South Florida CEO
Miami Beach City Report
April 2, 2006
On The Fast Track
Some call it a second coming, but with a rising cost of living and explosive development, who is riding high on the brand that is Miami Beach
Residents, both full-time and seasonal, have taken over Miami Beach, lifting housing prices into the stratosphere and demanding services that tourists never did.
Miami Beach's full-time population jumped from almost 88,000 in 2000 to more than 93,500 in 2005, according to figures provided by the city. Seasonal residents jumped from 14,339 to more than 20,000. And population is not the only thing growing: The median household income in the city was $31,420 in 2005, up from $27,322 in 2000.
"The growth right now has been higher than historic norms, but I think clearly the demand is there," says Kevin S. Crowder, the city's director of economic development.
Demand for everything from goods and services to entertainment to million-dollar condominiums continues to grow, according to most Miami Beach business owners. The business climate has drawn not only high-profile companies such as real estate bigwigs LNR Property Corp. and Terranova Corp., which both have corporate headquarters on Miami Beach, but also smaller companies looking to carve out a niche business.
Rob Principe is CEO of Scratch DJ Academy LLC, a school for aspiring (and hobbyist) disc jockeys. With one school in New York and another in Los Angeles, Scratch opened its third location this past November on Sixth Street off of Washington Avenue. Principe says he saw Miami Beach as the next logical location for his growing empire.
"South Beach was always in our initial plans for expansion because of the value of the entertainment experience in Miami [Beach]," he says, citing city residents, and visitors, high interest in music and nightlife.
Principe says the school is attracting its target 18- to 34-year-old age group to classes for both beginners and advanced professionals. Scratch also places DJs in stores and at events, and Principe says that with Miami Beach's retail growth and popularity as an event site, he has a growing market for that part of his business as well. All that means the location is doing "better than we expected," beating enrollment estimates by 10 percent to 15 percent, he says.
Crowder says the "thriving business community" continues to grow, and that smaller, professional services companies, such as law and accounting firms, are finding Miami Beach a comfortable place to base a business. "There is this kind of separate side besides the tourism and entertainment, this other side of business occurring day-to-day," he adds.
Attorney Matthew A. Krieger of Bratter Krieger LLP, a 20-employee immigration and real estate practice, says he has seen his business grow as Miami Beach's economy matured and branched out from a strictly tourism-based economy to one that encompasses everything from a television production sector to corporations such as LNR. The firm now counts soap opera actors, CEOs and developers as clients.
Bratter Krieger started in 1999 with a small office on Espanola Way, moved to Lincoln Road and finally settled into its current space in the South of Fifth (SoFi) area of South Beach in 2003. Krieger says he saw the potential in Miami Beach both as a diverse community to complement Bratter Krieger's immigration practice and as fertile ground in which to develop a newer, younger, entrepreneurial firm.
"There was an old guard on Miami Beach and some of those individuals were moving on," says Krieger of the decision to settle in the city. Having lived and worked there for almost a decade, Krieger says he has seen his fair share of business spring up around him, most visibly real estate brokerage companies and graphic design and marketing firms.
Krieger admits, though, that Miami Beach's lack of easy parking scares off many larger companies.
"One of the bigger issues is finding an office space that has parking," says Krieger, who saw a main benefit of his SoFi location as its significant amount of available parking. "The larger law firms need parking spaces for a couple hundred employees and these buildings don't support that," he says.
Scratch's Principe considered those parking issues when he was scouting locations for the school, but ultimately decided that with parking restrictions corresponding favorably to class times and the success of a sister school in Los Angeles which had similar challenges, the issue wasn't enough to drive him away.
"It's tough to get everything you want when you're looking at [locations]," he says. So far, though, he adds "it hasn't been limiting" for Scratch.
Krieger says any parking issues are worth the trade-off for the high-impact and unique perks a Miami Beach address can provide. His firm is across the street from the legendary Joe's Stone Crab restaurant, a draw for both employee functions and client meetings. "That's one of the first places [clients] want to go," he says.
Experts say that though perks can outweigh parking and affordability issues for smaller entrepreneurial businesses, large corporations will most likely remain a small part of the Miami Beach business scene. Stephen Levine, managing director of the South Florida office of Chicago-based commercial real estate advisory firm Studley Inc., says those issues will continue to keep corporate headquarters in other areas, but adds that it may not be a negative for the beach.
"I don't believe Miami Beach needs the presence of large corporations to succeed," he says, citing current beach tenants such as Sony Latin America Inc. and MTV Networks Latin America Inc., a plethora of record labels and modeling and talent agencies. "All of those things are incredibly positive attributes to South Beach and Miami Beach that will keep it afloat," Levine adds.
Levine also says that after losing many of the Internet companies that set up shop there in the 1990s, Miami Beach is doing extremely well. "The Miami Beach office market is a very healthy one, and that's something that you couldn't say a few years back," he says.
A HEALTHY ANCHOR
The Internet companies may not have had staying power, but one major corporation has been among the city's largest employers for decades, Mount Sinai Medical Center & Miami Heart Institute, Miami Beach's single largest employer.
"I always say there's water, electric, police, fire and Mount Sinai," says CEO Steven D. Sonenreich of the 3,000-employee "city within a city."
The non-profit hospital and its surrounding offices have a $250 million economic impact on Miami Beach, according to Sonenreich. That is one reason Crowder calls it "a critical piece of the city's infrastructure."
Mount Sinai is now expanding its role even further, breaking ground on new medical office buildings that will add 100,000 square feet of office space and an additional 500 parking spaces to the 55-acre Biscayne Bay-front campus. Sonenreich says he hopes to use the new space to bring more "world-class doctors" to the city, a draw for people around the region to use Mount Sinai's, and Miami Beach's facilities. Sonenreich is also working on preliminary plans for a new surgical tower that will house 12 operating rooms he says will "accommodate all the technology which will be utilized in the surgery rooms of the future."
But Mount Sinai's expansion may be threatened by its ability to staff up these new facilities. Sonenreich says only 10 percent of Mount Sinai workers actually reside in Miami Beach, largely because they cannot afford to do so.
"It's a major challenge for all organizations on Miami Beach that affordable housing is not available for many, if not the overwhelming majority, of our employees," he says. "[With] the high price of gas, the difficulty of navigating the infrastructure of Miami, for people to commute here is very difficult." Combine that with a statewide shortage of health care staff, and Mount Sinai may find it tough to compete with suburban facilities for personnel.
Sonenreich says he is currently in talks with both the mayor and city manager regarding ways to provide workforce housing in Miami Beach. "Something needs to be done," he says.
But a surge in luxury condominium development may make workforce housing a nearly impossible proposition.
THE LURE OF DESTINATION LIVING
Though Miami Beach has long been a bastion of condo living, the latest incarnation of the Miami Beach real estate mystique seems to be what developers and real estate agents are calling "destination living."
From Canyon Ranch Living in North Beach to the new Ritz-Carlton Club & Residences further south, developers are no longer stopping with amenities such as in-house gyms or floor-to-ceiling views. They are getting creative. Unit owners at the new W South Beach Hotel & Residences will have access to all hotel amenities (like the "Whatever/Whenever" concierge service and pre-programmed poolside iPods) as well as "BIP" status in the upscale incoming Bliss Spa. Buyers at The Carlyle and The Leslie on Ocean Drive receive membership to the tony Casa Casuarina club (in the former Versace mansion), as well as the services of Quintessentially, a 24-hour on-site concierge service.
Kevin Tomlinson, a real estate agent with Coral Gables-based Esslinger Wooten Maxwell Realtors Inc., who specializes in Miami Beach, has seen a rise in the desire for not just a vacation home, but also a true second residence that brings all the amenities of a resort vacation to a comfortable, and personal, living space.
"The Setai and Canyon Ranch [for example], They are both destinations unto themselves. Everything [owners] need is there," Tomlinson says, comparing the new developments to condominiums like the Phillippe Stark-designed Icon in the South of Fifth area. "Icon is just a place to live."
Between established condos, such as Icon and Murano at Portofino, and newer developments, Miami Beach is slowly eating up much of its developable land, industry experts say.
That is why most new high rises are redevelopments of existing, often run-down hotels. Although restoration generally costs more than building from scratch, with asking prices in the range of $1,800 per square foot (for The Carlyle) to $2,500 per square foot (the expected price of a penthouse at the W South Beach), it may well be worth the effort.
"What I see being the next step in Miami Beach development is older condos coming down. Land becomes so valuable, it's at a premium. New condos continue to appreciate more, sell quicker," Tomlinson says. "There's no intrinsic charm to an old condo."
And charm is always a selling point. Developer Paul Anton, who is responsible for the renovation of Art Deco hotels The Carlyle and The Leslie into condo units, says many visitors are no longer satisfied to stay in the traffic-heavy luxury hotels that dot Collins Avenue, and credits the interest in ownership to the emergence of high-profile shops and restaurants as well as an evolving "urban feel."
"It's the only place you can have an urban environment attached to the sand," Anton says. "Those 15 blocks you can't replicate anywhere in the world." "Annual events such as the South Beach Wine & Food Festival and Art Basel also continue to draw a more upscale crowd to Miami Beach, one that is less than content to stay for a weekend and which has "the financial capability" of owning a second home, he adds.
"We believe the market is going toward a more stable, individual-based ownership," says Anton, who converted The Carlyle's 53 rooms into 19 condominium units and The Leslie's 48 into 9 duplexes. "There was a tremendous niche to be filled for individuals who wanted to own a piece of the beach and still be a non-resident."
Anton says the units are "all but sold-out," although he declined to give exact sales figures. He thinks the idea of destination living is a trend that may be attractive to buyers around the globe, and he is looking at locations in London and California for similar developments.
Diego Lowenstein, CEO of Lionstone Development, has seen the interest in destination living grow as the developer of the Ritz-Carlton Club & Residences on the site of the former Seville Hotel at 29th Street and Collins Avenue. Lionstone had already developed the Ritz-Carlton South Beach, transforming the Morris Lapidus-designed DiLido Hotel into the Ritz's first outpost in Miami-Dade County. The new project, scheduled for occupancy in 2008, will have a combination of 89 condominium residences and 45 fractional Club residences (similar to a timeshare), priced at more than $900,000.
According to Lowenstein, most of the buyers at the Ritz-Carlton Club & Residences are looking for the comfort of home with the ease of hotel living. "You have a lot of transient buyers of residential properties," he says. "They spend only a couple of days or a couple of months here and they don't want to be troubled by having the responsibility."
The response to the Club & Residences has "overwhelmed us," says Lowenstein, although he declined to provide sales figures. He adds that the brand name is always a draw for high-end buyers. "The Ritz is a brand that is recognized worldwide," he says.
Hotel companies with high-end brands have been contemplating Miami Beach locations for years, but the logistics of site selection and construction in the island city have held many of them back. Over at the W (site of a former Holiday Inn on Collins Avenue), Tristar Capital principal and property owner David Edelstein says that Miami Beach was one of the original locations considered when the W brand was born. Though Edelstein says the brand and the location complement each other, W brand executives had "a struggle to find a site large enough."
"For the first seven or eight years they hunted through a lot of sites on South Beach," he says. With the "great oceanfront real estate" at 22nd Street and Collins Avenue available, Tristar partnered with New York-based RFR Holding LLC and The Related Cos. LP to bring the brand south.
Edelstein says that the residences are already 60 percent under contract, with prices ranging from $700,000 up to $20 million. The climate is the draw: "There is not another place in the world where you can go in the ocean 12 months a year," he says. Easy air access also attracts buyers, with most coming from New York, Chicago and Los Angeles, he adds.
Developers say Miami Beach condominium buyers are overwhelmingly purchasing a second or a third home. Where they are from, however, depends on the project. While US brands such as Canyon Ranch and the W draw many of their buyers from within the US, Tomlinson says more exotic properties such as The Setai in South Beach draw a stronger European crowd, who are more familiar than Americans with other Setai properties.
Not every development, though, attracts second-home buyers, Tomlinson adds. He says a building such as The Bath Club (on 59th Street and Collins Avenue), which offers some of the most spacious units in the city, is drawing relocations from South Florida areas such as the Village of Pinecrest. With units that can top 4,100 square feet, the Bath Club is particularly attractive to empty nesters who want the space but not the house.
"Fifteen or 20 years ago it was prestigious to live in a suburb. [Now] people are coming back to the urban centers," Tomlinson says. "They don't want long commutes. They want to leave their car if they can. They want to live near where they work, near where they play."
Developer Anton believes that even those buying second homes rather than primary residences are likely to have a "vested interest" in the community. Not content to jet in and out, this new species of owner will add to the "community spirit," as well as the ever-growing urban neighborhood, he says.
Edelstein, too, hopes to reap the benefits of what he feels will be "a lot more walking traffic" as the beach becomes more integrated between work and home. Where many hotels now have restaurants and shops tucked away inside, Edelstein stays the W's two 8,000-square-foot restaurants (one of which will be the famed Mr. Chow) will be accessible from the street to encourage non-resident usage.
A FASHION MECCA
The demand for high-end restaurants and retail in Miami Beach has grown with the influx of high-end buyers, but little vacant space remains.
In 2005 Miami Beach had the lowest retail vacancy rate in Miami-Dade: .03 percent, compared to the county average of 3.42 percent, according to a report by commercial real estate firm CB Richard Ellis. The city had 6,300 square feet of net absorption and ranked No. 3 in average lease rates, behind only East Kendall (the Dadeland area) and Downtown Miami. National brands want to be in Miami Beach: California-based t-shirt maker American Apparel Inc. opened a store on Lincoln Road in 2005, and iPod maker Apple Computer Inc. plans to open one soon.
Those statistics sound like success, but city planners and retailers say that at least one group of potential customers is unaware of the offerings: Miami Beach residents.
"The customer base that Miami Beach has, still is not spending a lot of retail money in Miami Beach. They're spending as much off of Miami Beach as they are on Miami Beach," economic development director Crowder says.
While Crowder believes much of that can be blamed on a lack of awareness about the beach's retailers, he also knows that for many shopping needs, residents have no choice but to leave the city. "As successful as the retailers are here, there is still a lot of unmet demand," he says.
In an effort to bring some of that missing product to the area, the city partnered with Miami-based Berkowitz Development Group Inc. and Planet Automotive owners Alan and Robert Potamkin (who own the parcel of land) to develop Fifth & Alton, a vertical shopping center at that address in the southern portion of South Beach. Though Berkowitz says it is premature to announce any tenants, the city says Fifth & Alton will house a supermarket on the ground level and big box retailers (such as a Best Buy or Home Depot) on its upper floors. Berkowitz created a similar vertical center at Dadeland Station in Kendall.
"That's a new type of retail product that hasn't historically been offered on the beach, and it's some of the types of retailers that you have to leave the beach to get," Crowder says, adding that the city had been trying for the past five years to put a supermarket in the heavily residential neighborhood.
Fifth & Alton, when complete, will have more than 180,000 square feet of retail space and, perhaps more importantly, a total of 1,100 parking spots. Though the retail element has a minimum parking requirement, Crowder says the city will pay for an additional 500 or so spaces, which it hopes will help battle yet another issue plaguing retail.
"Even some of the customer base that knows what is down there thinks there is no ability to park," Crowder says.
Parking accessibility will also be a key component of the new "Shop Miami Beach" campaign the city and Greater Miami Convention and Visitors Bureau are expecting to launch in the next few months. Miami Beach director of tourism and cultural affairs Max Sklar says that between flat lots, parking structures and on-street spaces, the excuse of no parking can no longer be accepted.
"Most people don't really know the amount of parking we actually have," Sklar contends.
To help educate the public about what is available on Collins and Washington avenues, Ocean Drive, Lincoln Road and Espanola Way, Sklar says Shop Miami Beach plans to create brochures along with print advertising campaigns and a soon-to-be-launched Web site with maps and information on retailers. The partnership is also planning an outreach program to hotel guests.
"Our goal is to do this by the summer and then it would be an ongoing effort," Sklar says.
WASHINGTON AVENUE EMERGENCE
With so much of Miami Beach built out, building up is one of the few ways to add substantial retail to the mix, and Berkowitz is not the only developer investing in such projects. Miami Beach-based PLC Investments Inc. is building LincolnEast, a mixed-use development on the 400 block of Lincoln Road. It will have 6,000 square feet of retail and restaurant space, 500 parking spaces and 160 condominium units. Though PLC is currently in the process of finding "the appropriate retailer for the space," the company's director of development, Glenn R. Boyer, says the building's location will do more than just add to the well-known and already successful Lincoln Road pedestrian mall.
"The project has a very public face on Washington Avenue," says Boyer, explaining that the retail will open partly onto 16th street and Washington. "It's definitely the adjacency to Lincoln Road that we are excited about, but there's no longer the opportunity to turn our backs on Washington Avenue."
With many retailers comfortably at home on Collins Avenue (and rents rising), Washington Avenue is emerging as the next logical street for expansion. Once dotted with restaurants, bars and mom-and-pop storefronts, Washington is slowly undergoing what some call a facelift.
Lyle Stern, president of Miami Beach-based retail real estate and brokerage company Koniver Stern Group, says though Collins continues to lure the higher-end fashion tenant, Washington is slowly carving out a niche with funky additions such as Hustler Hollywood (an outpost of the adult magazine) and New York beauty emporium Ricky's NYC, both retailers known to draw a younger, more adventurous crowd.
"It's what made SoHo really exciting 10 or 15 years ago," says Stern of the emerging shops. "You see tenants on Washington that you can't see on every street in America."
Another new addition to Washington Avenue has been The Dynamo, a museum shop and cafe that, though part of The Wolfsonian-FIU museum, has direct street access onto Washington.
"They just made a big investment on the restaurant and retail side," says PLC's Boyer, who thinks Washington Avenue shows exceptional potential. "[It] should really be one of the best North-South boulevards on this side of the peninsula," he feels.
Stern cites Washington's lower rental rates (about half that of Collins Avenue or Lincoln Road) as a draw for more unique retailers, but does not discount interest from big-name brands. He just signed a lease with coffee shop giant Starbucks Corp. to put a shop at 12th Street and Washington.
That mix of national chains and smaller, unique retail is what many see as the future of Washington. But rents are rising there, leading to concerns about the viability of mom-and-pop stores, which Miami Beach business leaders say is one of the elements that attract visitors.
"There are so many unique small businesses here that really aren't anywhere else," Miami Beach Chamber of Commerce president Wendy Kallergis says. "Tourists are going to want to see a Gap or a Victoria's Secret [but] they need to have the mix of unique businesses that aren't a chain. You need a combination of both."
Residents, too, need more than just high-fashion retail. They also need stores that supply basic needs, such as dry cleaners or drugstores, and many are worried that rents will also price those stores out of the retail market. Stern admits it will be an issue for some current tenants, likening the potential turnover to another famous retail cluster in Miami Beach.
"There's clearly going to be pressure on Washington Avenue like there was on Lincoln Road," he says. "There will be tenants that won't be able to stay when their lease is up."
Those concerns have driven the city to focus on what Crowder calls neighborhood goods and services. The businesses that have the potential for being priced out of the market. Really what we're talking about is the retail infrastructure, the things a community needs.To that end, the city is looking for neighborhoods where it can create strategies for recruiting and retaining both basic-needs and smaller retailers. "The other stuff is really taking care of itself right now," says Crowder of the higher-end retail and restaurant space.
MORE FASHIONABLE THAN EVER
Goldman Properties operations director Marlo Courtney, who oversees high-end retail destinations on Collins Avenue in South Beach, says most of his tenants are doing strong, consistent business. Many are expanding around their first South Beach locations. "The original stores that were in there 10 years ago are still there today," he says. Those include clothier Armani Exchange, the first big-name retailer to open on South Beach, and clothing and accessories brand Kenneth Cole, which has expanded from 2,000 square feet in 1999 to 10,000 square feet today. Other tenants, such as clothing and housewares retailer Urban Outfitters, makeup-giant M.A.C and women's retailer Nicole Miller have also remained steady over the years. But a new level of high-end retail boutique has also begun to establish itself on Collins Avenue.
One of those boutiques is Intermix, a high-end women's retailer with stores in New York, Boston, Atlanta and Washington (a Dallas site is on the way). It opened a store in South Beach five years ago. In a departure from the single-brand retailers that surround it, Intermix represents a mix of private-label and designer-brand merchandise. Far from a mass-market tourist draw such as Armani or M.A.C., brands that most visitors to the area seek out, Intermix is well known only in fashion circles.
In an e-mail interview, CEO Khajak Keledjian says he and his brother (and co-founder) Haro Keledjian saw Collins between Sixth and Seventh streets as a future shopping haven as well as a complement to their New York client base.
"There is a unique trend occurring in Miami where our New York customers have a second home in Miami and truly exhibit behavior as if they are residents of both places," he says. The store is able to link its New York and Miami Beach customers, and Keledjian says although less than half of the Miami Beach store's customers have either their primary or secondary residence in South Florida, that group makes up a significant portion of revenue.
Though Keledjian declines to give hard numbers, he does say that strong, consistent growth at the store in 2005, as well as continued market awareness expansion due to events such as the MTV Video Music Awards and Art Basel, have prompted aggressive expectations for 2006. High expectations also spurred the decision to open a second South Florida location in Bal Harbour last year.
National store networks, such as Intermix's, may help companies thrive as competition becomes stiff and smaller retailers struggle. Though Keledjian admits seeing some small businesses leave his block, he does feel Collins retains it's "strong deco-inspired neighborhood vibe." Besides, he says, "Being a retail tenant has always been a game of survival of the fittest."
That same sentiment might not apply to the restaurant and nightlife business. From bars at hotspots such as The Hotel Victor on Ocean Drive to mega-clubs such as Mansion, South Beach attracts new venues almost monthly. But can they all survive? The general consensus is: yes.
Steven H. Haas, general manager of longtime beach staple China Grill (on Fifth and Washington) and chairman of the Visitor and Convention Authority for Miami Beach, says he remembers when "Joe's [Stone Crab] was the only reason to come to South Beach."
These days, Haas says the money being spent at Miami Beach's restaurants and clubs sometimes even takes him aback. He recalls a recent Friday night when he arrived to find not one, but 13 Ferraris parked outside China Grill. "Money is being spent like crazy," he says.
Statistics back him up. Although figures for 2005 were not available at press time, the City of Miami Beach notes alcohol sales jumped from around $213 million in 2003 to more than $248 million in 2004. Food sales also leapt, from almost $405 million to nearly $472 million.
Most of that spending is coming from locals, Haas says, adding that on a typical Friday night business at China Grill is about 70 percent South Floridians and 30 percent tourists. "Five years ago it would have been the opposite," he says.
Unlike the retail sector, nightlife on South Beach has never had a problem educating the resident masses to its offerings. Glossy celebrity weeklies such as US Weekly and InTouch regularly feature Miami Beach hot spots in their pages, and nightlife industry insiders say the desire to be a part of that lifestyle drives much of the money intake.
Partners Erica Freshman and Zack Bush have been promoting events in Miami Beach for more than five years. They were, for three years, responsible for the highly successful (and celebrity-filled) Thursday night soirees at Skybar in The Shore Club. In an e-mail interview the two say they see no slowdown.
"In the past three years there has been a resurgence in the Miami Beach party scene," Bush says. "It seems as if every weekend there are more and more celebrities hitting the beach to party."
Freshman adds that with international events such as the MTV Video Music Awards, the Latin Grammy's and Art Basel, "It has evolved from being strictly a party place to a city where legitimate events are being held, year after year. Miami nightlife is more visible on a national scale."
That visibility can mean big money. Bush explains that bottle minimums, requiring guests at many lounges and clubs to purchase entire bottles of liquor in order to sit at private tables, mean the revenue potential can be sky high. "Ten years ago clubs and lounges had a one-bottle minimum, then it became two," Bush says. "Quite frequently now you see venues asking large parties to purchase four, five or six bottles." With bottles ranging from $300 to more than $1,000, a night out on the town can quickly become expensive. Still, he says, the high prices have not slowed business.
"More upscale clubs are coming on to the scene," says William Peraza Jr., president of Reachon.com, an Internet marketing company that does work for South Beach clubs such as Amika and Metropolis. "The whole lifestyle has gone higher end. It's not about the drinks anymore." Bush explains that as drink prices rise, spending does as well. He says the desire to be in an environment with actors, models and "beautiful people" keeps consumers paying without a complaint.
Locals themselves, Bush and Freshman say their events draw mostly people from within the region. That does not mean visitors are not a key part of their marketing strategy. "We are in Miami Beach, there will always be tourists," Bush admits.