Miami's downtown is coming alive with young renters

Brandon Klein has done what few Floridians can: go weeks without driving his car.

The 26-year-old tax accountant walks three blocks from his condominium tower on Miami's Biscayne Bay to his office at Deloitte LLP. On weekends, he and his friends hang out on the pool deck or share a cab to a local pub.

He lives in Downtown, a neighborhood where young people are renting condos built during the 2004 to 2008 boom to attract second-home buyers. Thanks to the housing crash, Klein and two roommates pay about $900 a month each for an obstructed waterfront view, a wraparound balcony and access to a gym, spa and steam room.

"Five years ago you wouldn't have kids fresh out of college living in luxury like this," said Klein, sitting in the three-story lobby of his building on Biscayne Boulevard, coordinating happy-hour plans by text message. His friends are concentrated in nearby Met I, which has 447 luxury units and a steakhouse on the first floor. They refer to the building as "Deloitte Dorm" because it's home to so many employees of the accounting and consulting firm.

The 7,000 unsold condos in Miami's core - symbols of a building boom that collapsed and dragged the city into recession - are filling up and giving life to neighborhoods that previously closed after dark. New, year-round residents are cramming into restaurants and nightclubs that didn't exist a few years ago, and enjoying a lifestyle made possible in part by developers and banks seeking to recoup losses by renting luxury dwellings until the market recovers.

"I'm a big city person, and I always thought Miami didn't have a real city," said Dejan Krsmanovic, 39, a biomedical engineer at Segafredo, a busy new Italian restaurant in the adjacent Brickell neighborhood.

"Miami Beach is not a city, it's a resort," he said. "This is beginning to resemble a city."

The unsold condos represent almost a third of the 22,079 units in 75 buildings, mostly opened after 2004, tracked in a study released in March by the Miami Downtown Development Authority. The report focused on central neighborhoods including Downtown, Brickell and Wynnwood/Edgewater.

Occupancy rates in the new buildings, including owner-occupants and tenants, increased to 74 percent in February from 62 percent in May 2009, the study shows.

The development authority estimates that the population of Miami's urban core jumped to about 70,000 from 40,000 since the 2000 census, authority spokesman Robert Geitner said.

"For us, it doesn't matter whether they rent or buy," Miami Mayor Tomas Regalado said. "The more people, the more business, the more safety, the more progress."

The influx of college students, young professionals and empty nesters from the Coral Gables section and the suburbs intensified about 18 months ago when banks that financed the condo projects agreed to let developers slash sales prices by as much as 40 percent, said Peter Zalewski, a principal with consulting firm Condo Vultures in Miami. That spurred demand from foreign buyers and all-cash investors, many of whom are renting out their units until prices rebound, he said.

The Miami metro rental market is one of the nation's strongest, according to Ron Johnsey, president of apartment-research firm Axiometrics. That's the case even though unemployment is more than 11 percent, compared with 9.5 percent nationally, and developers are adding to supply by leasing units built for purchase.

Effective rents, the amounts actually received by landlords, rose 4 percent in the first five months of the year after falling 2.9 percent during the same period in 2009, according to Axiometrics, whose data tracks professionally managed rental buildings. Nationally, rents increased 2.75 percent from January to May.

The occupancy rate for Miami climbed to 95.1 percent in May from 93.8 percent a year earlier, Johnsey said.

Condos are being purchased by investors and rented out in Phoenix, San Diego and Las Vegas, where thousands of units also went up during the boom, according to Ross Moore, chief economist for real estate services firm Colliers International.

"It's something we're seeing in many markets," he said. "Miami is an absolute extreme example."

While the city is heading in the right direction, it will take years to fully recover, said Michael Fratantoni, vice president of single-family research and policy at the Mortgage Bankers Association.

"Miami has been one of the areas most deeply impacted by the crisis," he said. "But the backstop of foreign-buyer demand is going to help Miami do better than the rest of the state."

T. Sinclair Jacobs, 87, who founded the Brickell Homeowners Association 20 years ago, watched the developments go up. The group's original residents lived south of Southeast 15th Road, along Brickell Avenue, in decades-old condo towers, some of which appeared in the "Miami Vice" television series, Geitner said. Developers then pushed north 13 blocks, putting up about 25 projects along Brickell Avenue.

Development crossed the Miami River to connect with Downtown, adding glass-and-steel residential towers to the area's mix of courthouses, hotels, warehouses, homeless shelters and stores. The American Airlines Arena, where LeBron James will play next season with the National Basketball Association's Miami Heat, opened there in 1999.

The projects needed better planning, Jacobs said; nevertheless, they are making Miami a better place to live.

"With the greater concentration of residents, there'll be a beneficial effect on traffic because we'll have better public transportation," he said. "We didn't have the residents before to support mass transit. In the long run, this is going to be one of the great cities in the world."

The area's fledgling success comes after much financial pain for developers, banks and foreclosed homeowners. Developers that didn't unload their units by the end of 2008, when the bulk sale of condos in the Marina Blue high rise depressed prices, faced the most serious problems, Zalewski of Condo Vultures said.

Hyperion Development sold 60 units in the 516-unit building for about $200 a square foot, about half of the original price, the South Florida Business Journal reported at the time. Now the complex is sold out and many units are rented, said Carolyn Van Gorder, Hyperion's vice president of sales and marketing.

In early 2009, lenders began allowing developers to cut prices on individual units, rather than sell them to bulk buyers who would flip them one by one for a profit, said Robert Given, executive vice president at broker CB Richard Ellis Group.

"I don't think it had anything to do with the caliber, quality and foresight" of the developers, Zalewski said. "Ultimately, what it came down to was timing. "

It was a matter of which developers could finish off their project, take it to market, close and take their cash before the market collapsed."

The Miami-Fort Lauderdale-Pompano Beach metro area had the highest foreclosure rate among large U.S. cities in May, with one of every 134 units receiving a filing, according to data seller RealtyTrac. The average national rate is one in 400 units.

"We were trying to build a city in perhaps what was too fast a time period," said Jorge Perez, chairman and chief executive officer of the Related Group, which built more than 6,500 units in downtown Miami.

The closely held firm broke ground in 2001 on One Miami, the first major condo project on the river's north side. Perez said his masterpiece is the $1.25 billion Icon Brickell, completed in 2008, a 1,800-unit project with a boutique hotel and an Alice-in-Wonderland feel. A two-acre sundeck, 140 feet above Biscayne Bay, features three pools, an outdoor fireplace and an oversized floor chess board.

The Related Group lost $50 million to $100 million on Icon, Perez said. In May, the firm handed back two of Icon's three towers to a syndicate of lenders led by HSBC Holdings after winning bank approval late last year to slash prices by about 30 percent. The price cut has spurred sales, which increased to about 640 as of this month from 38 closings at the end of the second quarter of last year.

"Over the long run, what we did in building those buildings, was it wrong?" Perez said. "I wish there wasn't the suffering on a personal basis, on a banking basis and individual basis. But have we made Miami a much better city? Absolutely, yes."

Miami is turning into something that Florida has never had: a densely populated city where professionals live and work, said Alan Ojeda, whose Rilea Group recently finished 1450 Brickell Avenue, one of three new office towers in the city's urban core. The $270 million building has 35 stories, 585,000 square feet of rentable space and 1,200 parking spaces.

"It's what's missing in Florida," Ojeda said of Downtown. "Look, it's 9 p.m. on a Thursday. It's not Saturday night fever and the bars and restaurants are full."