"What the New York real estate folks understand about Miami Beach is that it's still incredibly inexpensive relative to other world-class cities," Rumpel said. "They have a great perspective on value relative to other destinations with huge barriers to entry."
As in Manhattan, Miami Beach has limited building inventory, scarce land for development and strict historic preservation, which discourages competition.
New York attorney Robert Ivanhoe, who represents many New York investors, said they see Miami Beach as an alternative to Manhattan, where few properties are for sale and the few on the market are "highly priced."
He said his clients including the Chetrit Group, the Witkoff Group and Elliott Management think Miami Beach properties have significant potential for appreciation.
Some hedge funds and real estate opportunity funds promise investors returns of 15 percent to 20 percent, an ambitious goal that's put out of reach by New York prices, said Ivanhoe, a co-chair of Greenberg Traurig's global real estate practice.
"So, they can convince themselves that if they buy things right in [the city] and hold them for a few years and professionally run the assets, that there is much more upside in Miami Beach," he said.
The Witkoff Group, which specializes in acquiring distressed properties, is finding plenty of worthy deals in Miami Beach. The group has a contract to buy the Wyndham Garden hotel at Washington Avenue and Tenth Street, according to Greenberg. He declined to disclose the price.
Kasdin, a shareholder with the Akerman Senterfitt law firm in Miami, represents the group in the city approval process to redevelop the site.
The hotel complex has five buildings ranging from one to four stories. The Witkoff Group wants to rehab them, add another floor to the structures and build a four-story hotel.
The improvements would increase the number of hotel rooms to 181, from the current 130, Kasdin said.