With at least seven new commercial and residential projects in the works this year, the real estate industry is betting on a rebound in the city.
Backed by a quarter-billion dollars in fresh financing and a conviction that Coral Gables will be the first South Florida enclave to experience a real estate rebound, a handful of developers are building again in the City Beautiful.
The downtown section of Coral Gables, around Ponce De Leon Boulevard, is the epicenter of the mini-building boom, with luxury apartments and office buildings — not condos — taking center stage.
There are at least seven new projects either under construction or scheduled to break ground soon in Coral Gables in the most active building flurry in the last five years. Developers and lenders have pinpointed the Gables as a hot market, said José Antonio Perez Helguera, whose company, Agave Holdings, has invested more than $150 million in the Gables and now owns about six acres of developable land near Ponce Circle Park.
More than two million square feet of new space is set to hit the market over the next three years, coming in the form of newly minted offices and luxury apartment communities.
“Coral Gables has always preserved its value better than 99 percent of the other municipalities in Miami-Dade,” said Robert Behar, whose architecture firm is designing a new luxury apartment near the Village at Merrick Park. “These investors are looking at the Gables as the first and primary location to start development.”
With its affluent population, proximity to Miami International Airport, and a business district that is home to more than 175 multinational companies, Coral Gables has long been viewed as a haven of economic stability in South Florida’s varied and volatile marketplace. Builders are flocking to cash in on that stability, with a fervor rivaled only by downtown Miami, which is gearing up for the second wave of its historic building boom.
The new projects could create up to 1,000 additional residential units and house dozens of additional companies and restaurants—numbers that reflect the real estate industry’s bet on a strong economic rebound in Coral Gables.
Many of the projects, originally approved during the housing boom last decade, have been waiting for the economy to show signs of improvement. That they are moving forward now is a sign city leaders say indicates a rebound has begun.
“A lot of this stuff started years and years ago,” said Coral Gables Mayor Jim Cason. “Then our real estate values went down. This year they’ve gone back up.”
According to research by commercial real estate brokerage Cushman & Wakefield, Coral Gables is South Florida’s second most active market for office space construction, behind downtown Miami.
Still, the Gables’ economic stability is not bulletproof. Multinational business and the city’s strict development policies could not fully stave off the turmoil caused by the Great Recession and the real estate bust that followed South Florida’s building boom.
Many developers who originally bet that Coral Gables could buck market trends during the 2008 financial downturn either fell into foreclosure or were forced to sit on undeveloped land for years.
Now, industry watchers say those foreclosures and land banks are clearing the way for a wave of post-bust development, providing opportunities for new players to buy property and build at bargain prices.
And banks are coming off the fence as well, pumping hundreds of millions of dollars into Gables development while much of the greater South Florida market remains starved for financing. At least $250 million in construction financing is backing the projects in the pipeline.
But the banks lending to excited developers have reasons to remain cautious, analysts say. Office vacancy rates in Coral Gables are still higher than pre-recession levels, and new projects coming online heighten the threat of oversupply. Miami’s unemployment rate, which ticked up to 13.4 percent in June, is a stark reminder that many businesses have downsized and don’t plan on adding workers or expanding any time soon.
According to a recent report by commercial real estate firm Studley, Coral Gables’ Class A office vacancy rate stands at 18.9 percent, an above-average figure that could be pushed higher when new projects come online. Average monthly rental rates are about $32 per square foot, and many of the new developers are hoping to get $40 to $55 when their projects open.
Diana Parker, a director with Cushman & Wakefield, said those prices will begin to look more realistic as the economy improves over the next couple years.
“To be clear, it is still a tenant’s market today,” she said. “But it is not the bloodbath market that the landlords experienced this time last year. We’re very bullish on the future of Miami’s office market.”
Analysts are even more optimistic about the rental market, where demand is already rising rapidly and landlords are cashing in on increasing rent prices. A recent report by real estate firm Marcus & Millichap forecasts sustained growth in the rental market as vacancies fall and prices improve in the luxury sector.
Here’s a look at the Coral Gables projects:
The only major project scheduled to open before the end of the year is 396 Alhambra, a $140 million, 15-story tower that will add 273,000 square feet of Class A offices and retail space.
Highlighting the role of international investors in South Florida, the project was backed by Agave Holdings, a cash-strong developer based in Mexico. Agave infused the project with capital in 2009, a time when financing was all but shut off for most local investors. It was the company’s debut in the United States, and the choice of Coral Gables was a deliberate one, said Perez Helguera, managing director for the company’s U.S. arm.
“We’ve been focusing on Mexico City in a small corporate zone that was sort of like Coral Gables,” he said. “We think that particular area in Miami is the kind of market that we look for because it’s a great long term investment.”
Lease rates are expected to start around $40 per square foot, and Citibank has already signed on to set up shop as the ground floor tenant when 396 Alhambra opens.
Gables Ponce Apartments
As the apartment sector heats up region wide, developers like Gables Residential are looking to meet the demand for high-end rentals in the Coral Gables market.
The Atlanta-based company broke ground on a new luxury complex at 4585 Ponce de Leon Blvd. in June, and plans to bring the project to market next year.
“The capital markets have eased up a bit and things are moving in the right direction from a capital flow standpoint,” said David Fitch, CEO of Gables Residential. “The rental market has firmed up, and we are seeing growth in this area.”
The lack of financing put a halt to real estate construction during the recession, creating a shortage of units to rent, Behar said. Gables Residential was forced to sit on the land it purchased in 2007 for nearly four years before the financing — $50 million from PNC Bank — came through this spring.
The project is projected to add 250 units — as well as a ground floor of retail space — to a market that has not seen such a large project in several years. Fabio Rodriguez, director of development for the company’s South Florida projects, points to a shortage of luxury rentals in the high-income city: Only about 300 units have been built in Coral Gables since 2006.
“I think we’ll get empty-nesters, professionals and graduate students from UM,” said Rodriguez. “I think because of Coral Gables and all the international companies, we’re also going to get a lot of ex-pats and internationals. It’s going to be a sampling or a mix of what we have in this community.”
Two of South Florida’s prominent business families have joined forces to enter the Coral Gables office market. In June, the Mas family’s Mas Group and an affiliate of the Zubizaretta family’s Zubi Advertising broke ground on The Building, a 58,000 square-foot project at 2990 Ponce de Leon Blvd. The mixed-used building will house the two companies’ headquarters when it is completed.
Backed by more than $12 million in financing from HSBC Bank and investments from the two family businesses, the boutique project is looking to make its niche among smaller companies.
“The [other] buildings that are going up now or are planned are much bigger than us,” said Alberto Perez, who is developing the project for the families. “We have a boutique Class A building, and there’s a considerable amount of [potential] tenants looking for between 1,500 and 5,000 square feet.”
The Building is set to open in 2012, and lease prices are about $40 per square foot.
Old Spanish Village
Once slated to be Coral Gables’ most grandiose mixed-used community, Old Spanish Village fell victim to the recession before Ponce Circle Developers’ $400 million vision could materialize. The project, which was designed to include 195 Spanish-style townhouses, cobblestone streets and a gleaming office tower, instead joined the ranks of foreclosure when FirstBank Puerto Rico seized the stalled property from developer Ralph Sanchez in March.
After languishing for three years, the Old Spanish Village site at 2901 Ponce de Leon Blvd. is slated for a renaissance — Agave Holdings paid $30.6 million to buy the bare, 5.8-acre plot near Ponce Circle Park in July.
The company has not yet drawn up plans for the space but said the bargain price gives it flexibility to decide how to move forward.
“We saw this opportunity fall into our hands, and we see it as a very good potential investment because of the price,” said Perez Helguera. “We want to first understand what we bought. We know that there are a lot of things and components that we can do with this project.”
The plot is approved for more than 700,000 square feet of townhomes and retail space, and Agave said it is working with the city to draft a fresh plan.
Coral Gables’ city government is notorious among developers for its strict rules and detail-oriented approval process, an approach that some say has helped the city avoid the overbuilding that has plagued other municipalities.
“Coral Gables does controlled development,” said Behar, who sits on the city’s planning and zoning board. “You’ve got to go through a number of different boards to get approval. And it’s clear that quality is very important.”
Ponce de Leon Towers
In 2008, real estate firm Allen Morris Co. purchased the office component of Old Spanish Village for $24 million, and razed the existing building in preparation for a shiny 16-story tower at 2801 Ponce de Leon Blvd.
The developer has not begun construction, but has secured a number of tenants.
“We’d like to be about 50 percent pre-leased before we start the project,” said Allen Morris, company CEO. “We already have about 15 percent pre-leased, including the commercial real estate firm The Rockefeller Group.”
Morris said the 16-story project could be open for business in the next three years and, in the meantime, he’s searching for other real estate deals in the neighborhood.
“We’re very bullish on Miami and very bullish on Coral Gables,” he said.
A few other projects are in the works in Coral Gables:
• Merrick Manor, Le Jeune Road and Altara Avenue: Miami-based Astor Developments is looking to build a luxury apartment complex along a stretch of Le Jeune that currently houses Coral Gables’ trolley yard. Astor began formal negotiations with the city last month, offering to do a land swap with the city and pay for the construction of a new trolley facility a short distance away. If the city approves, the 188-unit project could be completed in 2013.
• Palace at Coral Gables, 30-45 Andalusia Avenue: Another beneficiary of a loosening credit market, Miami-based Palace Group broke ground on a 243-unit senior rental community this month, three years after winning a city contract to build housing for seniors. Last month, TD Bank agreed to provide a construction loan of nearly $49 million for the project, which will cater to both independent-living and assisted-living seniors. The Palace at Coral Gables, just south of Miracle Mile, is slated to complete construction in early 2013.
• Miracle Mile and Restaurant Row Streetscape Initiative: Coral Gables city leaders are undertaking their own development program, hoping to spruce up the downtown area with more pedestrian-friendly touches. The initiative, approved in January, is still in the developmental stages, but the idea is to help Miracle Mile compete with places like Lincoln Road and Mary Brickell Village.
“Just as businesses today must continually reinvent themselves in order to stay successful, cities need to do likewise,” City Manager Pat Salerno wrote in a memo announcing the program. “This multiyear initiative is part of the continuing evolution of the city and will be the most ambitious downtown transformation in the history of the city.”
Source: The Miami Herald
By: TOLUSE OLORUNNIPA