Office Developers, Miami Beach Wants You — With Some Caveats
Miami Beach is known for sun, sand and hotel rooms. City leaders say it's also a great place for an office.
With high-profile businessmen like Barry Sternlicht and Carl Icahn having moved to the Miami area, part of an exodus from high-tax states to business-friendly Florida, the city of Miami Beach is seeking letters of interest from developers who might want to create Class-A offices on three parcels near the outdoor retail district, Lincoln Road. The parcels are currently being used as surface parking lots. They are 37K SF, 49K SF and 60K SF, respectively.
In 2018, billionaire Barry Sternlicht announced that he would be relocating his Starwood Capital Group from Greenwich, Connecticut, to Miami Beach by 2021, a move that is underway. Billionaire investor Carl Icahn this summer moved his Icahn Enterprises team to Milton Tower in Sunny Isles Beach. Simon Ziff and entrepreneur Wayne M. Boich's Boich Cos., a family investment office, is building a five-story mixed-use building in Sunset Harbour, and Related Group is planning low-rise offices on Terminal Island.
City Commissioner Ricky Arriola told Bisnow that the Terminal Island project is being tailored for billionaire hedge funder Ken Griffin, founder and CEO of Citadel. About five years ago, city officials began focusing on the need to diversify its tourist-dependent economy, Arriola said.
"That became painfully clear to me as well as others after Zika. Our local economy suffered quite a bit," he said. "In 2017, when the new tax law was enacted, it became really clear people from high-tax states were coming to relocate, and that's when you started to see the boldface names move down on a permanent basis."
Lyle Stern is president of retail leasing and consulting firm Koniver Stern and a board member of the quasi-governmental Business Improvement District that brings together the 85 or so landlords on Lincoln Road, which for years functioned primarily as a lively outdoor shopping mall.
The BID has been promoting the idea of transforming Lincoln Road for mixed uses and developing a centralized business district. Stern told Bisnow that commercial real estate brokers began hearing from residential brokers who sold homes to its new well-heeled residents that while Miami Beach has some scattered office space, it didn't have enough in areas they wanted to be in.
"We didn't have a lot of vacancy in the Class-A buildings that we have, and the newest is 10 years old," Stern said.
There's office vacancy in downtown Miami, but to travel between the beach and the mainland requires a car trip over a busy causeway. In more pedestrian-friendly Miami Beach, people can easily walk, bike or scooter between their residences, workplaces, boats and the beach.
In January, city leaders had asked CBRE to advise on possibilities for its underutilized real estate assets. A Land Use and Sustainability Committee had found that there is already about 3.8M SF of office space in the city: 938K SF of Class-A space, with 9% vacancy, and 893K SF of Class-B space, with 11% vacancy, plus another 250K SF.
CBRE found that "a considerably large amount of supply will come online within the next year and net absorption of Miami Beach Class A properties is forecasted at 32K SF annually between 2021-2025," according to procurement documents prepared by the city.
CBRE noted that Starwood Property Trust is building a new 160K SF headquarters at 2340 Collins Ave. and is already soliciting tenants for 50K SF in that building. When the company relocates from its current site at Lincoln Place (1601 Washington Ave., a privately owned building operated under a long-term ground lease on city-owned land), it will leave 150K SF vacant. CBRE suggested courting more companies in the alternative investments or financial services industries.
CBRE's Office Market Report for Q2 reported that the average Class-A rent in Miami Beach is $48.60 PSF and that the asking rent for Starwood's new building is about $72 NNN. If Starwood is unsuccessful in filling its space, office vacancy rates in the city would jump to about 21%.
Asked why the city was courting more office development given the vacancy concerns, Arriola said the space will be absorbed in the years it would take to construct new buildings. Asked why the city wouldn't incentivize workforce residential development instead, he said it's already doing that in North Beach, and that current regulations already allow residential developers bonuses in calculating floor area ratio and that incentive doesn't exist for office developers.
He said the city has to seize the moment now, when financial leaders are moving to Miami and paying top dollar voluntarily, rather than needing to be lured with more incentives.
"What we are offering is a prime location in one of the great American cities for someone to put their headquarters," Arriola said. The city would be offering a ground lease, not a sale of the lots, but all other details are subject to negotiation, he said.
In its materials seeking interest in the parking lots, the city warned that any future development there would require replacement parking for paid public use, and would likely involve either a sale or lease of more than 10 years, thus also require approval by a majority of the voters in a citywide referendum.
On Facebook, some residents decried the city's call for office development, seeing it as a giveaway of public assets for developers. Miami Beach voters on Election Day shot down a proposal from Terra Group to take over a city marina and buy air rights to construct luxury condos.
The city isn’t yet asking for specific proposals. If it gets enough expressions of interest, it will issue a formal RFP. A deadline for questions is Dec. 21, and for letters of interest, Jan. 11, 2021.