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Middle-priced homes the buzz among builders

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Standing on a top floor of a Coral Way office building, developer Miguel Angel Barbagallo turned his back on the gleaming, pricey high-rises along Miami's shoreline and looked west.

Surveying the squat buildings and houses with barrel-tiled roofs in Miami's more modest inland neighborhoods, Barbagallo declared: ``This is my market.''

As South Florida's housing market slows down, there are more houses for sale on the high end than buyers who want them. But there's still a severe shortage of mid-priced housing that doesn't require buyers to live on the fringes of the region.

So private developers are starting to shift gears from selling the lofty dreams and lavish lifestyles of expensive condominiums to the more mundane -- but still lucrative, some say -- task of delivering middle-income housing.

''The private sector is suddenly saying, wait a minute, no one is serving the middle class, and that is where we need to be,'' said Rafael Kapustin, president of Kapustin Corp., who has a hand in two downtown Miami mid-priced projects and plans a third. ``In today's market developers also may not have much choice.''

The Related Group, a Miami company that ranks among the biggest luxury condo builders in the country, has started an affordable-housing division. A host of smaller builders are aggressively targeting the middle market.

The Miller Group and AmeriBuilt Corp. recently announced a condo project in Broward County's Pembroke Park with one-bedroom units starting at $165,000. And Restless Development, a New York City developer with a project in North Miami Beach, is marketing what it calls ``affordable luxury.''

Experts generally divide South Florida's housing market into three sectors: Market-rate or high end; middleincome or ''workforce''; and low-income. The lines between them remain inexact, but the middle market occupies the broad area between the two extremes.

For Eli Dreszner, a principal at mFm Construction, that's anywhere between $200,000 and $400,000. Related Group, which first built affordable housing when it was founded more than 25 years ago before becoming a luxury builder, pegs mid-market housing in the low $100,000s to high $300,000s.

The new race to the middle is nationwide, and it comes largely because home prices have risen far faster than wages in recent years, creating large numbers of professionals and middle-income earners who are priced out. Some developers say the volume of demand will make up for somewhat lower profits.


''This sector has been left unaddressed for so long that need has become greater and greater,'' said Oscar Rodriguez, head of Related Group's affordable housing division.

Real estate analyst Michael Cannon contends that if builders ``want to stay in the housing development business they have to get into the workforce housing market -- which they should have been doing all along.''

Still, identifying the so-called middle market and reaching it are proving to be entirely different propositions. Many builders say the costs of land, construction, insurance and borrowing with higher interest rates are simply too high to deliver homes at relatively low prices.


Also, buyers for new projects must typically make a 20 percent down payment and then wait two years for the condo to be built. Even if a unit is priced at $100,000, most middle-income earners don't have $20,000 to spend and wait two years.

Another hurdle: Recent reports in The Miami Herald of widespread corruption, waste and mismanagement of Miami-Dade County's low-income housing programs have raised new questions about efforts to make a dent in affordable housing.

''There is a lot of demand there, but the problem is you can't make any money doing it,'' said Daniel Kodsi, president of RPC Holdings in Boca Raton, who plans a luxury hotel and condo tower across the street from AmericanAirlines Arena. ``You need some sort of subsidy because if you do conventional development there is no profit in the deals.''

City and county governments are considering a variety of measures to encourage or mandate middle-income housing. But developers differ on how far government should go.

Some builders are going it largely alone by targeting neighborhoods long overlooked to get cheaper land prices. For instance, Miami neighborhoods like Little Havana and the Civic Center -- recently renamed the Health District -- are seeing a raft of new proposals for middle-income projects.

''You have to take a long time to find the right property at the right price,'' mFm's Dreszer said. ``But it can be done.''


Other developers insist they need government assistance because of high land and building costs. The help, they say, can come in various forms, such as waiving impact fees, opening up government land in urban areas for development or allowing developers to use city-owned parking instead of building costly garages.

Related, for instance, wants to build middle- and low-income housing, along with a restaurant, parking garage and offices, on county-owned parking lots pinched between the Miami River and the Richard E. Gerstein Justice building on Northwest 12th Street in Miami's Health District. Next month, the proposal is going before a county committee.


Developers also are toying with proposals to help lower the down-payment hurdle.

B Developments' Barbagallo said his lender has agreed to require only 10 percent down payments, rather than the typical 20 percent. Kapustin of Related said he is working to create a company that will help buyers finance the initial down payment -- something banks generally don't do.

And mFm Construction says it is making sales pitches directly to county and city workers, who in some cases get down payment help from their employers. They require a 10 percent deposit but allow buyers to pay as little as 5 percent initially, establishing a payment plan to make the rest of the fee before construction is completed, he said.

''This is our niche,'' Dreszer of mFm said. ``We started developing in this area because we found less competition. Now we are seeing more competitors all the time. But there is definitely enough space for a lot of competitors to come in. This is a big market.''

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