Developers Look To Cater To Influx Of Millionaires To West Palm Beach
If you're looking for evidence that West Palm Beach has earned its moniker as Wall Street South, start with the food scene.
“You have extremely good restaurants that weren’t here before,” Tricera Capital CEO Ben Mandell said this week at Bisnow’s Palm Beach State of the Market event, calling West Palm the sixth borough of New York City. “If you’re going to spend that money and be able to go to that caliber of restaurant, it’s good to see.”
A wave of migration is reshaping the economy of West Palm Beach, shifting the city from a vacation and retirement destination into a nexus of business and leading to a burst of development catering to the new arrivals, real estate leaders said at the event, held Tuesday at the 111 Olive boutique office building.
But amid the surging growth, there is some concern that the high cost of living is putting the city out of reach for South Florida’s middle class.
“If you go back to 20 years ago, this market was primarily driven by real estate, tourism and maybe a handful of personal injury attorneys,” said Dan Sheehan, president at Vista Bank. “This is a far different, diverse economy.
“It bodes well for not only real estate expansion but for diversifying the base such that you're going to remove a little bit of that historical price volatility that South Florida is so well known for.”
More than 13,000 new residents arrived in Palm Beach County from other states in 2022, The Palm Beach Post reported, ranking third in the state behind the two other South Florida counties.
The new arrivals brought $7.2B of income inflow to the county, according to Census Bureau data reported by the South Florida Business Journal. It is the second-highest level of wealth migration in Florida behind Miami-Dade County, which has 1.2 million more residents but saw only $200M of additional wealth flow to the area.
The influx of people and wealth has spurred a wave of development in West Palm Beach and created a palpable optimism among the developers, brokers and investors at the event that the city’s growth would extend well beyond new condo construction.
“These guys with a lot of money that are coming down and buying houses, they not only want the newer homes, they want newer office space too,” said Anthony Librizzi, a director at Cushman & Wakefield based in Boca Raton.
Finance, insurance, professional services and real estate firms are dominating Palm Beach County’s job growth and pushing up wages, according to a report from Jerry Parrish, Florida State University's chief economist.
The finance sector employed 73,989 people in Palm Beach County in 2021, the last year that data was available, while corporate headquarters employment saw 119% growth from 2020 to 2021, employing around 17,000 people. The real estate sector is also growing, with 66,144 professionals in Palm Beach County in 2021 generating $5.7B in income.
Real estate, professional and business services, and the finance and insurance industries together accounted for 53% of the county’s GDP growth from 2010 to 2021.
“When you start seeing those shifts, both in population and in income, it really does create an investment thesis around building new inventory,” said Nicole Shiman, senior vice president of investment at the national retail developer Edens.
New York-based Related Cos., led by Miami Dolphins owner Stephen Ross, is the developer making the largest bet on growth in West Palm Beach. Its staff in the city has swelled to around 90 people over the last six years as it executes a plan to remake the city’s urban core, Senior Vice President Jordan Rathlev said.
Related is in the process of redeveloping The Square, a collection of office, retail and residential buildings spanning 35 acres in the city’s downtown. Related and its partners developed it in 2000 as an outdoor mall called CityPlace before the firm began repositioning the area in 2017.
It acquired three office buildings starting in 2020 and developed 360 Rosemary in 2021, building its office portfolio in the city to 1.3M SF. Rathlev said Related has a 2.5M SF office development pipeline in West Palm Beach, including the 466K SF 515 Fern approved by the city in January. The firm also announced its first condo project in the area, a pair of 28-story towers at 1355 South Flagler Drive where units start at $7.5M.
“Chairman Steve Ross’s vision for West Palm Beach is to make this the model American city, and he's working very closely with the mayor on that,” Rathlev said. “That's attracting new healthcare, affordable housing and new education. We're in talks to bring charter, public and private schools to the market and higher education to the downtown to be able to grow the local workforce.”
The investment is bearing fruit, with 360 Rosemary now fully leased by tenants that include BlackRock, Goldman Sachs, the hedge fund Elliott Management Corp. and Steve Cohen’s Point72 Asset Management.
Related has grown rents at its West Palm Beach properties by between 60% and 80% over the last three years, Rathlev said. Its 25-story One Flagler office tower is slated to deliver 270K SF in April and is 75% leased, with its $110-per-SF average rent rivaling Miami’s financial center, Brickell.
West Palm Beach is working to expand its recent growth, going so far as to buy billboards in New York City in August touting the city as Wall Street South. Its business development board says it has attracted 100 financial firms to the area since 2019 and boasts that it is home to 57 billionaires and 70,000 millionaires.
“This isn't a young person's story in West Palm Beach right now,” said Andrew Dance, managing partner at real estate investment firm Brand Atlantic Real Estate Partners. “It's about people who have established themselves that are just tired of the grind in whatever city they’re coming from, and this is a great way to get away from it.”
The influx of wealth to West Palm Beach has generated rumblings of concern about affordability, even as developers concede that the high cost of debt and construction has made it difficult to build anything that isn’t aimed squarely at the country’s wealthiest buyers.
The median sale price for a home in West Palm Beach was $1.7M in October, according to Redfin, while the average condo sold for $847K. Average apartment rents were also at an all-time high of $2,445 per month at the end of the third quarter, according to Marcus & Millichap.
Joey Eichner, president of local developer Catalfumo Cos., said new development of more moderately priced multifamily stock was hampered by “astronomical” impact fees from local governments, along with infrastructure costs and the high price of land, construction and insurance.
“You're looking at $250K to $300K a unit [for new construction] before you fix it up and go high end,” Eichner said. “I can relate to that because my daughter and her fiancé are both professionals. They earn six figures each, and they can't buy a house here in Palm Beach County.”
Developers working on market-rate housing said their projects were targeting rents around $2,300 a month and conceded that there was no amount of government incentives or tax abatements that would allow them to rent for less than $2K a month. But there is still a push to find solutions that generate housing stock for people arriving in the region without millions of dollars.
“With the multifamily projects and mixed-use projects in downtown that we're working on, we're looking at how to make those projects affordable,” said Peter Stromberg, president at the architecture firm Graciastromberg.
Stromberg said he’s working with clients on projects that can “bring in a market that not only is in the $300K, $400K or $500K income range but can bring somebody in at $100K or $200K so we can keep that demographic diversity within the city itself.”
