Growing a tech hub

Medina CapitaManaging Partner and eMerge Americas Conference creator Manuel D. Medina discusses Miami’s budding tech industry

What were the origins of eMerge Americas and the movement to build a tech hub in Miami?

The idea grew out of my frustrations in running a publicly traded tech company, Terremark, headquartered in Miami, but the city not getting any respect when it came to technology. Miami is the capital of everything having to do with Latin America, except technology. We determined that a major event, modeled after South by Southwest (SXSW) in Austin, would be the best way forward to promote the tech potential and opportunities that exist here – just look at what Art Basel did for arts and culture in Miami. This conference, however, is just one part of a greater strategy, which has the following four pillars: education; incubators and accelerators; funding mechanisms; and an employment base. These are the four essential components to a healthy tech ecosystem.

What are some of the tech trends in and related to Latin America? How do these impact Miami? 

There is greater mobile penetration in Latin America than in the U.S., which makes mobile technology a key growth area in the region, as are cyber security and cloud products, or “agile IT.” Miami is well positioned to benefit from the growth of Latin America’s tech industry, and the increasing international interest the region has generated. We are seeing an insatiable appetite for the transfer of technology into Latin America from abroad, as well as a desire to import technology developed in Latin America to the U.S. For legacy companies – the IBMs and HPs of the world – the explosion in the development of innovative technologies in Latin America presents new opportunities for their business.

What factors inform Miami’s potential to become a tech hub, specifically a tech hub for Latin America?

Miami houses the Network Access Point (NAP) of the Americas, through which 95 percent of the Internet traffic between Latin America, North America and Europe passes. There are 170-180 carriers amalgamated in this facility, and that is a feature that sets Miami apart from a connectivity standpoint. Miami also has a strong bilingual base, which is increasingly important for developing technology ties with Latin America and attracting Latin American capital.

With regard to funding, eMerge Americas is working to recruit more venture capitalists (VCs) to Miami. What has been the progress to date?

The success of eMerge Americas, which saw more media impressions in its first year than SXSW, has been eye-catching for Silicon Valley and East Coast VCs. We are also capitalizing on the presence of family offices here in Miami, many of whom were previously investing almost exclusively in real estate, but are now providing seed money for a number of tech ventures and talented entrepreneurs.

 

Soaring growth

Miami International Airport Aviation Director Dr. Emilio T. Gonzalez, discusses infrastructural upgrades and plans to transform Miami-Dade into a global hub

 

Miami International Airport (MIA) has seen incredible growth in recent years. What is the strategy to keep pace?

Broadening capacity is a priority for this airport and at the core of both our medium and long-term strategies. We service 40 million passengers each year – roughly the population of Argentina – and the airport’s capacity is 50 million; at some point we will run out of space.

To anticipate these needs, we are undertaking a number of major infrastructural upgrades. One project is to build 40 hardstands to park planes. Until recently, air traffic operated on peaks and valleys. You see no arriving flights at 2 a.m., but at 6 a.m. there is a surge of planes. Some of our aircraft, particularly those originating from South America, fly here and go nowhere else. They arrive at, for example, 8 p.m. from Brazil and stay until 11 p.m. Because of American Airlines’ recent reorganization, we no longer have the peaks and valleys, but instead, have constant traffic. Consequently, we no longer have the luxury of avail-able empty gates for us to park idle planes.

We must also accommodate growth in air freight, another important driver in this economy. We operate five airfields. One of them, our training and transition airfield, located in the middle of the Everglades, has a 10,000-foot runway. We are looking to convert that into a cargo airport sometime in the distant future.

 

What is MIA doing to upgrade its terminals?

We are currently renovating Terminal E, which is part of the central concourse. Interestingly, we are only launching this project as a stopgap measure to buy us time before we can build new structures.

Eventually, Terminals G, F and E will become two terminals. We will start on one end of the airport and work our way in, knocking down terminals along the way. We are looking to break ground on this project in 2020 and it will take 10-15 years to complete the terminal.

Because of its central position within the airport, and because of added traffic from the slew of new flights that American Airlines has announced they will be adding, Terminal E will be where the action is. Subsequently, we are investing in modernizing it. We recently purchased a $90-million train system to improve connectivity within the airport. This will be delivered in the next two years and has a lifespan of 10 years. In the distant future, we are looking to erect a high-end mall, which will have all of the major luxury retailers, in the central terminal.

 

What are MIA’s plans for broadening connectivity with respect to passenger business?

MIA is the second-largest international passenger airport in the U.S. However, in looking at our existing network there are a number of gaps. With respect to Europe, we need to improve connections with Eastern Europe and Scandinavia. We are looking to develop routes like Warsaw-Miami and Stockholm-Miami.

Asia is another big untapped market for us, in terms of passenger service. We already have cargo business with Asian companies, namely China Air, Korean Air, and Cathay Pacific, and those are usually one-stop flights that go from East Asia to Alaska, refuel and go back. I have spoken to representatives from different Asian carriers, and they all want to come here; it’s not a matter of “if,” but “when.” The “when” will happen when these airlines get new, larger, aircraft, for instance, the Dreamliners. When they start getting A-380s, then we will start to see an increase in Asian traffic coming here.

We are also working on getting flights to Africa. These don’t necessarily have to be through African carriers but could be U.S. airlines with Miami-Johannesburg, Miami-Lagos or Miami-Cairo routes.

MIA is the number one international freight airport in the U.S. What are the growth fundamentals of this segment?Being a gateway city, Miami sees cargo both coming in and going out. Planes arrive full of goods, and the only way they can generate a profit is if they also leave with full loads. From a cargo perspective, Atlanta can’t be Miami because they don’t have much to send back. At MIA, thanks to South Florida’s robust distribution and logistics operations, all of our cargo planes come in full of goods and they leave full as well. They arrive with perishables – flowers, fish, fruit – and depart with high-tech exports, such as electronics, medical technology, mining equipment and automobiles.

 

How does MIA contribute to job growth and economic diversification in South Florida?

The airport is one of the largest employers in Miami-Dade County, contributing nearly 158,000 direct jobs to the economy annually. It also generates a significant number of indirect jobs in related and peripheral industries, such as tourism, logistics, and manufacturing.

For instance, although it may not be very visible, there is a robust aerospace industry in South Florida. One of the largest airplane manufacturing companies, the Brazilian-based Embraer, has its U.S. headquarters in Ft. Lauderdale. B/E Aerospace, which is headquartered in Palm Beach and manufactures interior cabin products, has more employees than U.S. Southern Command (SOUTHCOM). The French-Italian aircraft manufacturer ATR recently relocated their North American headquarters to MIA from Virginia.

 

What are the most pressing challenges of operating an airport of this size and significance?

There are a lot of moving parts – some of it operational, some financial. The operational aspect is tied to the fact that we have over 90 airlines that fly out of here and they need a lot of care. We also have over 200 concession locations, which would make us one of the largest malls in the U.S., as well as related businesses such as a hotel, parking facilities, etc.

On the financial side, MIA is the largest economic engine – not just in Miami-Dade County, but in the U.S. Southeast, from Washington, D.C., down. To put this in perspective, we generate $1 billion more revenue than Hatsfield-Jackson Atlanta International Airport; we are bigger than Disney World and bigger than the Tennessee Valley Authority. When you generate that much wealth and economic business, everyone wants a piece of the action. Consequently, I get lobbied frequently and must ensure that proper procedures, when it comes to bids, are enforced at all times.

 

What is your strategic vision for MIA and your outlook on South Florida’s economy?

Currently, Miami-Dade is the Gateway to Latin America. Ultimately, our goal is to transform it to a global hub. We have the fundamentals to support this – strong tourism, real estate, logistics and banking industries – and MIA’s capital projects will only boost this progression.

 

Invest: Miami speaks with Armando Codina, Chairman, Codina Partners

Alex Wertheim
Doral’s growth story is linked to the growth story of Miami-Dade. The highest employment concentration in Miami-Dade County is Airport West, the area where Doral lies. Carnival Corporation is headquartered in Doral, along with major media companies like Miami Herald and Univision, as well as the Federal Reserve, U.S. Southern Command, and a thriving logistics sector. Employment opportunities have brought an influx of residents into the city – as have greater affordability and a strategic location – both foreign and domestic. In recent years, Venezuelans, fleeing political and economic crises in their country, have come to Miami-Dade and settled in Doral. For them, and for many Latin Americans, the proximity to the airport is a great attraction and a reason to buy homes and start businesses here.
If Doral was to become a great city, it needed a heart, and a downtown is the heart of any city. This is why we’re building Downtown Doral. Doral is the first city in Dade County that offered the opportunity to build a core – a downtown – from the ground up, and for a developer, this is truly special. We are creating a master-planned community that includes high-end shopping, dining and living options, as well as the supporting infrastructure – bike paths, sidewalks, public green spaces etc. With so many businesses that also call Doral home, we have taken special care in developing the new office space that will be included in the project, creating a modern campus feel.
This project also features a great example of a public-private partnership (PPP) – Downtown Doral’s collaboration with Miami-Dade County Public Schools to build a charter school. In this arrangement, developers provide the land and finance the construction, while the school board administers the school. Private sector execution allows for greater efficiency, while public sector management allows all parties to benefit from the expertise and accomplishments of the county’s award-winning school board. The new school will be an added draw for prospective residents seeking an affordable community with strong infrastructure, while it allows the county to earn additional revenue from operating the school.

Making a mark

Terra President David Martin speaks about thriving within the constraints of South Florida’s construction sector

 

Terra’s current projects are focused in Coconut Grove, Miami Beach and Doral. What do those neighborhoods and municipalities offer to developers? 

We specialize in neighborhoods with high barriers to entry. Coconut Grove and Miami Beach, where zoning requirements limit construction, allow us to create high-design buildings that leave a mark. In areas where you can build, say, 30 towers, it is harder to set yourself apart.

Doral, one of Terra’s suburban components, is an important transit hub that is experiencing tremendous job growth. We are developing master plan communities there. The idea is to bring design to the suburbs.

 

Which is growing faster in South Florida, demand for suburban development or urban development?

Both are growing, but for different reasons. People moving to Doral, for instance, are attracted to the safety of the area, the retail offerings – the abundance of South American restaurants and stores, the relative low cost of starting a business, and the good schools.

If more land were available, everyone would build single-family homes because those projects have better margins and are easier to execute. But as South Florida is running out of land, developers are, in effect, forced into urban-type projects. Moreover, the maintenance and operating expenses of high-rise construction buildings are much higher than for a single-family community that just has a clubhouse.

 

Another aspect of your company is that it has its own construction division. What are some recent trends you have observed in the construction industry? 

As the market has become more competitive, profitability for the subcontractor base is growing substantially, which is good and healthy, but requires developers to be highly attuned to costs, to design projects knowing that last year’s costs will not be the same as next year’s. Part of the process means we are constantly analyzing the backlog for our subcontractors. More and more of the subcontractors are taking on less work than in the past. They’re limiting the number of jobs they do in order to protect themselves and their clients, and preserve quality control, which is of the utmost importance.

 

How will labor supply constraints be addressed?

One aspect is salaries need to go up. Another is that an area undergoing a construction boom will see an in-migration of the labor force, although it may take a while for word to spread about the opportunities.

Miami has a unique advantage in that many subcontractors and laborers prefer to live here, because of the climate and lifestyle, which is invaluable for recruitment. There is also a backlog of work here, which is attractive for laborers, many of whom are looking for long-term opportunities. This recovery in Miami is more sustainable on a long-term basis than others in the past because most of the retail, industrial and residential owners have a lot of liquidity so the market is quite strong.

 

Do you have concerns about the availability, now or in the near future, of certain building materials, for instance steel, glass or concrete?

Our projects don’t require much steel, so we can’t comment on that market. For glazing, formwork and concrete, although we have great suppliers, there is volatility in those industries. Petroleum prices just dropped, so petroleum-based products are going down.

It’s important to establish close relationships with suppliers. We have a strong contract with one of the largest glass manufacturers, who are based in Colombia, but have their U.S. headquarters in Miami, and a great relationship with one of the largest mining operators in the country, who supplies us with lime rock. Miami has the third-best quality of lime rock in the country and it’s all mined west of Doral.

The period from 2008 to 2013 was tough for contractors and suppliers. Many did not have the profit margins to keep their doors open. Now is their time to make up for those years, so while there are economic forces driving commodities down, because we as an industry are so busy, margins are increasing, which balances the situation out.

What we can’t do is increase the prices of our units because of construction costs. That is not an option be-cause prices are a direct reflection of demand. What you will see is that at some point, in certain neighborhoods, projects won’t get built because the market pricing is not high enough to cover certain construction costs.

 

How do developers address the unique challenges presented by South Florida’s climate and geography?

Florida is a leader in this country when it comes to building codes because of our experience with Hurricane An-drew. I think building to code is sufficient to withstand the impact of powerful winds.

The other thing we’re working on is sea level rise. We’re doing hydrostatic slabs, floodproofing, and being mindful of where we’re locating our utilities, vaults and lift stations, in projects where we have them, so as to address this issue. The real dilemma is that our existing infrastructure is where it is. Just because we build a project that addresses three feet of sea level rise, doesn’t mean that when the residents go into the streets that they are not confronting it.

Sea level rise is a complex matter and it’s a question of time. There are scientists who feel the catastrophic problems will come sooner and others who say it will come much later. It’s important to be ahead of the game and focused on solutions.

 

What lessons have developers learned from previous cycles?

One thing is that we can’t promote people to supervisor positions that don’t have the proper experience. Supervision is important and we make it our goal to be as close as possible to the construction process. Getting prices right is critical, and something we are learning and assessing daily. While we always want to negotiate the best prices, we also want the best subcontractors, which can mean paying a premium instead of going to the lowest bidders as doing so may impact scheduling if they don’t perform, or if they underbid the job.

During the crisis, many companies learned how to do more with less people. Much of the excesses were stripped and a lot of properties went from weak hands to strong hands, and that provides stability. There are no forced sales – there is no forced liquidity – which are all good signs for a healthy real estate economy. We just have to balance supply and demand and I think that’s our struggle as an industry because when you have strong international demand, it’s very difficult to predict what that depth is. That said, I am constantly amazed by the pride and commitment to Miami I see from those living and investing here, regardless of what country they come from.