Posted on Mon, Apr. 18, 2005
Builder's condo craze bet is
unprecedented
By MATTHEW HAGGMAN
mhaggman@herald.com
|
NURI
VALLBONA / HERALD STAFF |
THE CONDO KING:
With nearly 50 high-rise projects underway, developer Jorge
Perez is reaching for the sky. |
Driving down Miami's Brickell Avenue in his dark gray
Mercedes-Benz S500 one recent morning, developer Jorge Perez did not
like what he saw. Surveying a stark sidewalk edging bland office
lobbies -- and even worse, a parking garage entrance -- Perez
pronounced the avenue ''totally pedestrian unfriendly.''
Then Perez declared he will change that.
The 55-year-old high-rise condominium developer, more than anyone,
is in a position to do it with seven towers planned for construction
along Brickell Avenue, the boulevard at the heart of the city's
financial district. His plan: erect new towers with ground-floor
restaurants and shops and spruce up sidewalks with shade trees and
benches.
The Brickell towers are just a fraction of the staggering number of
Perez projects that, if all built, will put his imprint on the
rapidly changing face of South Florida's cities, beachscapes and
skyline.
At a time when even the most aggressive builders rarely have more
than two or three projects going at once, Perez -- chairman and
chief executive of Miami-based The Related Group of Florida -- has
more than 40 condo towers in the works across South Florida.
Projects in Fort Myers and Las Vegas boost that number to nearly 50,
and Perez has plans for several more condo towers that have yet to
be announced.
''We are in territory we have never seen before with Jorge,'' said
Ezra Katz, chairman and chief executive of Coconut Grove-based real
estate investment firm Aztec Group. ''There is no precedent anywhere
in the 34 years I have been in real estate. I have never seen
anything of this magnitude or production.''
In the last decade Perez, who got his start developing
government-subsidized rental apartments in Miami, has become
Florida's biggest condo developer with 14 completed buildings to his
credit.
But now, in a move fraught with risk, Perez is making his biggest
bet yet, throwing himself full force into a South Florida real
estate market so frenzied some compare it to the dot.com boom of the
late 1990s.
''It is so hard to even build one project, to get it financed and
built efficiently,'' said developer Gregg Covin, who is building the
Biscayne Boulevard high-rise Ten Museum Park and renovating South
Beach's The Angler's Hotel. ''He is just an unbelievable force doing
more than 40 buildings at the same time.''
If anyone can pull it off, it may be Perez. But even he acknowledges
a downturn is coming in the superheated condo market.
His financial might, he maintains, will enable him to weather any
market correction.
Unlike most South Florida developers of today, Perez has more than
25 years of experience. And he has demonstrated a knack for spotting
and aggressively pursuing under-utilized markets before anyone else.
Perez was part of the development group that built City Place, the
downtown mixed-use revitalization project that transformed West Palm
Beach. Similarly, he built four high-rise towers in South Pointe,
the once blighted neighborhood at the southern tip of Miami Beach
that has morphed into some of the priciest real estate in South
Florida.
CAUTIOUS APPROACH
''He is very careful with his money,'' said Matthew B. Gorson, a
Greenberg Traurig lawyer who is Perez's attorney. ''He watches
things, that is why he has done so well. Jorge is extremely
disciplined.''
But Perez's huge bet on the condo market comes with equally enormous
risks.
Though Florida's housing market, and the condo sector in particular,
has been red hot, many observers suspect a downturn is looming.
The condo market is filled with speculators and the sheer number of
condos going up or planned have led many to conclude it's all too
much for even South Florida's booming market to digest.
Within the city of Miami, for instance, roughly 7,000 units were
built in the last 10 years. Now some 62,000 units are in various
phases of development.
In March, Credit Suisse First Boston downgraded the stock of Bonita
Springs-based WCI Communities, one of the few publicly traded
high-rise condo developers, due to concerns over ''investor
speculation in high-rise real estate development, specifically in
Florida.''
Similarly, Raymond James issued a report stating its belief that
investors and speculators accounted for as much as 85 percent of
condo sales in downtown Miami.
Perez himself predicts a correction, but maintains builders with
staying power will see values rise to even higher levels longer
term.
CYCLICAL INDUSTRY
''Real estate is extremely cyclical,'' Perez said at a National
Association of Home Builders conference two weeks ago.
''Talking to fellow developers, you sometimes feel that has been
forgotten,'' he said. ''But there will be a correction in the
market... it is impossible to sustain the supply announced.''
Perez said he has socked away loads of cash and carefully selected
properties that are either near the water or in a city center. Such
sites, he contends, will not dramatically lose value in a downturn.
And if need be, he said, he can rent rather than sell units until
prices rise to new heights.
While Jeff Morr, chief executive of the Miami Beach-based brokerage
Majestic Properties, thinks Perez will continue to succeed despite a
downturn, he also wonders about the impact of Related's plans on the
market.
''I think he is going overboard in the number of units he is
bringing to market on an annual basis,'' said Morr. ''He has the
potential of slowing down the market because of oversupply. He
should leave a little room for other developers.''
CORAL WAY OFFICES
Headquartered in drab offices on Miami's Coral Way that contrast
with many of the glitzy projects it develops, The Related Group of
Florida is a privately-held, 500-employee company.
Perez owns the vast majority of Related while his long-time business
partner, Stephen M. Ross, chairman and chief executive of New York
City-based Related Companies, owns a small share.
The company's fortunes have rocketed skyward as it has aggressively
built new condos. In 2000 The Related Group of Florida's revenue
stood at $506 million. By 2003, annual revenue more than doubled to
$1.083 billion. In 2004, it doubled again, coming in at $2.125
billion.
Condo sales, which account for 90 percent of the firm's revenue, are
expected to total $6 billion for the years 2004, 2005, and 2006,
said Perez. The company generally has a 20 to 30 percent profit
margin on condo sales.
While refusing to disclose the size of his personal fortune, Perez
recently said at a homebuilder conference that he has made
''unconscionable sums of money.''
The Related Group of Florida's success is built on its record, and
reputation among lenders and buyers, for completing what it starts
and quickly bringing its projects to fruition.
MEETING DEADLINES
''He will decide on a building, stick to the budget, and deliver it
on time,'' said Carlos Migoya, 54, Wachovia bank president for
Miami-Dade and Monroe counties. ''When you buy a unit from him and
he says it will be done in 2006, he will deliver it in 2006.''
Now the slender Cuban-American developer -- known for his energy,
art collection, liberal politics, affinity for fine food and tennis,
and periodic tempestuous outbursts -- has set a dizzying pace.
Five of his condo towers are slated to go up in downtown Miami, an
area with few residential buildings that is a virtual ghost town at
night. Following Perez's decision to build there, some 20 downtown
towers have been proposed by other developers.
''He was the first to ever go in downtown with market rate
residential product,'' said Otto Boudet-Muria, the city of Miami's
development chief. ''The fact Jorge was willing to do that gave a
lot of credence to the belief that residential downtown would
work.''
RAPID DEVELOPMENT
Two more condos, with two more on the drawing board, are set to go
on South Pointe, alongside his terra cotta and blue Portofino Tower.
In addition to the Brickell properties, five more condo towers are
underway in West Palm Beach, four are going up along the Sunny Isles
coast, and three more are nearly finished in Hallandale Beach.
Dozens of others are sprinkled from Fort Lauderdale to Lantana.
In perhaps his most high-profile move, Perez is joining with White
Plains, N.Y.-based Starwood Hotels and Resorts to demolish the
Sheraton Bal Harbour, located between the beach and the tony Bal
Harbour Shops, to make way for a condo and condo-hotel.
''He has built more developments, and currently has under contract
more developments than most developers would ever dream of building
in their entire career,'' said real estate analyst Michael Cannon.
LATE STARTER
Yet until 1995 Perez had not built a single condo unit in his
career.
Instead, for some 16 years he was a rental apartment developer.
Perez, along with New York developer and business partner Ross,
founded The Related Group of Florida in 1979. They built
government-subsidized rentals and eventually graduated to
market-rate garden apartments, becoming the biggest apartment
builder in the state.
In May 1997 The Herald's Business Monday featured Perez on its
cover, with the headline: ''Florida's Apartment King.'' At the time
he called apartments a ''much safer business than condominiums.''
But even prior to that, Perez had dabbled in condos. In 1993, German
developer Thomas Kramer and Daly, who were building high-rise condo
Portofino Tower, ran into financial trouble, and Perez jumped in and
developed the project.
CONDO CONVERSION
The building was completed in 1995 and sales went well. It prompted
Perez to convert a rental project he was building called Yacht Club
at Highland Beach into condos in 1997. Two years later, he built a
condo called Ocean I in Sunny Isles and he was on his way.
The South Florida condo market, he realized, was heating up. Buyers
from the Northeast and Latin America were increasingly looking to
snap up South Florida condo units, interest rates remained low and
waterfront properties were available.
''One of the reasons for the success of the company is nimbleness,
our capacity to adapt,'' said Perez. ''We decided there was a huge
pent-up demand for condos.''
In 2000 Perez shifted his company away from rentals and focused
exclusively on condos. Almost simultaneously, the South Florida
condo craze erupted and the rental market descended into the
proverbial dumps.
''He read the market correctly,'' observed real estate analyst David
Dabby. ''If he was still developing rentals today, he would be out
of business.''
PLAYING THE GAME
The way the condo game generally works today is that a developer
buys a property, architects come up with renderings, public
relations and advertising agencies market the product, a
multimillion dollar sales center is erected, lavish condo parties
are thrown, investors put down deposits on units, and the developer
uses the deposits to get a construction loan.
Finally, the building is constructed and investors resell their
units to a buyer who closes on the property and either lives in it
or rents it out.
Perez not only plays the game well -- he does so with lightning
speed.
Generally, he sets prices at a reasonable level so a unit will
immediately appreciate in price. Such prospects have created an
intensely loyal following whereby buyers sometimes camp out
overnight and his projects often sell out in a day.
''We will sell product for a fair profit and allow people to make
money,'' said Tom Daly, a developer who works exclusively with
Perez.
HUGE PROFIT
The two-tower One Miami project, which is topped off and due to be
fully completed in six months, is a case in point. Perez said units
in the downtown Miami project were sold for $230 per square foot but
are now being resold for $400 per square foot.
''That is why people follow us,'' he said.
While insisting he does not court investors, Perez's formula is
perfectly suited for the investor or speculator. He said between 30
and 60 percent of his buyers are investors, but some estimate the
number is even higher.
Perez said Related tries to keep speculators out by limiting buyers
to one unit -- though he said they may vet the financial wherewithal
of a buyer and allow more units to be purchased -- and requires the
standard 20 percent down payment. But he acknowledged such efforts
are circumvented.
Providing an added source of income, Perez owns Related Cervera
Realty Services -- the brokerage that sells the units. When a
building sells out, investors are allowed to put their units up for
resale, and Perez's brokerage often sells those units as well.
He also offers mortgages and insurance to buyers.
ECONOMIES OF SCALE
Meanwhile, Perez draws from a select group of general contractors
and subcontractors for each of his projects. Providing regular work
allows him to build at a cost as much as 10 percent lower than
competitors and often begin construction sooner, he said.
He similarly has a select group of banks. The result: while other
developers are often still cobbling together financing or finding a
general contractor, Perez is topping off a project.
If all his projects are built, many of Perez's buildings will likely
be defining features of skylines from West Palm Beach to downtown
Miami for decades to come. ''I want to build buildings that are a
catalyst for an area, that have a multiplier effect and lead to a
more livable city,'' said Perez.
But if they don't get built, Perez may find himself vulnerable to
the perils of the unpredictable South Florida condo market. Perhaps
mindful of that, Perez recently quipped: ''If you find me under a
bridge, you'll know I made the wrong call.''
The Related way: speed,
efficiency, agility -- and more speed
BY MATTHEW HAGGMAN
mhaggman@herald.com
The Related Group of Florida is both a strict top-down managed
company with clear lines of authority and also a freewheeling
enterprise focused on speed that can quickly move on deals because
there is just one decision maker -- Chairman and CEO Jorge Perez.
''Jorge gets velocity in every deal,'' said Matthew B. Gorson,
Perez's lawyer. ''He sells quickly, builds quickly, closes quickly.
Jorge is very good at pricing right.''
THREE LIEUTENANTS
Perez's top three lieutenants -- Joyce Bronson, Bill Thompson and
Roberto Rocha -- are charged with meticulously overseeing each
development.
Project managers must make detailed presentations to Perez on the
status of buildings every two weeks.
Perez himself, usually traveling alone, makes monthly unannounced
visits to each work site to personally inspect the properties.
SATURDAY RITUAL
In a ritual rarely missed, Perez meets with Gorson and developer Tom
Daly, who works exclusively with Perez, every Saturday for a long
lunch at South Pointe eateries such as La Piaggia or Smith &
Wollensky, and the three review projects and discuss pending deals.
Daly is not an employee of Related but doesn't do business with
anyone else. He partners with Perez, effectively serving as the No.
2 man at Related, on many of the most high-profile projects such as
Apogee, 50 Biscayne, One Miami and ICON Brickell.
A brusque New Yorker, known for pushing and cajoling architects and
engineers with myriad building questions, Daly said: 'In
kindergarten, they ask children what their parents do for a living.
My son answered, 'He yells at people on the phone.' ''
|