Developers On Leveraging Live Local Act With 'Scared To Death' City Politicians
The owner of the Clevelander South Beach lost many of its hospitality workers during the height of the pandemic as patrons stopped frequenting the hotel and bar.
Jesta Group, the Canadian investment firm that owns the Miami Beach hot spot, tried to bring in new staff as the pandemic waned but found that a wave of migration to the city had pushed rents up and forced many hourly workers out of the area and into the city’s periphery.
The staffing struggle is part of the reason Jesta is now looking to redevelop the property into luxury condos and workforce housing using the provisions of a new state law, said Anthony O’Brien, the firm's senior managing director.
“It’s become a major issue for the hospitality industry,” O’Brien said this week at Bisnow's Florida Multifamily, Mixed-use, Condos and Affordable Housing Summit. “In order to have luxury real estate, in order to have resort destinations, you need the people who are actually going to work in these locations.”
Jesta's 18-story proposal has generated strong pushback from the city's politicians for being too dense, but Florida’s Live Local Act could allow it to proceed over local objections if it provides a certain level of workforce housing.
The lack of housing has become one of the largest problems facing Miami today, and Live Local is creating an opportunity for developers to address the need even as questions loom over its implementation and some communities balk at the loss of local control, speakers at Bisnow’s multifamily summit said.
Some developers are looking to use the law to force the approval of their projects, while others are using its provisions as a leverage point in negotiations with local governments, said Timothy Peterson, the chief investment officer at Altman Development Co.
“There’s a bunch of city councils that are scared to death,” Peterson said. “What they’re saying is, ‘Don’t bring this in under Live Local, cram it down our throat, come work with us and we’re going to work with you.’ Instead of the council having the only Billy club to beat us senseless, we now kind of have one, too. The discussion is more balanced.”
The law's target — the need for workforce housing — is only increasing as rents in Miami are among the highest in the country and workers are forced to move west of Miami’s urban core where homes are more affordable, speakers said at the event, held Tuesday at the Four Seasons Hotel Miami in Brickell.
“One of the biggest challenges today — in this world where many of the markets have become unaffordable to live in for a number of people — is allowing teachers, food and beverage workers, hospitality workers, and all these people to live near where they work,” said Camilo Miguel, the CEO of Mast Capital.
The Live Local Act has had some success in shifting the dynamics of multifamily development in South Florida, event panelists said. The law has a broad range of provisions that include tax abatements for developments with at least 40% of their units set aside for workforce housing.
“Every project that we look at, we run it through the Live Local model,” said Hugo Pacanins, the chief of Pinnacle Housing Group's market-rate division. “A lot of deals that maybe didn’t pencil a year ago — although they're still hard to pencil because of rates and costs and all of that — they might be workable because of the tax abatements.”
The implementation of Live Local, however, is facing headwinds in some South Florida localities.
The law requires municipalities to provide administrative approval without a public hearing to projects that fit its broad definition of affordable and workforce housing, which includes units set aside for residents making up to 120% of area median income, an $89,640 salary for a single person.
It allows developers to build projects as tall as any building within a 1-mile radius of the project’s site and blocks local governments from putting density restrictions on those developments.
Those provisions have rankled many municipalities by taking away some aspects of city planning that have historically been done on the local level.
The shift has led some local governments to look for ways to avoid implementing the law. Doral, for instance, approved a six-month moratorium on accepting development applications that leverage Live Local.
In Jesta Group's case, it originally proposed a 30-story condo and apartment building on the site in September but, after facing criticism from Miami Beach officials, trimmed the project to 18 stories a month later.
After submitting its proposal to Miami Beach, the city’s planning director still raised objections to the project, telling Jesta that the plan conflicted with the area’s development rules and went beyond the regulations governing floor area ratios.
Jesta Group's position is the state is likely to provide further guidance that will force Miami Beach to eventually approve the project, O’Brien said.
“I think there needs to be a cleanup bill or two tied to Live Local,” he said. “There are some fuzzy areas like floor-area ratios, it wasn’t discussed whatsoever in the act, and yet our opinion is that it’s pre-empted” by the density and height provisions of the law.
Live Local is going to gain momentum as projects win approval under its provisions, O’Brien and other speakers said. Demand dynamics in the area are also shifting as a wave of luxury housing comes online while the workforce and affordable sectors remain undersupplied.
“Gone are the days of luxury real estate being our No. 1 go-to,” said Rosemary Calcese, an attorney and owner of Transformation Title, a Tennessee-based firm that assists developers in the entitlement process. “Those people are always cash buyers, people that are not interest rate sensitive. If you want to capitalize on where the market sits today, you should pivot and figure out how to do affordable, attainable or workforce housing.”
Pushing into the non-luxury space can also unlock financing options at a time when high interest rates and a lack of liquidity have put construction loans out of reach for many developers, said Chris Black, a senior vice president at KeyBank, a subsidiary of Cleveland-based KeyCorp.
“The middle demand is not being met right now, and that’s probably the greatest opportunity in the state of Florida,” Black said. “Not all lenders necessarily want the biggest, brightest, shiniest, high-rent, double-A class luxury field client,” he said.
While there is optimism that the law will unlock the development of workforce housing, housing advocates have expressed concern that the income allowances to qualify under its provisions will still leave many residents struggling to find a place to live. A studio apartment restricted to 120% of AMI could still be rented for around $2,200 a month.
Hilda Fernandez, the CEO of the homeless advocacy group Camillus House, said her nonprofit’s homeless prevention hotline was seeing a wave of calls from long-time Miami residents. Older adults, many of whom are on fixed incomes, are being forced out of their apartments as landlords react to strong demand by increasing rents, she said.
“Affordable and attainable are not synonyms,” Fernandez said. “They cannot afford something at 80% of AMI, and they certainly cannot afford workforce housing at the levels that workforce housing is being funded right now.”
The high cost of land, debt and construction are all impeding the development of new housing for those lower income levels. Developers are forced to make tradeoffs on amenities and look for innovative building strategies to offset costs even when they build workforce projects.
Local developer Resia has invested in automation, using workers to build shells on site but using machines offsite to manufacture project elements like kitchen and bathroom components, Resia Director of Business Development Gus Cabrera said.
“Robots don’t need to take breaks, there’s no HR department for robots,” he said. “So you’re able to create some efficiencies, and those efficiencies create cost savings that make deals work.”
Government policies are also hindering the development of affordable housing, said Donahue Peebles III, executive vice president at The Peebles Corp.
Affordable projects with government funds have to fit within environmental, social and governance regulations that outpace what’s being adopted by the private sector, he said, which often makes affordable development unprofitable or reduces the number of units that a project can sustain.
“Is it better to make sure projects aren’t contributing to an increase in emissions,” Peebles said. “Or is it better to make sure there aren’t tents in public parks?”