The Foreign Factor

As Developers Build Condos, and Real Estate Agents Stage Homes for Sale, a Critical Question is how Strong the Foreign Market Will Be

By Doreen Hemlock

April 2019

Real estate developer Rishi Kapoor has yet to break ground on his luxury condo project Villa Valencia in Coral Gables, but his team already is preparing to make sales presentations this month in Mexico. Kapoor expects roughly 20 percent of buyers for his condos to come from overseas, each plunking down at least $1.65 million for a spacious, three- to six-bedroom unit.

It’s a common pursuit across the City Beautiful: Luring buyers from Latin America, Europe and beyond for residential real estate, augmenting the pool of South Florida and out-of-town U.S. customers for condos and single-family homes. “Foreign clients have, for years, been a big part of the pool of buyers for real estate in Coral Gables,” says Jeff Gross, who is in charge of real estate financing for Gables-based BAC Florida Bank. But these days, signing those contracts is not as easy as it once was.

Rishi Kapoor of the Location Ventures Group. Photo by Nate Dumont

After the 2008 financial crisis, foreign buyers dominated residential purchases in the South Florida region. “Florida was probably the best deal in the world. The dollar was low. Housing prices were down. If you had yen, pounds or other currencies, you’d get a once-in-a-lifetime-deal,” says Manny Mencia, who leads the international division of Enterprise Florida, the state’s economic development partnership, from an office in the Gables.

“The environment is not the same anymore. The dollar is a lot stronger, and prices have recovered to a significant degree. We’re still a pretty good deal, when you consider prices in other U.S. areas where foreigners tend to gravitate, like New York, Los Angeles and Boston,” says Mencia. “But today, probably most of the action is at the higher end.”

Venezuela’s Pain Hits South Florida

Henry Torres can attest to the slowdown. He’s president and CEO of the Astor Companies in Coral Gables, developers of the just completed 227-unit Merrick Manor condo tower by Shops at Merrick Park. Units there sell for $449,000 to $2.5 million each.

Henry Torres, CEO of Astor Companies

Three years ago, before construction began, most buyers at Merrick Manor came from overseas, putting down 50 percent deposits, Torres says. Some hailed from Venezuela, eager to invest in a home outside their country and its shrinking economy. Others came from Colombia, Argentina and Brazil, also longtime markets for South Florida housing. Many have since paid in full.

But for those units not yet sold, Torres expects foreign buyers to represent no more than half of sales. That’s partly because Venezuela’s economy and currency have collapsed, making it tough for Venezuelans to buy dollars. At the same time, there’s growing interest from affluent U.S. buyers in New York and other Northeastern states, who are seeking lower tax areas for homes following last year’s U.S. tax reform. “And a lot of locals are coming to see our building, as couples in their 30s and 40s seek to live closer to work and older couples consider down-sizing from larger houses,” says Torres.

Mexico: A New Frontier

To sign overseas buyers, Torres and his peers are especially keen this year on Mexico. Many of the affluent there are concerned about policies under their country’s new president “because of the way the government is changing to a stronger, socialist-type,” says Torres. “Many people in Mexico are putting together their Plan B.”

Mexico ranks as “target No. 1” for foreign buyers at the Villa Valencia project that Kapoor’s Location Ventures will soon build at 515 Valencia Ave. The group is developing a 13-story tower with 39 estate-sized condos, the kind of unit popular among offshore buyers who like room for family. One Sotheby’s International Realty is handling sales and starts presentations at its recently opened Mexico City office in April, says Kapoor.

Many people in Mexico are putting together their Plan B

Henry Torres

“Many countries in Latin America, Europe and other regions go through cycles, when their economies are hot and they’re looking to deploy cash overseas, or when there’s political or economic stability and there’s capital flight,” says Kapoor. “In Mexico, the economy has been rising, and there’s a certain amount of political uncertainty, which are both driving affluent buyers to look in South Florida.”

Kapoor says his team also is talking with clients from the United Kingdom, as that country grapples with exiting the European Union. Plus, they plan to seek buyers from Colombia and Chile among other Latin American nations that have long viewed South Florida as a safe hub for businesses and homes.

U.S. Immigration Politics Weighs

Still, luxury real estate doyen Audrey Ross doesn’t see foreign buyers rushing in. Ross often uses Gables Estates and the multi-million-dollar homes sold there as a barometer for business. In the past three years, she gures just three of the dozen-plus sales in Gables Estates went to overseas clients – with none sold to offshore customers during the past 12 months.

Audrey Ross

A stronger dollar is part of the reason, because it makes prices higher in other currencies. Yet politics also weighs, she says. “There’s some latent predisposition for offshore buyers to be skeptical about the political situation in the U.S., feeling that policies are not as friendly,” says Ross, who leads the Audrey Ross team working with luxury real estate group Compass. “They simply don’t know that the doors are going to be as wide open [as always] and are going to stay that way.”

Immigration lawyer Deidre Nero knows those concerns firsthand. “The feeling that this administration is anti-immigrant is turning people off. That’s discouraging,” Nero says. She’s seen a decline in U.S. approvals for legal immigration, from tourist to student to work visas, partly because of longer processing times and more stringent vetting. Even marriage-based green cards can take up to three times longer to obtain under the Trump administration, she says.

“People don’t buy residential real estate to obtain a visa,” says Nero. “People come to the U.S. to open businesses, to go to school or to visit regularly. [But] they want to purchase homes, because they need a place to stay. So, immigration policy affects real estate across the board.”

New Yorkers Help Buoy Sales

Some of the drop in foreign buyers is being offset by Northeasterners seeking residences in low-tax states after changes to the tax law under the Trump administration. But the market so far is relying more on local residents to fill the gap, either to switch homes or to make an investment.

A 2018 survey by research firm Bendexin & Amandi International and the Miami Herald illustrates that trend. The poll of 100 top real estate insiders estimated foreign buyers made up just 26 percent of the Miami-Dade housing market last year, down from a whopping 56 percent in 2015. Local buyers soared to 43 percent, while out-of-town buyers inched up to 18 percent over the period, the survey says.

Coral Gables had not traditionally been a top destination for many North- easterners – and indeed, some foreign buyers – who sought condos in walkable areas, especially in Miami Beach, seaside Sunny Isles or bayfront Miami. Many had associated Coral Gables with leafy, single-family homes. But perceptions are changing as the Gables becomes more urbane and vertical, offering more dining, arts and wellness options within walking distance of new condo developments, says Hilda Jacobson, senior director of luxury sales in Coral Gables for New York-based real estate giant Douglas Elliman. She sells mainly condos and homes $1.5 million and up in Miami-Dade. “We’re No. 1 in New York,” she says of Douglas Elliman, “and we’re going to our New York clientele and saying to them, ‘Come to South Flori- da. Get to know Coral Gables.’”

Some banks also are stepping up to help finance foreign buyers. After the financial crisis, many offshore buyers funded home purchases in South Florida with cash. Some now take out loans against their investment portfolios, working with large investment banks and their affiliates for the financing. But obtaining U.S. loans can be difficult and the paperwork cumbersome for foreign nationals, real estate brokers acknowledge.

A few banks specialize in mortgage loans to foreign buyers to ease the burden, including Gables-based BAC Florida Bank, active in the business for decades. Recently, BAC Florida has been averaging about $225 million to $275 million in new mortgage loans annually on Florida condos and houses valued at roughly $375 million to $450 million, says Jeff Gross, who leads BAC’s real estate financing division. Most of those loans are for housing in Broward and Miami-Dade counties.

Foreigners typically must deposit at least 30 percent of the price of a house and 35 percent of a condo to qualify for a BAC Florida mortgage nowadays, says Gross. Many are opting for five-year adjustable-rate loans payable over 30 years, with rates today about 5 percent the first year and principal averaging $400,000.

“Right now, the biggest group of foreign buyers in South Florida are probably Brazilians, and you’re seeing a lot of Mexican interest,” says Gross. “The Miami area in general is a mecca for Latin American buyers. That business never stops. It has its peaks and valleys, but the buying never stops.”