Two years ago, Miami's real estate market was hot -- red hot -- and the hype was contagious.
When ABC News shot a story about it in the fall of 2005, we called it "Boomtown Miami." Old buildings were falling to make way for new condo towers that were selling out in just a few days.
"It was very exciting. It was an adrenaline rush," Kari Fernandez, a condo sales agent, says. "We're talking almost 1,000 units sold in a week."
Investors, speculators, flippers, everyone seemed to be making staggering profits -- at least on paper -- in a matter of weeks.
Across the country, the real estate market has gone flat, but nowhere quite like here in Miami. Not that Miami is suddenly at a standstill: In the skies, flocks of building cranes compete with birds as condos race to completion. Look around, and you can see a skyline transformed, with more than 100 new condo buildings now under construction, representing about 25,000 condo units due to be completed and delivered in the next 18 months or so.
But developers are avoiding new projects, focusing instead on completing construction and sales for all those buildings already under way. It's a far cry from the adrenaline-fueled boom of just two years ago.
A Cautionary Tale
Back when this was Boomtown -- in 2005, when ABC News did that first story -- we met a young real estate lawyer and speculator named Richard DeNapoli. He'd bought four condos worth $1 million with a $200,000 down payment. DeNapoli was banking on a $400,000 profit for his four condos.
Today, those condos are nearing completion, and his expectations are more modest.
DeNapoli has flipped his four units to other buyers, but for less than he'd hoped. Because he bought in early enough he'll make a $275,000 profit -- maybe. The worst-case scenario, he said, would be to break even or have to buy and then rent the units he speculated on.
"It's a stalemate right now," DeNapoli said, "between buyers who have a lot of supply to look at and sellers who don't want to budge on their asking prices."
The Cassandra of Miami Real Estate
Back in 2005, Jack Winston, an analyst with Goodkin consulting, saw a boom based on shaky foundations.
"The equation is that you have speculators buying units, and they're trying to flip their contract to other speculators who in turn are trying to flip their contract to other speculators," he said at the time. "Somewhere along the line, you are going to run out of speculators."
Now, Winston is saying: I told you so.
"Basically, we predicted at that time it was pretty close to a Ponzi scheme," he says. "And the last person is the one who gets hurt. And that's basically what happened here."
Winston and others estimate that 70 percent of the Miami condo market was driven by those speculators in search of quick profits.
"Probably some time around September or November of 2005, it was as if someone turned off the spigot," he says. "Since that time, new sales at condominium projects have come to a halt, practically a stand still."
Whom To Blame?
Though there is an overabundance of supply, the eight hurricanes that battered this state in 2004 and 2005 can also take credit. Hurricane insurance rates have doubled, tripled. And with the inflation of property prices, so have property taxes.
But since so many of the projects that began under the boom are still under construction, judgment day has not yet arrived -- speculators may have made deals with potential buyers, but they can't close until the units actually exist.
"We haven't seen the actual result yet," Winston says. "They have to close first and then decide whether or not they're going to hold on to the unit, how long they're going to hold on to the unit, whether they're going to decide to try to resell the unit or rent the unit. And if they can't do either one of those two successfully, then their next choice is to walk away."
Exception That Proves the Rule
In 2005, ABC News was at the splashy, flashy launch party of the new W South Beach condos. Prices started at $1,400 a square foot -- steep even in notoriously pricey markets like New York. Developer David Edelstein radiated confidence.
"There's enormous demand and very little supply," he said at the time.
Today, despite the candid pessimism most people in the business express, Edelstein maintains that the market is "on fire."
"The sales are at a rapid pace," he says. "In my opinion, you're going to see just another increase in price per square foot. You'll see huge amount of demand."
Confidence is part of his sales pitch, of course, but Edelstein also argues that his property is in a location so prime, it is unaffected by the caprice of the market.
"There's been a huge amount of development in other areas where there may be too much supply put on the market, and a speculator is not going to be able to take advantage of an opportunity and, in fact, may get burned," he says. "But in superprime locations, unique locations, on the sand, in great places, in New York City, that hasn't happened."
A Less-Rosy Outlook
When we visited Havana Lofts, a development on the scruffy edge of downtown Miami, in 2005, prices were modest. But Kari Fernandez, the sales agent, was firmly in the grip of condo mania.
"I would say it's a very hot market right now," she said at the time.
Today, Havana Lofts is nearing completion. For the developer, the timing was fortunate: Sales began and went well just before the boom ended.
We found Fernandez selling and reselling condos at the Plaza on Brickell, a project first offered in 2003. As it nears completion, Fernandez is helping buyers flip the units. Always the saleswoman, she'll tell you this is a hot market -- but listen carefully:
"It is hot; it's not as hot as before, just because the market slowed down a little bit," she says. "The properties were going up at a very fast pace and now the market is rectifying itself. So the sellers are more flexible and working more with the buyers. It's more of a buyer's market right now."
But there is no sense that this is the end for Miami. This city has weathered booms and busts before, and it has always bounced back. With its gorgeous beaches and glorious sunsets, it is easy to see why.