Miami’s Real Estate Boom Could Continue to Echo: Forum

Earlier this year, Savanna launched a luxury condo project in West Palm Beach, marking its first development outside of New York. Even as the COVID-19 health crisis fades, and interest rates are at their highest levels in 22 years, South Florida is still riding high from its pandemic-fueled bull market, speakers on various panels and in one-on-one conversations concluded. 

Demand from both foreign and domestic buyers remains strong, according to some of the region’s biggest developers in attendance, including Related Group’s JP Pérez, Terra’s David Martin, and Royal Palm Companies’ Daniel Kodsi. 

The added demand has helped elevate neglected neighborhoods. 

“I remember 20 years [ago] having people come to me and say ‘There’s only one place I want to live and that’s Miami Beach.’ Today there are so many more neighborhoods where people want a home,” said Jay Phillip Parker, CEO and president of Douglas Elliman’s Florida brokerage. 

These new districts include massive developments such as Miami Worldcenter, a 27-acre project in Downtown Miami, and Solé Miami, which managing partner Nitin Motwani and Jackie Soffer, chairman and CEO of Turnberry, are heading and were both in attendance.

Key to successfully creating a new neighborhood is inclusivity, according to Craig Robins, CEO and president of Dacra, who managed the development of the Miami Design District. The 18-city block district may be home to luxury stores, but museums and most events remain free. 

Despite the headwinds associated with the real estate industry, the party may not be over for Miami developers. Financial juggernaut Citadel relocated its headquarters to Miami last year, and many of its hundreds of employees are scheduled to follow suit in the coming years. 

“That is going to sustain growth over the next few years,” said Mast Capital’s Camilo Miguel Jr., who is developing high-profile projects such as the Cipriani-branded in Brcikell and the OMA-designed condo tower known as The Perigon Miami Beach.

Miami offices have bucked national trends that have seen values decline amid high vacancies, and instead remain attractive propositions — something that Cain International’s Justin Oates witnessed firsthand. He oversaw the development of 830 Brickell, the first office tower erected in Miami in a decade. The project, which is fully leased, shattered Miami’s rental rates, commanding asking rates well past $100 a square foot.

The demand remains so strong that developer Don Peebles of the Peebles Corporation said he is eyeing an office project. Stephen Bittel, founder and chairman of Terranova Corporation, bought an office building in Coral Gables just last month, which he believes is primed for repositioning.   

Even inflation has become “a good friend” to South Florida, given the region’s reliance on the hospitality sector, contended Karim Alibhai, founder and principal of Gencon, who’s developing the waterfront site of the Miami Hyatt Regency into a massive luxury mixed-use project. Unlike retail, offices and residential leases, which are typically executed through long-term deals, hotels have daily leases, allowing them to capture additional revenue nowadays.

Despite the good times, speakers at Commercial Observer’s forum did acknowledge that challenges remain for Miami. 

While the Big Apple gets a bad reputation from the real estate community for its bloated government, municipalities in South Florida have stringent requirements, too. Miki Naftali of the New York-based Naftali Group said he was shocked to discover that, unlike in New York, projects in South Florida must still get approval from city boards even if they meet all zoning requirements, 

New developments have slowed down the approval process. “It used to take us six months to get building permits. Now it’ll take us 14 months,” said Dan Kaplan, who runs Property Markets Group’s Florida office alongside Ryan Shear. 

Insurance is getting expensive, which is perhaps posing the biggest threat to new development in South Florida. That’s according to Fred Zutel, president of insurance brokerage Lockton Companies, and Greg Newman, a senior managing director at Bank OZK (OZK).

Lenders are part of the problem sometimes. They require so much coverage to a point where “it doesn’t really make sense,” said Asi Cymbal, chairman of Cymbal DLT Companies. 

But solutions do exist. Stronger materials, such as composites, are becoming cheaper and more readily available. These are likely to strengthen future structures and their use should be made mandatory through updated building codes, said Patrick Murphy, executive vice president of Coastal Construction.

Like the rest of the country, South Florida has been hit hard by interest rate hikes. Finding enough capital has become difficult, said James Curnin, CEO and founder of Clara Homes. “Lenders are still lending — but not as much as before.”

Part of the reason is that most banks are lying low, and only private lenders are willing to offer attractive terms to developers, according to Steven Sperandio, head of debt and structured finance at Ripco. 

To hedge his bets in these turbulent times, Daniel Lebensohn, co-founder and co-CEO of BH3 Management, said he is willing to pay up for projects with developers that have a good track record.

Developers are also finding creative solutions, as MG Developer did when it launched a luxury condo project in Miamii earlier this year. Instead of building a high-rise, as is typical in Miami, it opted to build horizontally, turning over a few units to buyers, proving the strength of the project to lenders before securing a construction loan. 

“Just by changing the format of our projects gave our lender a lot of comfort,” said Catie Naranjo, MG’s chief development officer. 

Some challenges extend beyond real estate. Florida public schools have fallen in national rankings. This issue is “not just about education. It’s about the health of our economy,” warned Leslie Miller Saiontz, founder of educational nonprofit Achieve Miami.

“If you want to be a founding shaper of New York, you’d need a time machine. If you want to be a founding shaper of this community, pull up a chair,” said Rebecca Fishman Lipsey, president and CEO of philanthropy booster The Miami Foundation. “Give loudly and proudly!”

Julia Echikson can be reached at jechikson@commercialobserver.com.