Eduardo Otaola of Constellation Group: 5 Questions

Eduardo Otaola, managing principal of Constellation Group, is building across property types and across the eastern Sun Belt, but especially in the company’s hometown Miami and nearby Coral Gables, Fla.

The company’s office development project at 4225 Ponce de Leon Boulevard in Coral Gables is on track to deliver 85,000 square feet of office space early next year. Constellation also is selling 74 condo units at Cora Merrick Park at 4200 Laguna Street in Coral Gables. And the company recently started building the Ella Miami Beach condo project at 6940 Abbott Avenue.

In addition to his development work, Otaola is an arts enthusiast who serves as vice chairman of the Coral Gables Museum. Constellation’s principal caught up with Commercial Observer to discuss post-pandemic office development, Florida’s housing demand, and more.

The following conversation has been edited for length and clarity.

Commercial Observer: Nationally, there have been a lot of questions about office space, but not in Miami, where the office market has performed well. What inspired you to do an office project now?

Eduardo Otaola: The truth is I was inspired by Related’s 2850 Tigertail office building in Coconut Grove. That gave me the idea that the office market was changing very quickly, moving rapidly in a post-COVID world where remote work was becoming an unstoppable trend that was accelerated.

In order to revert that trend and get people back in the office, employers were going to have a very tough time. My bet was that employers would invest additional monies — and tenants would pay the premium — to be located in walkable environments, fully amenitized environments that would attract back their workforce into the office.

From there, I was also very attracted by what Coral Gables had to offer, being a very tight office market with a dearth of Class A office, both new developments and existing supply. We did not have the most success in capitalizing the project at first, given that it is very difficult to close a construction loan without leasing activity. However, our investors in this project believed in the investment thesis as much as we did, and they decided to give us the backing for the construction to take place.

Shortly thereafter, we were able to finalize the negotiation with UBS to take up half the building, and now more than half of the building. Of course, that opened up the doors to many other tenants to consider [4225 Ponce de Leon Boulevard] as their destination.

What kind of rental rates are you getting there?

I’m proud to say that we have been able to meet the high-water mark in Coral Gables, and right now we are getting above $100 a foot on a gross basis.

As for condos, what are you seeing as the housing market softens?

We’re located in high-barrier-to-entry markets. I think that a lot of developments are focused on more saturated markets, which are the ultra-high-end tickets starting at $3 million and above, and the short-term rental buildings that are concentrated in downtown. 

Out of the 56 buildings in greater Downtown Miami – not counting Coral Gables or Miami Beach, just greater Downtown Miami – only six of those are considered entry-level product.

There are only so many buyers for $3 million-and-above ticket prices. And there are only so many investors willing to enter specific markets, especially given the higher concentration of investor product in the downtown area.

And then secondly, I would say that the last cycle of Coral Gables happened about 20 years ago. The product that we are comparing to, from a condo standpoint, is old and tired. So you’re seeing all those fundamentals in Coral Gables that make for a very excited buyer base.

And then lastly, I would say that the single-family market in Coral Gables is one of the tighter single-family markets in Miami-Dade County. It’s just not feasible anymore for a lot of families, young professionals and users to be able to afford single-family homes in Coral Gables. This is a great alternative. We are offering a full wellness center, a resort-style pool, a rooftop padel court. It’s overdesigned.

You mentioned entry-level buyers. What price points are you targeting?

At Cora Merrick Park, we are starting in the $1 million price point for a one-bedroom unit. That’s a new reality based on where construction prices are, based on where land prices are. 

What’s your biggest challenge?

Buyers have become extremely sophisticated. They know exactly what they want, and they are very intelligent as it pertains to the market. They’re doing their homework, going through many buildings. 

So it’s important that we are offering a competitive package and that we have differentiating factors that set us apart from any other development. And I think we’ve done a pretty good job at that in all of our projects. Cora Merrick Park has a wellness concept that I think no other project is currently offering. Our buyer is immediately attracted to that.

From a sales standpoint, the main challenge is based on the amount of new developments and new construction, maintaining your discipline on your offering — believing in your offering, and not succumbing to what a lot of other developers are doing in pricing down units, in offering extremely heavy concession packages that are not going to be sustainable in the long run. 

We’re setting up ourselves with boutique projects, and because of that we need to be very disciplined in balancing our concessionary packages. Otherwise, we’re not going to meet the margins required by our investors and lenders.

Jeff Ostrowski can be reached at jostrowski@commercialobserver.com.