Fortune International Group President and CEO Edgardo Defortuna discusses Miami-Dade’s complex zoning landscape and the impact on luxury real estate development
One of your major projects at the moment is JADE Signature, located in Sunny Isles. What advantages does Sunny Isles offer to developers?
Oceanfront property has become increasingly scarce in South Florida. Sunny Isles is one of the few remaining areas where a developer can secure large parcels of land with a water view. Our Jade Signature project – designed by Herzog & de Meuron – the architects that created the Perez Art Museum Miami (PAMM) – sits on 2.5 acres of land right on the beach.
Sunny Isles is attractive to developers because it allows the space for creativity – literally. There are no other locations on the beach that permit you to build structures up to 650 feet tall. That sparks innovative thinking in design and presents an exciting opportunity for developers like Fortune International Group to have a significant impact on the skyline.
How would you describe the landscape for zoning and other regulations affecting real estate development?
The regulatory landscape in the region is complex, and in Miami, it is as diverse as the city itself. Twenty years ago when Fortune began developing here, there were zoning and land use guidelines in Miami and in Dade County. Over time, many smaller towns and municipalities started to form independent governments, each with its own set of zoning regulations.
For example, today the zoning rules in North Miami and Key Biscayne are different, just as they are in the Broward County cities of Hollywood and Hallandale. From a developer’s point of view – that kind of change significantly impacts your business strategy. You must be extremely knowledgeable of the area and the regulatory nuances from project to project.
In the City of Miami, where development now is fairly limited, you have one set of zoning guidelines, Miami 21, which is quite favorable to commercial developers because it is primarily a business district. However, it is challenging to find waterfront sites within the city. While in Miami Beach, the challenges arise due to the various historic designations and related restrictions. In many areas, existing structures cannot be demolished to make room for new development. You can refurbish a historic building, but you must maintain the existing structure.
How does this fragmentation impact development? Do you see the situation changing in the near future?
It’s important to understand that the main revenue stream for all of the cities and counties in South Florida today is real estate tax. The municipalities thought that taxes were unfairly distributed when they were concentrated into one place, so I don’t see the situation changing. There might be some agreements made between one area and another, but it would be difficult to create a unified government; if anything, more areas are going to break apart and try to generate their own pockets of zoning.
Not having a strong unified effort for infrastructure, transportation and other services needed for a major city like Miami to function presents a challenge. Hopefully the public sector can integrate a little bit more, and really create comprehensive plans for the major needs of the city as a whole so as to support the growth we are experiencing.
What are some of the comparative advantages Miami offers when it comes to real estate?
Prices here are competitive when compared to other major cities in the U.S. and the world. Prices in New York are three or four times what it is here, and the same goes for San Francisco and Los Angeles. From a U.S. investment proposition, Miami is still very attractive to outside investors, which is why we are seeing the high volume of individual buyers, as well as funds and groups, willing to invest equity in the different projects being developed here.
Miami has much to offer culturally as well. The museums have done marvels to the city. Art Basel has significantly changed the cultural aspect of Miami, as have the Adrienne Arsht Performing Arts Center and the New World Symphony. If you like sporting events, you have The HEAT and the Dolphins, and hopefully David Beckham can bring soccer here.
All of these things impact the overall perception of the city. Previously, higher-end Latin Americans would say, “Yes, I love Miami. I spend a few days there, but my apartment is in New York.” Now, they might still have their apartment in New York, but they are spending a significant amount of time in Miami, and they all want an apartment here.
What risks are present within the real estate market?
People talk about bubbles all the time, but it’s really a question of managing supply and demand, and the timing of when you launch the supply. As a developer, it’s important to be disciplined and mindful of what the market is like before moving forward.
Today, most prudent developments are supported by 50 percent deposits from the buyer; you don’t start construction until you have a significant number of presales. With all the money the buyers have put into the construction, it’s very difficult for them not to close at the end, which is what happened in the past when they were speculating with 10 percent or 20 percent.
As long as we keep this structure in place, we should avoid some major risks. But now that financing is becoming more available, this could create a temptation for developers to require reduced deposits of, say, 30 percent and get the remaining 70 percent from the bank. That’s when problems could potentially start.
How has the consumer profile for luxury properties changed in the current building cycle?
In the past, the market was dominated by Latin Americans responding to the political and economic situations in their home countries. Today Europe is becoming a very strong player – England especially – because the exchange rate makes Miami prices attractive. Investment from the Asian market, which was previously almost nonexistent, is starting to pick up as well.
Brazil and Argentina continue to be key markets for us – as they have been for a long period of time – for different reasons. Brazil has been doing well for the past five years, while Argentina’s economy has been going the other way. People are attracted to Miami when their countries are either doing very well or very poorly. If they’re doing very well, then they’re diversifying and buying in Miami and if they’re doing poorly, then they’re taking the money out of their countries and buying in Miami. We’re also looking at Mexico because of the growth and wealth creation happening there.
I’m particularly excited about our new relationships in London because the market is so vibrant there. People are making significant amounts of money there and they all love the natural conditions of Miami. They just need to get more exposure to this type of product because they’re used to buying in Orlando or in the islands and they are just now really discovering Miami.