Last month the new owners of the Miami Beach mansion once occupied by Colombian drug lord Pablo Escobar demolished the property citing its “negative energy.” It was a symbolic reminder of how South Florida’s drug-infested, crime-ridden days are being erased and replaced by “the new Miami” – boasting sophisticated cultural attractions, luxury real estate, improved political governance and hosting a widening array of regional and global headquarters of banks, lawfirms and corporations.
In the 1980s Time Magazine declared Miami “Paradise Lost,” awash in crime, drugs and the latest surge of 120,000 Cuban refugees during the Mariel boatlift. Miami, Fort Lauderdale and Palm Beach were among the 10 most crime-ridden major cities. In 2016, none are in the top 10, with Miami sliding to 20th place. And in spite of growing awareness of the threat posed by rising sealevels, the local real estate market is hotter than ever. Last year, foreigners spent $6.1 billion on Miami-area real estate, 36 percent of all such investment. Christie’s and Sotheby’s both place Miami in their top 10 luxury property markets worldwide.
In January, however, the U.S. Treasury Department threw a curved ball. Its financial crimes enforcement division (FinCEN) issued an order effective from March requiring title insurance companies to record and report Miami area all-cash real estate transactions in excess of $1 million. The order requires written certification from shell companies making such purchases to reveal their true owners. Officials fear criminals are parking dirty money in luxury real estate “as a place to hide it, as well as place to invest it, as well as a place to enjoy it,” said Jennifer Shasky Calvery, FinCEN director.
She added: “We are seeking to understand the risk that corrupt foreign officials, or transnational criminals, may be using premium U.S. real estate to secretly invest millions in dirty money. Over the years, our rules have evolved to make the standard mortgage market more transparent and less hospitable to fraud and money laundering. But cash purchases present a more complex gap that we seek to address.”
In November 2015, 17 percent of the 82,595 all-cash purchases of single-family homes and condos went to anonymous company buyers with an “LLC” in the name, according to the housing data company RealtyTrac. And a new report from Zillow found that eight of the top 10 markets for cash buyers are in Florida: Miami is number one. Cash buyers still make up more than half of all transactions in the Miami housing market.
Industry analysts are asking if the order will become permanent or be expanded throughout South Florida and possibly even the entire state, according to Peter Zalewski of Condo Vultures. “The Treasury Department’s order is likely to have a chilling effect on the luxury residential real estate market in Miami-Dade County as all-cash buyers who are concerned with privacy are likely to look for other destinations in which to invest their money,” he said.
South Florida has historically been a magnet for the laundering of illicit money, and it has long been suspected that Miami’s current real-estate boom has been partly fueled by tax evasion and organized crime, largely from Russia and Latin America. However, it also benefits from legitimate capital flight due to waves of economic downturns and political instability in countries, most recently from Venezuela, Brazil and Argentina.
As a result Miami has evolved from a Cuban exile backwater to a more diverse, cosmopolitan latino hub. But among those now drawn to Miami also are prestigious, global real estate investors, Middle Eastern royalty, iconic designers, financiers, and tech entrepreneurs such as Richard LeFrak, the billionaire real estate investor, ‘starchitect’ Zaha Hadid, and Jim McKelvey, co-founder of Square the mobile payments processor.
Miami’s tax advantages – there are no local or state income taxes – have long attracted new residents. With Florida now the third largest state after overtaking New York, it has also acquired political significance as the largest swing state. This year it boasts two GOP presidential candidates, Jeb Bush and Marco Rubio (both Miami-based), not to mention Donald Trump’s huge footprint in Palm Beach.
Miami’s appealing new identity is in part forged by the addition of major cultural attractions, including the Adrienne Arsht Performing Arts Center, the New World Symphony academy, the National YoungArts Foundation, and the Perez Art Museum. A series of annual events including the country’s largest literary festival, an international film festival and the Art Basel contemporary art fair, have raised its reputation for pursuits other than relaxing on the beach and night clubbing.
Havana-born Cuban exile and Harvard graduate Maria Carla Chicuen, 27, recently moved back to Miami after 10 years including stints with the World Bank and IDB to take a job as assistant to the president of Miami Dade College. She jokes a cousin used to call Miami la ciudad de mármol, the marble city. “Its appeal, he’d tell me, was reduced to mar and mall.”
But now she senses what she calls a new “vibe of excitement and optimism I had never seen here before … I’ve gone from convincing people they need to leave to finding reasons everyone, and especially young people, should consider bringing their passions here.” Chicuen, among many others, highlights the blend of real estate development in neighborhoods such as Wynwood, Midtown and the Design District with a youthful arts and tech scene.
The Design District, the brainchild of Craig Robins, one of the early pioneers of South Beach, is quickly transforming into a luxury-shopping destination. The once derelict 12 square blocks of old furniture warehouses now boast Louis Vuitton, Prada, Hermès, Cartier, Zegna, Bulgari, etc. Meanwhile, two major shopping centers — Brickell City Centre and Miami Worldcenter — are under construction on the edges of downtown.
South Florida is led by a growing class of local politicians with a more informed, pragmatic and less Cuba-obsessed worldview, and by civic leaders who embrace the ethnic diversity that once divided Miami’s neighborhoods. Yet it suffers from an ill-funded education system, a lack of mass transit systems leading to worsening traffic gridlock – efforts to raise mass transit taxes have run into opposition led by the city’s most prominent car dealer – continued political corruption, and sharpening wage inequality. Miami has the largest share of renters who spend over 30 percent of their pay on housing – the level the government deems burdensome.
Miami also has its vested interests famous for lobbying hard and getting their way. In 2014 England soccer star David Beckham’s dream of building a futuristic waterfront stadium for his new franchise was dashed by a coalition funded by the cruise line Royal Caribbean, which claimed the stadium threatened port operations.
And while Miami is now the second most entrepreneurial city in the USA, with the highest startup density at 247.6 startups per 100,000 people, investment is weak. Greater Miami attracted just $713 million in venture capital in 2014. The state is in the bottom third in tech industry concentration and ranked 24th in the nation for wages.
And at the same time as Miami’s luxury real-estate sector faces possible contraction with the advent of federal law enforcement scrutiny, the gravity of another, more existential threat is dawning on the Magic City.
Sandwiched between the ocean and the Everglades, Miami’s real estate and its fresh water supply are among the most environmentally vulnerable in the world. Although an offshore reef provides partial protection from storm surge, porous limestone bedrock makes the city more vulnerable to sea level rise coming up from below, flooding its streets and contaminating its fresh water aquifer.
Low-lying Miami Beach in recent years has gotten a nasty annual taste of what is to come in future decades from the so-called king tides in October. The flood-prone city has set aside between $300m and $400m to install up to 50 pumps to keep seawater at bay and to raise the levels of roads – while admitting that this is solely a short-term solution amid predictions the sea level will rise several feet by the end of the century.
According to a Newsweek cover story last week, experts estimate $69 billion in South Florida real estate could be flooded by 2030. Miami is calculated as ranking second in terms of assets vulnerable to rising seas. For several years, its daily high-water mark has risen by almost an inch a year, nearly 10 times the global average.
If “the new Miami” can come to terms with and mitigate the potentially catastrophic environmental risk, and can avoid becoming “the new Atlantis,” Miami may indeed realise its potential to continue its metamorphosis into a remarkable, worldclass city.