Beach.Page 10: Photo courtesy Miami DDA.Page 15: Brickell, artist’s rendering of Brickell CityCentre used by permission of Swire Properties Inc.Page 18: Photo credit: © 2015 IRR-Miami/Palm Beach.Page 19: Photo credit: © 2015 IRR-Miami/Palm Beach.Page 20: Photo credit: © 2015 IRR-Miami/Palm Beach.Page 24: Photo credit: © 2015 IRR-Miami/Palm Beach.Page 28: Photo credit: © 2015 IRR-Miami/Palm Beach.


Images

About Integra Realty Resources

With corporate headquarters in Denver, Colorado, Integra Realty Resources (IRR) is the largest independent commercial real estate market research, valuation, and consulting firm in North America, with 56 offices and more than 200 MAI-designated members of the Appraisal Institute who are among its more than 600 employees located throughout the United States and the Caribbean. Founded in 1999, the firm specializes in real estate appraisals, feasibility and market studies, expert testimony, and related property consulting services. Many of the nation’s largest and most prestigious financial institutions, developers, corporations, law firms, and government agencies are among its clients. For more information, visit www.irr.com or blog.irr.com.

Contact Information:200 S. Biscayne Blvd, Suite 2929Miami, Florida 33131

T - 305.579.6675F - 305.371.2423W - MiamiDDA.com

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