A land rush from condo developers has the rest of the building community asking: Is there any room left for us?

Miami is one of the nation’s hottest markets, and if you don’t believe us, just look at the number of condominium developers who are snatching up what remains of the city’s prime, unbuilt acreage.

At the height of the last building boom, Miami experienced a similar land rush from developers eager to take advantage of escalating rental rates, but unlike the 2007 bubble, developers are building to an expressed demand from buyers. People are asking for waterfront properties, and builders are happy to acquiesce.

International Buyers Help Fuel Funding

Following the previous building boom, developers erected condo towers all along the Miami shoreline. Unfortunately, they didn’t have the prospective buyers to properly fill out the units, so more than 22,000 condos wound up sitting empty for years following the bubble’s collapse, according to The Wall Street Journal.

Eventually, prices fell and once they hit dramatically low levels, foreign investors from Latin America, Canada, Russia and various parts of Europe began snatching up the properties like cheap, delicious hot cakes. A recent study commissioned by the Miami Downtown Development Authority found that 90 percent of the city’s new residential unit buyers still hail from abroad.

The Unintended Effects of the Land Rush

In 2006, an Italian-born condo developer, Ugo Colombo, bought a stake in an empty plot of land along the Miami River. At the time, the land was valued at $25 million. However, according to WSJ, Colombo and his partners just recently sold the plot to an Argentine grocery store magnate for a whopping $125 million – a 400 percent return.

“The Miami market has turned around 180 degrees in record time,” Colombo says, but warns that, as a result, Miami is now facing a “humongous” shortage of land.

“On the waterfront, there’s none left,” he says. “Every hole you see on the map is now being filled.”

In the past two years, WSJ reports, condo prices have skyrocketed from around $230 per square foot to $400. In towers currently under construction, square footage ranges from $450 to $550 per, and in future developments, they’re averaging $550 to $675. At Colombo’s site, referred to locally as “Epic II,” brokers estimate units could cost as much as $1,000 a square foot.

While some worry the surge in land purchases and condo developments could lead to a financial disaster, developers are attempting to quell fears by imposing a financing model, which requires that buyers provide a 50 percent down payment prior to closing.

Still, John Sumberg, managing partner of the law firm Bilzin Sumberg, told WSJ that “soaring land values” in Miami were having unintended consequences on the city’s downtown real estate market, namely, condo developers are leaving little room for other types of development, such as office space and affordable housing.

“The other product lines can’t compete,” Sumberg says. “Any site that could possible be a condo cannot be utilized economically for any other purpose.

Luxury condo developers are, as you might imagine, reveling in the money making opportunity, but developers in less-lucrative markets worry there won’t be any room left to balance out the area. Even apartment developers, who are benefiting from a surge in rental demand, are feeling the heat. Carlos Melo, principal at the Melo Group, told WSJ that “at today’s land prices, such projects are impossible.”