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1. Market Update

Its always hard to admit then, but nobody can deny the past four months have recorded a significant slowing-down of the activity in Miami. Not the prices, just the activity (the liquidity of the sales and the resales, which meant they were fewer buyers and fewer sellers actually active on the market). Looking back, we all understand now, that the low season (summer) combined with 4 major hurricanes could only have driven the market where it has been, or probably worse if it werent Miami…

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It is nevertheless easier to announce now, since in the past month:

-the high season has started and has never been that strong

-all hotels are fully booked until June in Miami Beach and at record prices

-streets and restaurants are packed with people and every one is again talking in every corner about buying a place, a second home or investing in a booming market

-sales and activity are picking up big time to the levels where they were last July if not higher (many out of state investors are looking outside their own markets and only believe in Miami as the last growth creator in the US)

-new construction projects start getting off the ground at a surprising pace, when a lot of skeptical people thought small developers would not cope with the increased construction loan guidelines from the banks and rising construction costs.

-I would even say that seeing a lot of new projects getting off, new people think of buying or investing and are simply amazed by the new skyline and density coming to a reality in Downtown, Sunny Isles and other areas.

>> Please look at those pictures recently taken from the site of 10 Museum Park, showing the amazing bay views those Biscayne buildings will get, and the incredible look and construction pace of Marina Blue: www.miamiinvest.com/biscayneviews . (youll be able to preview the New Arts Center and the Museum Park across)

Finally, the market is just growing at its usual boom pace right now, and, looking back again, those 4 months of stagnation only made it saner and more sustainable in its growth. (30% growth could not be sustained continually without rationality taking over speculative patterns at some point).

More importantly, we understand how Miami occupies a different place in the US real estate market comparing to other major cities:

-demand is way more complex and stronger than any other local markets (demand originates from Americans, foreigners as well, the second home market, the primary market and the investors market). Miami has an out of state and foreign exposure in addition to the difference in pricing with other major cities (Miami is still way undervalued in this respect).

-supply creates demand here more than any where else. Therefore the growth was not cyclical (and only due to low interest rates as in the rest of the US), but mostly to the flow of population, the demand, and the fact that Miami was underdeveloped for the major city it is.

People understand now that there are still a lot of value to be created on the short term in some cases, and on the long term in all cases.

2. Miamis upside on the long term

Most of the points below are taken from an article called Why is Florida Immune to the Real Estate Bubble? by Rafael Villa, Miami Update Magazine.

Florida is home to one of the most valued ecosystems in the world. A large part of its territory is covered by The Everglades, which is a collection of marshy soil and exotic fauna that make it one of the most important natural reserve in the country. Because of the Everglades, the land availability for developments is limited; as a consequence it keeps steadily decreasing and the prices steadily rising.
Population: Florida, California and Texas make for almost 50% of the entire countrys population. At this time, Florida occupies the fourth place as far as population in the country. It is estimated that by 2009 it will surpass New York and New Jersey becoming the third one. It is also estimated that Florida, California and Texas will increase by 12 million between the year 2000 and the year 2030. Michigan and New Jersey are estimated to decrease in population which will remove them from the top 10 most populated states (this information was provided by the U.S. Census Bureau)
Population: 1,000 people move to Florida on a daily basis. This is due to the fact that Florida is the number one destination for retirement and a very important destination to immigrants due to its weather and conditions.
Second home ownership has reached record levels in the United States. South Florida is one of the few places in the world where the beaches are available 11 months out of the year.
Since Florida is not subjected to State Income Tax, it offers many advantages for tax deduction and sales. This advantage is not available in many other states.
Finances: Miamis financial center, Brickell, is home to over 120 international banks; making Miami the second financial capital for international banking after New York City.
International Government: Miami is also home to over 82 consulates and embassies, becoming the second most diplomatic city in the country after Washington D.C.
Transportation: One of the main points of entry from South and Central America and the Caribbean to the Unites States is Miami. The port of Miami attends to over 50,000 passengers that travel from the US to any city in the world every weekend. As a cargo port, the port of Miami is located among the 4 busiest ports in the world. Miami International Airport is one of the busiest airports in the world. It is currently undergoing a $2 billion expansion.

For all among you that are looking at Miami as a long term investment, meaning in most cases, that you would be willing and able to close on your pre-construction units, rent them out and resell at the best time, there is virtually nothing to lose, and to the contrary, there is an amazing upside to be one of the future landlords of a city with such potential, demography and density created.

As I often referred to, it is basically like asking yourselves the question:

> Does it make sense to buy across what I know will host a $400 million Museum Park or the second largest Performing Arts Center in the country in a couple of years? Does it make sense to buy on the fronting line of development forming the skyline and with views to the Bay in a major international city? The answer is obvious, and if you think about it, it is an outstanding and once-in-a-life time opportunity that you can ask yourselves such a question in 2005 when Miami is already what it is

3. Miamis upside on the short term

This is the trickier and most interesting question to a lot among you, as ideally, all investments have a timing aspect that determines their precise returns. If you already know that all real estate buyers are winners on the long term (over-performing the stock market in many cases), and that, on top of it, you are buying in a Tier 1 appreciating city, it might not be enough for those looking at top 2 to 3 figure returns on their cash.

It then takes to go to the numbers themselves and the critical analysis I have tried to serve you with in this market.

As in any short term investment, it really comes out to buying undervalued and reselling at market price. The good news is, the real estate market, and especially in Miami, is far from being as liquid as the stock market, and therefore, opportunities like these are existing and truly available to people like you and me when you have the tools to identify them (whereas day traders in the stock market would be faced with many more risks and trouble identifying such opportunities in a liquid market).

Lets just keep it basic.

1-there are opportunities to buy cheaper than current value:

Any newer building in South Beach, with some floor to ceiling glass and with water views sells its 1 bedrooms in the $700Ks and 2 bedrooms from $1.2M to $1.5M (we are talking about Bay and not Beach views). These are closed comparables and people occupy those units or keep them as second homes. Look at those links to understand the current market:
2 bedrooms:
http://sef.mlxchange.com/Pub/EmailView.asp?r=785991342&s=SEF&t=SEF ;

1 bedrooms:
http://sef.mlxchange.com/Pub/EmailView.asp?r=1980611626&s=SEF&t=SEF

Conclusion: Whether these prices go up or stabilize in the next 2 to 3 years, you have to admit, even though Downtown is not South Beach, that there is still a big short term upside to investing in some similar units on the other side of the bay (5 mins from south beach) at almost half the price. (The 50% discount for a 5 minute away location is way too large).

[Example: 2 bedrooms at Bentlay Bay, direct bay view in south beach: $1.2M for 1,200 sqft / 2 bedrooms at Marina Blue (same architect, nicer building) direct bay view, start at $650K]

Here is the current outlook of average prices per sqft by relevant areas:

Relevant Areas

Avg. Price / sqft
Comments/ Projects

Miami Beach waterfront new construction

$ 1,000
-Oceanfront is in the $1,300/sqft already (W, Caribbean, Jade Ocean, Continuum 2, Apogee)

-Bay front is around $900/sqft (Icon, Bentlay Bay, Murano)

Miami Beach in-land new construction

$ 650
-Arte City, Chelsea these are typically low-rises in-land (limited amenities, no views).

Downtown Miami waterfront new construction

$ 600
-Marina Blue, Marquis, Ten Museum Park, 900 Biscayne

Downtown Miami in-land new high-rises

$ 550
-Axis, Soleil, Capital at Brickell

As you can see, there is a pretty big pricing discrepancy here: the difference between in-land and waterfront new construction pricing Downtown is almost inexistent, and account for some new construction projects underway facing the water to be undervalued.

Here are some reasons why:

1. We are now at the stage of developing the fronting line of buildings facing the water (the skyline) in a so far underdeveloped downtown. The lots on which this construction is happening were chosen first, prior to the speculation on land and the increase of construction costs. This means, within a year time frame, developers at in-land locations (2nd or 3rd lines west of the Bay) are faced with higher construction costs and higher land costs than if they had purchased a year before a development opportunity waterfront.

2. When the waterfront developers started pre-selling their development, the increase in construction prices was not obvious to banks: developers pre-sold at very cheap prices, and investors locked-in amazing prices while the developers are now facing lower margins due to higher constructions costs. On the other hand, brand new developments these days, would not get a construction loan approved if they dont secure a generous margin from scratch, and banks requirements have increased. Therefore, this increase in construction costs is now passed on to the pre-construction investor, buying at $550 to $650 / sqft in newer projects (Capital, Paramount Bay, Epic, ) when even resales in Bayfront locations are cheaper in the $550 to $600/sqft range (Marina Blue, 1800 Club, 10 Museum Park).

Conclusion: we have bayfront new constructions totally undervalued if you compare to the other constructions around. That is why I recommend all the more today resales or later stage pricing units in some older projects than first-day pricing in latest projects (disguised behind better marketing to better swallow the price increase).

For example, if I offer you a 2 bedroom (1,200 sqft), unobstructed water views for ever at Marina Blue at $650,000 on a high floor, I know for a fact, (and I challenge you to find anything to the contrary) that any newer first-day pricing development in a remote location downtown (that is non-bay front) could barely afford to even sell at this price (to get their construction loan and some margin in the development). So a better security (water views is nicer than no views for the same price), and better upside (there are no price limits for owning in the future, a piece of real estate in the bayfront skyline of a large city).

Therefore, it is clear that to the question: would I rather pay $550 /sqft for a waterfront unit delivered in 2 years or would I rather pay $650 /sqft for a unit (waterfront or not) delivered in 3 years?, I would always choose the first option.

1) Because nothing guarantees that a one year period (especially in 2 years from now) will bear an increase of $100/sqft , which is not justified by demand but merely by the fact that banks have obligated developers to pass on their higher construction costs to buyers (as opposed to those developers obligated to eat from their margins when they pre-sold at lower prices already).

2) Because there is more visibility and security to buy in later stage developments: you know whether they have secured or not they permits and construction loans, you see the construction pace, and can realize whether the promised resale program is reality (e.g. Marina Blue, 10 Museum Park, Jade Beach) or not feasible (e.g. Everglades on the Bay, 900 Biscayne, Paramount Beach).

3) Because the market will be competitive enough in 3 years, but not in 2. So those smart investors buying the undervalued units in Marina Blue, 10 Museum Park, 1800 Club or some few others coming to completion first, will probably see their resales absorbed by the First end-users in the area (especially right after the opening of the Performing Arts Center this Fall); as opposed to the 30 other buildings that will come to the end-user market the following years.

So, even though the market is speculative and has already appreciated some 30% increases in the past years, there remain obvious Short-term investment opportunities that could account for triple digit return on your cash thanks to the leveraging of pre-construction (you put 20%, have no carrying costs, and claim any gains on top of the full purchase price). I am pretty sure, that, catching up with new developments downtown, those $650,000 2 bedroom units at Marina Blue now will easily go to the $900Ks (new 2 bedroom pricing with bay views in latest developments); and catching up with the strong demand once a new construction is ready for occupancy (and some south beach prices in the $1.3M range), the million price point is far from being excluded at time of delivery in 2 years.

This is what I meant by the strong upside existing in those opportunities still.

2-if there are opportunities to buy cheaper than current value, I would add:

a. that the Downtown market in Miami is probably the only one that will bring many capital improvements to justify that growth (we saw that earlier)

b. that the pre-construction opportunities bear in themselves an uptrend in values: whether markets appreciate or not, you will always pay more when you are an end-user looking at a finished building, than when you are an investor looking at a plan and trying to visualize the space. Just look at Jade Beach and Jade Ocean pictures (www.miamiinvest.com/jadeocean) to understand that once these are ready, people will probably die to only pay $1,500 /sqft to live in such magnificent buildings. The uncertainty of their delivery is what commands the huge discount in pre-sales pricing. However, you know now that Jade Beach will be delivered and well underway, and resales are at $850/sqft; Why pay $1,000/sqft at Jade Ocean and hope it will go to 1,500/sqft, when you know Jade Beach is only 1 year ahead and already undervalued (by $250/sqft)? (2 bedroom +den at Jade Beach : $1.6M / cheapest 2 bedroom at Jade Ocean: $2.1M).

These are the kind of opportunities you can still find in this market, and that are all the more profitable on the long term that they are undervalued on the short term.

I would be happy to help you identify precise deals like that, where there is an obvious undervaluation and a large upside. You will find some of them within the Project Update below.

4. Project Update

-Epic has opened its pre-sales. Epic is in fact the Dupont Towers (www.miamiinvest.com/dupont ) ; the Phase 1 just opened for reservations. It will consist of a hotel component, and some condos released for sale from the 23rd to 44th story. The location is good: heart of downtown, right on the water. Some views however will be obstructed by Icon Brickell and Carbonel on Brickell Key, but you could still clear the buildings across and get a very nice bay view in some units. I would say the main advantage of such a project is the Developer: Ugo Colombo who is known to be one of the best high-end developers in Florida with much attention given to the details and finishes; and the partnership with the Lionstone Group, owners of the Ritz Carlton South Beach, who specialize in high-end hotel management.

Prices are around $650 / sqft:

1 bedrooms city views: in the $500Ks
1 bedrooms water views: in the $600Ks
2 bedrooms water views: in the $950Ks.

-Icon Brickell (www.miamiinvest.com/iconbrickell) : the huge project is doing well. The third and last tower is pretty much sold out now and they just opened the Bayliners, some units facing the water on the base of the 3 towers. Price per sqft is in the $600/sqft; there are no real views being sold, but rather the convenience of the Viceroy hotel in the tower (access to Spa and services). Receiving a rendering of the Spa and pool deck designed by Philippe Starck in my mail, I realized how incredible the setting would be. Icon Brickell is set to become a destination venue for any Miami visitor. The project just secured its construction loan and has started Groundbreaking for Phase 1. Delivery: in 3 to 4 years.

-W Residences (www.miamiinvest.com/w) : the condo hotel residences of the famous W resort have opened a few months ago: the building will be ready in 3 years, and sits on a key spot in south beach oceanfront.

Studios in the $950K
1 bedrooms in the $1.3M range
2 bedrooms in the $2M range
This is something I would only recommend for a long term investment (in 10 years, the rental income might become amazing with inflation and rising hotel room rates).

-Marina Blue (www.miamiinvest.com/marinablue ): many among you have purchased at Marina Blue (and I am myself of that group). The building is right on schedule and more than 20 floors have already been built. Still, there are 2 years before completion and, I would say, the best upside to come. On these pictures I took: www.miamiinvest.com/biscayneviews you will be able to preview the views from Marina Blue and see the construction status. They started putting the blue glass on the first floors, and this really shows how much of a prominent architecture this building will have. At $550/sqft for some units, it remains the most undervalued building and safest short term investment I can recommend (resales are allowed at any time from now on, and the building will be ready along with 10 Museum Park right after the opening of the New Performing Arts center, and years before the rest of the other new buildings are ready).

At $450K for a bayfront 1 bedroom and $640K for a bayfront 2 bedroom, some units are totally underpriced (when they are on top of that of reasonable size and very exclusive).

These are the once-in-a-lifetime opportunities to invest in the fronting lines of a booming Miami we talked about, and to capitalize on the urban renewal and all the value created by the Performing Arts Center and the $400M Museum Park literally across the street.

They would most likely allow returns on your cash (you are allowed to resell before closing), when you decide to resell, above 70% annualized.

Where else can you achieve that nowadays?

-10 Museum Park (www.miamiinvest.com/tenmuseumpark ) is another of those bayfront buildings (2 blocks from Marina Blue), where there are also some really undervalued resales). Think about it: how much would you value a 2,000 sqft 2 bedroom loft with direct bay views, on 2 stories with an open 20 foot ceiling living room [in a building with Clinique La Prairie Spa and other high end amenities]? Certainly not at $600 or $650 / sqft as it is right now (some are for sale around $1.3M) this is really something that could be purchased a straight $2M ($1,000/sqft) at delivery time (no other such lofts on Biscayne facing the bay and the building is very exclusive and thin). This could really be a Setai phenomenon (2 bedrooms at the Setai on South Beach 4 years ago were pre-sold at $1.3M and are now selling close to $3M however crazy that may sound when something is unique and exclusive the upside is always huge). The smart investor will quickly understand that combining 2 of those adjacent lofts, will give you a unique PH-caliber unit that could resell at delivery time anywhere above $1,000/sqft possibly

-1800 Club (www.miamiinvest.com/1800club) : is another good value (with 2 more years down the road) that I had recommended pre-construction. Some of you have bought the rotunda 3 bedroom directly on the bay in the $700Ks a year ago. For info, these now resell at $1.250M.

-Jade Beach and Jade Ocean (beach front): All information is on www.miamiinvest.com/jadebeach and www.miamiinvest.com/jadeocean

They are bound to be the one of the most beautiful and luxurious buildings ever to be built in the US (they still have 3 and 4 years respectively before completion of construction), also undervalued for the Jade Beach resales (they should probably be valued at at least $1,300 per sqft if not more by completion date; you have opportunities to buy now around $900 / sqft.

-The St-Regis Bal Harbour (new construction on the Ocean) will be opening soon. Prices start at $2M.

-A Trump in Hollywood Beach is also opening soon at $650/sqft, which should be very interesting; as well as Icon Fort Lauderdale.

-I also found a cheap resale at the Loft 2 (www.miamiinvest.com/theloft2 ; still 1 and a half year to go before delivery): a corner 2 bedroom, best line, bay view on a high floor for $450,000! We also have 1 bedrooms there in the high $200Ks the cheapest pre-construction I have ever seen.

Existing Condos:

-Trump Sonesta: (www.miamiinvest.com/trumpgrande) Condo Hotel in Sunny Isles Beach: the developer still has some units to sell that he just released. They are in the low $400Ks (/high $300Ks) for an oceanfront studio in the hotel program (40% income split) which sounds like a pretty good deal. Let me know if you would be interested.

Keep in mind some of these opportunities, as I had mentioned, will never be available again. There is only one particular timing where you can buy on a fronting line of development in the center of a major city, when capital improvements are announced but have not started yet bringing the gentrification that is bound to happen

For all those either long- or short-term opportunities that still clearly exist, feel free to contact me and ask for advice.

Best regards,

Nathanael Cohen

Cell: 646 321 1101