CITY HIGHLIGHT, JUNE 2004

MIAMI FOLLOWS PATH OF GROWTH

For the most part, commercial real estate in Miami is in good shape — or at least showing signs of improvement. The office, multifamily and retail sectors continue to benefit from population growth and a successful business environment. The industrial market, however, has slowed over the last several years.

Office

Trophy Class A office towers, such as 701 Brickell shown above, will enjoy proximity to new luxury retail, residential and hotel development laden with high-end amenities, which is creating a “Manhattan-like” environment for tenants in the CBD.

Reasonable expectations for improving market conditions are expected as the U.S. economy is showing signs of strength. The national economy is poised for steady growth this year, according to LaSalle Investment Management. The real estate sector, however, will have to wait until the second half of 2004 or 2005 to feel the effects of any recovery. While the pace of job creation remains uncertain, the good news is that new jobs will be dominated by office-based services, along with education and healthcare as leading categories.

Miami’s outlook still remains bright as this marketplace continues to garner some interesting and positive accolades, getting a big boost in the first quarter as continued confidence in its financial future was reflected by two elevated bond credit ratings — all within a week. The Herald reports that Standard & Poor’s ranked the city A+, representing a “three-notch upgrade,” while Fitch Ratings, the world’s third-largest bond-rating agency, moved its opinion from BBB+ to A-. Last year, Moody’s raised its ranking of Miami to A3. Miami was also ranked among the top 25 places to do business in the country (Inc.) and ranked eighth nationwide as one of the best cities for entrepreneurs (Entrepreneur).

An improved business environment, coupled with competitive pricing, yielded greater commitments to area landlords. Tenant confidence was evidenced by strong leasing activity in the central business district and impressive positive net absorption in the suburban sector of Coral Gables.

Within the Class A segment of the market, the most discernable trend was the dramatic reduction and, in some cases, complete elimination of sublease availabilities. Of the seven suburban submarkets, three reported virtually no Class A sublease space while the two largest, Coral Gables and Miami Airport, reduced their sublease availabilities by 27 percent and 85 percent, respectively. Kendall’s reduction in sublease space exceeded 35 percent while Miami Beach’s remained unchanged, at less than 10,000 square feet. Among the prized competitive trophy towers along the CBD’s Brickell corridor, absorption of sublease space reduced availabilities by 90 percent. In Downtown, Wachovia Financial Center, the city’s largest office building, was the only one of the three competitive Class A towers recording an increase in the amount of space available for sublease during first quarter.

Despite good leasing activity, no significant changes were recorded in Miami’s vacancy since the last quarter — landlords are still battling 7 million square feet of vacant space. Fortunately, nearly two-thirds of this year’s estimated new construction (802,000 square feet) has been delivered with most of the space in the new CBD buildings now leased. In addition, Hines’ suburban project in Coral Gables, scheduled for a mid-year 2004 delivery, is currently one-third pre-leased. No new product in any submarket is reasonably anticipated until 2007. This, coupled with anticipated business expansion, would provide the best opportunity for Miami to absorb its excess space.

— Jay Perkins, senior vice president and regional leasing director – Florida,
leasing and management, Jones Lang LaSalle

Multifamily

Miami-Dade County ranks as the top apartment market in the nation with occupancy rising and rents gaining momentum. Demand from both apartment dwellers and apartment investors has picked up in 2004. M/PF Research is showing occupancy at 97.7 percent and rent growth of 5.1 percent for the first quarter 2004. Year-to-date apartment sales in 2004 are nearly $600 million (approximately 83 percent of the sales went to condominium converters) and another $500 million in apartment assets are on the market.

Valencia Apartment Homes, developed by Lane Investment & Development, is a brand new Class AAA mid-rise in South Miami.

Condominium conversions continue to fuel the investment sales market in Miami-Dade County (approximately 7,000 units have been converted since January 2002). Driven by the low interest rate environment, demand from international investors and lack of affordable housing in Miami-Dade County, condominium conversions, once restricted to waterfront high-rises on the beach, have moved to western submarkets, such as Kendall, where conversions of older garden-style properties are the norm. The recently announced condominium conversions of Le Parc in Kendall, Mirador on South Beach and the Village on Bayshore Drive will take approximately 2,100 units out of the rental apartment supply over the next few years.

Infill mid- and high-rise condominium and apartment developments are dominating the skyline in Miami-Dade due to a lack of land available for development. Apartments under construction include Valencia Apartment Homes by Lane Investment & Development in South Miami, Brickell View by Summit Properties in Brickell, Park Place at Brickell by Rilea Group in Brickell and Village on Bayshore Drive by Finger Companies in the Media Arts and Entertainment District.

Look for the skyline of the Brickell area to be drastically altered over the next few years as developers break ground on an influx of new condominium and apartment developments. There are 3,000 units under construction in the area, and another 4,000 are in the pipeline.

— Avery Klann, vice president, Apartment Realty Advisors

Industrial

Industrial development in Miami-Dade County has slowed considerably over the last several years. Developers are finding it increasingly more difficult to acquire new land and derive profits with the current economic climate and skyrocketing land prices due to scarcity of industrial acreage.

Speculative construction has been abandoned over the past year in favor of build-to-suit projects due to a soft rental market. Warehouse condominium development has comprised the majority of speculative construction as developers cater to small- to medium-sized businesses seeking to take advantage of low interest rates and purchase space versus lease.

Beacon Lakes and Pan American North Business Park are two significant developments in progress. Beacon Lakes is a 432-acre project, developed by Codina Group and AMB Property Corporation, which is planned for 6.6 million square feet of industrial space located at NW 25th Street and the Florida Turnpike in the Airport West submarket. Beacon Lakes is significant due to the fact that it is the only new Class A space entering the market. Pan American North Business Park is a 160-acre park, located at the Florida Turnpike and Okeechobee Road in Medley, which offers land sales and build-to-suit development. Sysco Food Services recently completed a 573,000-square-foot facility in the park.

Airport West and Medley are the most active markets in terms of development due to their proximity to Miami International Airport, major thoroughfares and their inventory of developable land, which is dwindling fast. Codina Group and Flagler Development are the most active developers in the area — Codina with Beacon Lakes in Airport West and Flagler Development Corporation with Flagler Station in Medley, which will house Ryder Systems’ new $40 million facility.

The lack of available developable land in Airport West and Medley will generate opportunities and creative transactions in other submarkets like North Central Dade and East Hialeah in the near future.

Overall vacancy for the county is currently 9 percent and average asking gross rental rates have remained relatively flat at $6.10 per square foot over the last year.

— Wayne Ramoski, senior director of industrial brokerage, Cushman & Wakefield of Florida, Inc.

Retail

South Florida is still benefiting from impressive population growth, its prominence as a finance and international trade center, and low interest rates. Rental and occupancy rates have remained stable, transaction volume and pricing continue to escalate, and cap rates have dipped to record lows. Although new development has been limited, demand remains high for all product types.

With more than 20 high-rise residential projects currently under construction in Miami-Dade County, the retail sector is sure to benefit. A $50 million, three-story retail center is proposed for a parcel bordered by Lenox Avenue, Alton Road, and Fifth and Sixth streets. The project will be comprised of 180,000 square feet of retail space and a parking garage. Miami developer Jeff Berkowitz and partners Alan Potamkin and Robert Potamkin are hoping to strike a deal with Publix to occupy 45,000 square feet of the development. Other potential tenants include Barnes & Noble, OfficeMax, Bed Bath & Beyond and L.A. Fitness. Top national retailers are moving into downtown with scaled-down footprints because the market has been underserved and offers tremendous density and buying power.

Specialty food retailers are gaining popularity in South Florida. Natural foods chains Whole Foods Market and Wild Oats Market are beginning to take a bite out of the dollars consumers have traditionally spent at grocers such as Publix. These natural foods retailers attract high-end shoppers and are becoming the tenants of choice for new centers in upscale communities in South Florida. Whole Foods will open a 45,000-square-foot market at the corner of San Remo Avenue and Red Road on the border of South Miami and Coral Gables. Wild Oats took over a former Publix space several years ago in the Suniland Mall on South Dixie Highway and 117th Street.

General Motors Corporation’s pension fund is reportedly interested in selling half its interest in The Falls, a South Miami shopping mall. The partial sale is part of a recapitalization strategy in which General Motors plans to sell part or all of its interest in eight malls managed by Taubman Centers. Also for sale is the Miami Arena, built in 1988 for $52 million. The city of Miami has a $25 million offer from Jacob Sopher, but no deal has been inked yet. If the deal falls through, the Arena will be auctioned off in a fire sale in June. The property is considered to be a valuable piece of Miami real estate, located at a key transportation juncture; residents are urging a mixed-use development to spur urban revitalization of the area.

Significant transactions include the sale of the 350,000-square-foot Flagler Park Plaza, which was sold by Flagler & 82nd Ltd., a private local partnership, to Principal Global Investors, a division of Principal Financial Group. Anchored by Publix, Linens ’n Things, PetsMart, Michaels, Pep Boys, Walgreens, Big Lots, Jo-Ann Fabrics and Office Depot, the community center sold for $54.3 million in June 2003.

Boca Raton, Florida-based Woolbright Development Inc. acquired South Dade Shopping Center from Schiff-Turnberry Properties for $23.9 million in October 2003. The 211,969-square-foot community center is anchored by Publix, AMC Theater and Chuck E. Cheese. The center was built in 1984 and extensively remodeled in 1993.

Weingarten Realty Investors acquired Tamiami Trail Shops, a 110,900-square-foot neighborhood center anchored by Publix and Eckerd. The property was acquired from Woolbright Tamiami Ltd. for $16.2 million in June 2003.

Mills Corporation recently paid $79 million for the 30-year-old Westland Mall in North Miami with plans to make cosmetic changes. The mall contains approximately 830,000 square feet and has Burdines, Sears and JC Penney as anchors.

— Lynn Leonard, vice president of marketing, NewBridge Retail Advisors

©2004 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.