NEW GROWTH STORY

THE RELATED GROUP CHAIRMAN AND CEO JORGE M. PEREZ DISCUSSES THE MATURATION OF MIAMI AS A REAL ESTATE MARKET AND BUDDING GLOBAL CITY, AND THE CHALLENGES AHEAD

What does it mean to be a prudent developer in to-day’s real estate market?

Developers are far more prudent today than ever be-fore because we learned the lessons from the last recession. We borrowed too much then and when the market crashed, it was hard to pay back the loans. The staying power of developers was greatly reduced.

This time around lending has comprised a much lower percentage of development. At Related, leverage has become quite low. The ratio of our bank loans to total costs is fairly insignificant, so should there be a slow-down, we would be in a much better position to deal with any loans in any one of our jobs. The new deposit structures for preconstruction projects – we were the first to implement this – require significant cash payments up front. In the first two buildings we developed post-recession, we required down payments of 80 percent of the purchase price. Today, we as a market have settled in at 50 percent, which is still significant, considering that pre-recession this was at 20 percent.

Related has also become more diversified. We have our luxury condominium projects, which are doing well, but the company is also expanding in its property management and multifamily divisions here in South Florida, as well as globally. We are engaging in more joint ventures and are continuing to acquire great sites for future developments. If the condominium market slows, the company can sustain itself. Miami developers today are more adept at handling what is called “patient money” – money in the market today that doesn’t need the short-term gains and is really there for the long-term.

In terms of financing, what safeguards exist today that mitigate some of the risks in Miami real estate? 

The difference between today and the previous cycle is the level of financing from banks has been greatly reduced, which decreases the risk exposure of developers. Banks are lending at a much lower rate. They are more conservative and are being paid back more than in the past. They are scrutinizing the quality of the developer before they lend. On the other hand, there are more equity sources coming into Miami, making avail-able a greater diversity of funding.

It is not only developers and financiers that have become more refined– the buyers and investors have too. There are 80 countries represented among the buyers of Related projects. The capital infusion from foreigners launched this market’s rebirth. These buyers are very sophisticated. They hedge themselves on their currency with the dollar constantly, so events like currency fluctuations and the strengthening U.S. dollar are less of a concern for this market than it was 20 years ago.

One trending Miami neighborhood for condo development is Edgewater, where Related has big projects. What is the growth potential of this area?

Edgewater, or Edgewater East, is a waterfront stretch from 20th Street up to 36th Street along Biscayne Boulevard. The geography alone speaks to area’s potential. It is bound by the Julia Tuttle Causeway to the north, the Venetian Causeway to the south, Biscayne Bay to the east, and Biscayne Boulevard to the west. The area offers incredible views, and is well-connected to downtown and the beach. This pocket was not penetrated much in the old days, so there was immense opportunity, which was why during the downturn we started purchasing distressed properties in the area from the banks.

How are Related’s Edgewater projects progressing?

Our Edgewater properties have seen strong demand, and progress in both construction and sales has been remarkable. In November 2014, we broke ground on Paraiso Bay, and today 99 percent of the units have been sold. ONE Paraiso is 94 percent sold, and that broke ground in December 2014. Our fourth tower, Paraiso Bay Views, is 70 percent sold, and we started closings in our first Edgewater project, Icon Bay, which is sold out.

Outside of real estate, you have made significant investments in Miami’s cultural infrastructure. How do arts and culture support Miami’s growth?

I think Miami’s art and culture offering have been one of the great engines for Miami’s growth. Even in the condominium projects, you are seeing how art is taking center stage – for instance, we have taken art pieces valued at $2 million to $4 million and put them in our buildings. More than anything else, events like Art Basel Miami Beach have highlighted Miami as not just a fun place, but as a cultural place, where art is an integral part of the community. Miami has become a place where art thrives. We never had that before. Art has become an important part of Miami becoming a truly great metropolis.

How would you characterize Miami’s art scene?

We excel in contemporary art and Latin American art. The niche for arts in Miami, like Miami itself, is that it functions as the center between the north and the south of the Americas. We are definitely not New York City – we don’t have the Metropolitan Museum of Art and the Museum of Modern Art (MoMA) like New York does – but we are striving to get there. The exhibits we’ve had at the Perez Art Museum Miami (PAMM), such as the Ai Weiwei and others featuring emerging artists, have been highly acclaimed. We have a long ways to go, and we still have to invest massively in cultural infrastructure to get to the level of a true global city.

Crucial for growing the arts, and broader economic diversification, in Miami is having affordable and attainable housing. As an expert in this realm, what do you feel needs to happen to promote affordability?

It’s a huge challenge. When we talk about having a 24-hour city, filled with people who live, work, play, and shop, we don’t want this to just be for the rich people, or the upper middle class; we want this to be for everybody, from artists to workers, and so forth. Unfortunately, developing in urban areas – and this is not unique to Miami – is very expensive. The majority of the population cannot afford the condominiums being built in the downtown and urban locations. This is a huge problem that cannot just be solved by the private sector. We need government programs and subsidies to allow all segments to afford housing in this global city we’re trying to create.

There are innovative ways for private sector to tackle housing concerns. Although Related is active in the luxury segment, we also have a division geared towards attainable housing. In some areas we’ve created apartment buildings where rents are structured such that 80 percent is set at market rate and 20 percent is restricted to a certain portion of tenants’ income. We’ve done joint ventures with the county on rehabilitating the public housing that has been sitting out there for 40 to 50 years – and we are bringing federal tax credits in rehabilitating them. Resolving this challenge will entail a combination of both public and private sector solutions.

Stronger ties: Brazil’s Consul General to Miami Ambassador Helio Ramos discusses the increasing importance of the Miami-Brazil link in commerce, culture and investment

Invest: Miami speaks with Miami Ambassador Helio Ramos

How significant is trade between Brazil and Miami?
Brazil ranks second in imports tonnage at PortMiami, accounting for 206.29 million tons in 2013, with imports varying from commodities – stone, earth, wood, ceramic products, leather – and manufactured items, representing a total import value of $3.29 billion for the Miami Customs District, which includes. PortMiami accounts for $709.65 million of Brazil’s exports in 2013, thus Brazil ranks fifth in terms of value exported, with top exports being machinery, electrics, plastics, optics, medical equipment and vehicles. Trade between Brazil and the Miami Customs district has grown by over 50 percent since 2011, setting a record for the fourth straight year in 2013. Brazil is Florida’s number one trade partner, and PortMiami plays a major role in maintaining its position.
How has the Brazil-Miami connection influenced other aspects of Miami-Dade’s economy?
Florida remains a top international tourist destination for Brazil, receiving 54 percent of all Brazilians visiting the U.S. Miami-Dade County captures 70 percent of Brazilian tourist expenditures in the state, totaling  $2.38 billion, with 755,550 Brazilian tourists spending $1.68 billion in shopping, dining and entertainment in 2013.
Brazilian investments in Florida real estate are significant, with the median value of property purchased averaging $457,000. The majority of buyers purchase real estate for second home purposes instead of investment returns, with 82 percent of real estate acquisitions by Brazilians in Florida are done in cash.
Miami is of particular importance for Brazilian companies attempting to internationalize their organizations in the U.S., particularly small to medium-sized companies. Among the leading Brazilian businesses in Miami-Dade County are Odebrecht Construction, Embraer Aviation Co., Bauducco Foods Inc., Taurus Inter-national Manufacturing Inc., Banco do Brasil Americas, 3G Capital (which owns, for example, Burger King Corporation), Giraffas Restaurants and Shrimp House.
What challenges lie ahead for Brazil-Miami relations?
Two areas of negotiation between Brazil and the U.S. pose challenges in furthering trade, commercial and tourism ties between the two countries, with great consequence for Miami-Dade County. One is the final phase of the “open skies agreement,” which would remove caps on the number of flights that can travel between the two countries. Another concerns the lifting of visa requirements for Brazilians to the U.S. Current rules dissuade Brazilians from visiting the U.S. because the application process is costly: the application fee is high; interview turnaround times can take up to four months; and there are costs related to domestic travel and accommodation to visit one of the few U.S. consulates in Brazil.

The way forward: Miami-Dade County Mayor Carlos A. Gimenez discusses the progress and challenges in modernizing government and diversifying the economy

Invest: Miami speaks with Mayor of Miami-Dade County, Carlos A. Gimenez

 

You have supported major projects like the renovation of the Miami Beach Convention Center, a Major League Soccer stadium, and SkyRise Miami. What commonality do these projects share? 

Those are only some of the projects we have supported. They are hot topics for the day, but nowhere close to be-ing representative of what this administration is about.

 

How then would you characterize the types of projects you support? How do they reflect your strategic vision for progressing this community?

A great example is eMerge Americas, a five-day tech conference hosted in Miami. We’ve supported eMerge from the very beginning and we’re one of its prime sponsors. We want to place Miami-Dade County on the technology map. We want Miami to be a tech hub – we want to create something called Tech Beach or Tech 305. We want to be the place for those looking to establish a technology company that looks towards Latin America or South America to come to. We want to be where Latin America, Central America and the Carib-bean look to see what’s new in technology. Moreover, developing a tech hub will support job creation.

 

One key challenge facing Miami-Dade is weak economic diversification. What are some others, and how is the county addressing them?

Diversifying the economy is one of my priorities – and it doesn’t just mean supporting technology; it involves promoting a wide range of economic sectors and businesses so we reduce our dependence on tourism or finance. The consequence of not having a diversified economy was that we saw a lot of our bright young minds leave Miami because they didn’t have opportunities here.

Technology is illustrative of this. We graduate thou-sands of students in computer science. If we don’t have a solid, technology-based industry here in Miami, then these graduates will go elsewhere to find jobs. This is why we support initiatives like eMerge and Venture Hive. We were the first to put money into Venture Hive because we want entrepreneurs here. We want the next Facebook or Microsoft to be created in Miami-Dade, and for them then to base their corporate headquarters here.

Another challenge is transportation. We need to establish linkages between downtown, Miami Beach, and our western suburban areas such as Kendall. There is also a need for alternative modes of transportation, which is why I strongly support app-based services like Uber and Lyft, which are not yet legal here, but should be this year.

 

Is more county funding being put toward growing emerging industries, or is it mostly supporting traditional sectors like tourism, real estate and finance?

We are not going to turn our backs on tourism, real estate or finance. In fact, we want to enhance those industries. However, we are not content with having our economy be just about those things. We need to diversify.

For instance, we just awarded Naeem Khan, the international fashion designer, a grant and a lease on a county-owned building on the Miami River to help him move his entire operation from New York City to Miami. Once he’s here, other top designers will see how successful they can be in Miami, and they will come here too.  We would like Miami-Dade to be a top international fashion destination and this is the first step.

We have also incentivized a new movie studio – the first in Miami-Dade County – in North Miami. It’s a $30 million project set on 160 acres. The company has promised to build a state-of-the-art aquatic production facility, but also a production studio, because although there is a lot of filming that happens in Miami-Dade – the sun and quality of light is different here – many times these companies go elsewhere for post-production. We wanted to have a studio here so they didn’t have to leave. This is just one aspect of our efforts to retain our brightest minds and create jobs for all the residents of Miami-Dade County.

 

What have been some of the county’s initiatives when it comes to promoting job growth?

My top initiative is Employ Miami-Dade. It targets some of the hardest-hit areas for unemployment or underemployment. Community groups knock on doors and inform residents about job opportunities in industries like construction and hospitality, for which training would be provided. Through this program, we’re investing in the sweat equity of going door-to-door, identifying potential workers, training them, and getting them jobs.

The private sector, in particular the construction companies, have bought in. When we have had construction booms like we have today, we have had to import labor from around the state and the country. There’s no rea-son to import labor when we have plenty of workers here. If we can give them solid, well-paying jobs, get them out of poverty, and get them to be productive members of society, it’s good for business, it’s good for them, and it’s good for the entire community.

 

 

While Miami has an abundance of luxury residential developments, what can be done to bring about more affordable and attainable housing options?

Eventually, the luxury market will dry up – the market will have a self-correction. Affordability is very much linked to jobs, which is crucial to establishing a middle class. When you establish a solid middle class that can afford decent housing, the market will be there. The private sector always has a way of coming around if there’s a profit to be made, and if there is a group of folks that has money and is willing to spend it for good housing, there will be houses available to them

Another avenue is through public-private partnerships (PPPs). We recently announced the Liberty Square Rising Project, which involves a $74 million commitment from the county to leverage several hundred million from the private sector. This is the largest project the Department of Public Housing and Community Development has taken on. The goal is to revitalize the county’s oldest housing project – over 700 residential units, on 50 acres, in an area with the highest crime rates – and, in the process, generate over 2,200 jobs and around $285 million in economic impact.

 

 

How has Miami-Dade County worked towards mod-ernizing and streamlining government?

Within Miami-Dade County, there are 34 self-governing municipalities. The county oversees transportation, the airport and the seaport, as well as most of the water and sewer infrastructure.

Improving cooperation between the county and the cities has been an area of focus for my administration. For instance, we are working together with the different cities to create forms that can be used with both the cities and the county so there is no duplication of procedures. We’re working with cities to create one-stop shops, or even no-stop shops, where forms can be completed electronically without having to go to a city, then the county. The cities’ customers and residents are also county customers and residents. We want to make engagement with local government as easy as possible, with the least amount of red tape, for our 2.6 million residents.

 

Attracting investors

Invest: Miami speaks with Larry K. Williams, Former President & CEO, The Miami-Dade Beacon Council

The Beacon Council is dedicated to growing and sustaining Miami-Dade’s rich and diverse economy, supporting businesses small and large alike in reaching their goals. As Miami-Dade County’s official economic development partner, we will continue to strive to advance the community’s objectives and will continue to do so with our strong collaboration with the Miami-Dade County, education, business and civic leaders.
People think Miami-Dade is just a tourist destination, and while we do have a great luxury brand, we are so much more. We have a vibrant business community, with a diversified economy imbued with an entrepreneurial spirit. While small and medium enterprises (SMEs) are the backbone of this community, many of our homegrown companies have be-come large, multinational firms. Burger King grew up here, as did Ryder and Perry Ellis.
Miami-Dade is on track to rival international cities like Singapore, Dubai and Barcelona. Our diverse mosaic of people and cultures attracts international investors, whether they are seeking real estate acquisitions or startup opportunities. We saw strong growth in our seven target industries in 2014, especially trade and logistics. Growth in all sectors has been driven in part by Miami-Dade’s position as a crossroads to the world, with access to and influence coming not only from Latin America, but also Europe – especially Spain. With the expansion of the Panama Canal, we are seeing more attention from Asia as well.
Besides being an affordable place to do business, with a favorable tax environment, one of Miami-Dade’s greatest assets is its wealth of talent. While it may not be widely known, we are a great college town, and local institutions like Miami Dade College, Florida International University, University of Miami, Barry University, St. Thomas University and Florida Memorial University are all centers of innovation. The future is bright for Miami-Dade County as it evolves from a Latin American gateway to a global business hub with the right talent, the best location, and a growing tech, entrepreneurial and innovation ecosystem.

Expanding to new frontiers

Invest: Miami speaks with Akbar Al-Baker, CEO, Qatar Airways

Miami-Dade County holds a crucial space in both the U.S. and global travel markets. Its aviation industry is evolving to bring more passengers into and out of Miami International Airport (MIA), with improved operations and safety, and a focus on delivering a higher standard of service to the global traveler, both business and leisure. In fact, MIA is recognized worldwide as the crossroads of many diverse cultures and the increase in long-haul international air travel the airport has had improves growth potential across different economic sectors. Based on these factors, we look at Miami, in particular MIA, as the right partner to grow with.
Today, Qatar Airways is the only direct access to the Middle East that Miami-Dade County and Florida have. Our world travelers are very curious about Miami and have always been fascinated with its vibrant lifestyle and rich culinary, musical and cultural traditions. Our first year servicing MIA has been very successful. As a result of strong demand, we have decided to increase the frequency of flights from five times a week to daily scheduled service after just one year of operations.
Qatar Airways is heavily invested in Miami, as are other Qatari companies. We have strong partnerships with the travel, trade and marine industries, and support overall tourism efforts in South Florida. The Doha-Miami connection is thriving, and not from tourism alone. Growing linkages in art, fashion and a burgeoning international business community make this route a dynamic one. We have already seen that both cities have a strong appetite to learn from and share with one another. Some of the areas of mutual interest include luxury travel and tourism, entertainment and hospitality.
In 2014, Florida had a record year in tourism revenue, and new connections that bridge the East and West have contributed to this. As Latin America continues to elevate its global profile, Miami’s close ties with that region will become more important. The world wants to visit Miami and providing passengers access to this city, not only as a destination, but as a portal to Latin America and the Caribbean, increases both fascination and revenue.

Big investments: Florida Governor Rick Scott discusses Miami-Dade’s economic significance and the impact large public investments will have on the county

Invest: Miami speaks to Florida State Governor, Rick Scott


How do the public and private sectors work together to advance growth in counties like Miami-Dade?
In Florida, government is always doing business with the private sector. We have Enterprise Florida, an organization that promotes economic development in the state and that is funded by both public and private dollars. Some of the major infrastructure projects in Miami-Dade, like the PortMiami Tunnel or the Deep Dredge Project, are conducted through public-private partnerships (PPPs). The private sector undertakes considerable risk to complete these projects on time and on price, which has led to better outcomes. Moreover, the Florida State Legislature passed a bill in 2013, which streamlines the procedures and expands the opportunities for PPPs to other areas, such as higher education.
What is the state’s strategy to ensure that transportation infrastructure keeps pace with rapid growth, especially in Miami-Dade? 
Today we have the largest transportation budget in the state’s history – over $10 billion. We are investing where we are seeing growth. For instance, we are putting massive dollars into our ports and PortMiami is the biggest beneficiary of that. Moving forward we must continue investing in airports and seaports because that is how people first enter our state. We are already the number-two state in the U.S. for trade infrastructure.
Given Miami-Dade’s cultural and geographical proximity to Cuba, do you foresee increased economic opportunities in light of the recent thaw in the U.S.-Cuba relations?I think it would be a mistake right now to stop the embargo. I am optimistic that someday the Castro brothers will not be in power and we will see freedom and democracy there, and at that point, we will see opportunities evolve for Floridians to do business in Cuba, and vice versa. Until then, I don’t think much will happen until we have a regime that believes in freedom and democracy.
What is your medium-term outlook for Miami-Dade?
Miami-Dade is doing really well in a number of areas, for instance, trade, education and professional services. In the last 12 months, the county added 42,000 jobs and brought unemployment down to 5.8 percent. Miami is also an important destination for tourism, which is still our largest industry in Florida. Tourism generates tens of thousands of jobs and contributes 24 percent to our sales tax.
I am very optimistic about the future of Miami-Dade. It is a very exciting economy. People from around the world want to live there, to visit there and do business there.  Miami speaks a lot of languages and it is clearly one of the best melting pots in the world. These factors will help Miami to continue its growth.