Whatever your political optics no one can avoid the word “Trump” these days. So amid all of the executive orders, cabinet hearings, and media ju-jitsu doesn’t anyone else find it surprising that we haven’t heard much about the segment of the economy closest to the new President’s heart: luxury real estate?
If the sparkling, new multi-million dollar Sunny Isles Ritz-Carlton Residences sales center just north of Miami Beach is any indication of what the “Trump Effect” means for international real estate investment in the U.S., it’s already giving it a nice tailwind. It’s also a telling symbol in some ways of what a Trump Presidency represents economically and globally from the outside in.
Even during the Great Recession and Trump v. Clinton, luxury American real estate never lost its appeal to high net worth international buyers, particularly from emerging economies like Turkey, Brazil, Russia, and China. The U.S. dollar and stock markets remain strong. The rule of law still prevails. And despite recent financial disclosure requirements for residential purchases over $5 million, the American pied-a-terre is still one of the world’s safest (and most enjoyable) financial investments. Miami and Beverly Hills are also a lot more climatologically hospitable than Europe in the winter (sorry London).
That this inflow of high net worth international buyers—and capital—into the U.S. might increase with real estate mogul-cum-President Trump now in office has many developers cautiously buzzing.
“We weren’t hedging our bets on the election outcome,” says Edgardo Defortuna, President and CEO of the global real estate development company Fortune International Group, which is spearheading the Sunny Isles’ Ritz-Carlton Residences. “But on a real estate basis a lot of us (developers) are very happy. If Trump wants to give the economy a jump start through infrastructure and taxes and making investment in the U.S. more attractive it’s definitely going to have a positive impact on the real estate market so from that point of view I’m very optimistic.”
It’s actually a bit of surprise that some investors and developers are getting bullish on the U.S. luxury real estate market so soon after an election, particularly in South Florida.
Over the past year luxury properties in Miami-Dade County have taken a beating. Zika, a strong dollar, continuing economic instability in parts of Latin America, and white hot over-supply since the Great Recession have all combined to pummel luxury prices and sales down by almost 20% year over year since 2015. And despite the Dow climbing towards 21,000, uncertainty remains with respect to President Trump’s upcoming policy directives on taxes, deregulation, the EPA, and immigration—all of which have a direct impact on the ebb and flow of international real estate dollars.
So why is Defortuna, who recently secured another $163 million in construction financing for his 52-story sail-shaped beachfront tower, so optimistic?
The Bear (Market) Is Back
For starters, say many people on the ground in Miami—the “Russians”.
Notwithstanding the recent resignation of General Flynn as National Security Advisor over his conversations with the Russian ambassador, the mere possibility of a Trump “reset” with Putin and a diplomatic thaw appears to be breathing oxygen back into the Russian appetite for American real estate. In the months leading up to the 2016 U.S. Presidential election—just as the Defortuna was breaking ground on his Ritz-Carlton Residences project— the number of Russian buyers searching for luxury properties in Miami-Dade County surged to its highest level since 2013.
High net worth Russian buyers largely went soft during the Obama administration. So the current Russian reset has potentially far reaching implications for U.S. foreign investment, the domestic construction economy, and the continued growth of speculative real estate markets in coastal cities like Miami, New York, and Los Angeles where the most expensive buildings are often occupied by up to 70% in-absentia, foreign “residents”...