Miami condo market faces moment of truth in 2008

By Jim Loney

MIAMI (Reuters) - Workers are painting, patching stucco and peeling protective plastic from gleaming panes of balcony glass at a new 1,000-unit condo called The Plaza, two towers that rise 43 and 56 stories over Miami's bank district.

A mile to the north, the exotic stonework at a new 500-unit downtown tower known as 50 Biscayne has been polished and the first residents closed on their contracts this month.

Prices in Miami's condominium market -- a poster child of the real estate boom that swept much of the United States until 2005 -- seem to have held up relatively well to date.

But the opening of a raft of big complexes has analysts predicting the market -- fueled by a frenetic construction spree that saw cranes sprout like mushrooms on the skyline -- is edging toward a cliff.

Values may be poised for a wrenching tumble in the next year as thousands of units in the downtown and Brickell banking districts are readied for residents, analysts say.

As a result, the vultures are circling. Hedge funds and private equity pools are busy scouting locations where they can snap up dozens or hundreds of units at sharp discounts to hold as rentals for up to 10 years, until the market turns.

"Everybody thinks south Florida is on sale," said Peter Zalewski of real estate consultancy Condo Vultures, who is advising private equity buyers. "They're all coming to kick the tires."

Futures traders on the CME Group exchange are predicting Miami will be the worst U.S. regional housing market over the next four years with prices falling nearly 30 percent.