The race for ever-scarcer land in Miami-Dade’s most attractive neighborhoods is leading to creative deals for the most coveted parcels.
To get a plot next to his 10,000-square-foot site in Pinecrest, for instance, Michael Comras’ first step was to buy out most of the partners and form a joint venture with the remaining owner.
The Comras Co. CEO already owned 12305 S Dixie Highway, a 3,000-square-foot building with prime exposure to US 1. But he also had his eye on a neighboring lot wit h a 22,000- square-foot building that housed Gardner’ s Market and TrueValue hardware. It faced 124th Street, a major roadway
in to the Village of Pinecrest, where the average household income is about $122,636.
Each property offered a key feature the other didn’t – access to a desirable roadway. So to prepare the site for its new development, Pinecrest Shops,
the partners will demolish the smaller building. They’ll then combine the two lots to create a large plot facing US I.
“By incorporating my parcel, which makes it all US I frontage, the rents are much higher,” Mr. Comras said. “There’s a benefit to us putting our parcels together and redeveloping them.” For Property Markets Group, the right deal involved buying
development rights from Royal Motels under a zoning program that allows owners of older buildings to sell their unused development capacity or “extra” space. The program aims to preserve older buildings, which developers probably would otherwise buy and demolish to get the land for larger projects.
Property Markets Group’s deal allowed it to add about 141,000 square feet to condo development Echo Brickell, which has a penthouse priced at around $10 million, according to senior managing director Ryan Shear.
But developers, such as mckafka Development, say the right deal increasingly involves unlikely partners: landowners willing to defer closings and payments in exchange for premium sales prices.
As part of a growing trend, these developers are offering sellers partial upfront payment based on the land’s current value. To cover the remaining balance, they then provide equity in their buildings, essentially making landowner partners in their projects. ”So instead of paying in cash, I pay in square feet, ” said
Fernando Levy Hara, CEO of mckafka Development Group, the company building the 19-story Crimson waterfront residences at Northeast 27th Street and Biscayne Boulevard in Edgewater. ”If [landowners) wait two or three years, they could become equity partners and reap the value of the project.”
Industry sources say market conditions suggest such deals are likely to become increasingly popular.
“There’s pressure coming from the lending side,” said James ”Chip” Black, a member of the Commercial Industrial Association of South Florida.
And the strain is forcing all but the largest developers to find equity partners willing to swap land for a stake in major commercial and residential ventures.
”Before, it was a little bit easier [to get capital), but now some projects require 50% presale before banks will fund,” said Mr. Black, a broker specializing in land deals at Huttoe Group Realty Services, which recently facilitated an equity partnership for a hotel developer. ”Now with the banks being so cautious, this is a way to get the financing.”
But it’s not the easy way, as it hinges on findi ng a partner who’s not only able to see the big picture but is willing to wait for it to emerge.
”This only works for a patient landowner,” said Louis Birdman, co-developer of 1000 Museum Miami Condos. “It doesn’t work for someone who needs the money right away.”
But if they can seal them, developers say these deals benefit both parties, providing landowners with upfront cash plus valuable equity in multi-million dollar
projects. For developers, the payoff is improved cash flow to help complete the work.
“The problem is, sometimes you come across landowners who have an unrealistic value of what their land is worth,” said Mr. Birdman. “They imagine the
land is now worth what it would be after a developer works on it for five years.”
Completing high-rises could take years, with developers incurring millions in expenses for planning, development and sales.
“Overall, involvement in a project could be five to seven years. Non-developers don’t understand that,” Mr. Birdman said. “But if they’re patient and wiIIing
to wait, they can actually earn more money from their land.”
Some industry insiders, however, say the devil’s in the details.
“It doesn’t matter how good the land is, you have to be comfortable with the people you’ re partnering with,” said David Arditi, principal of Aria Development
Group. ” It boils down to a relationship issue. You’re typically structuring pretty rigid contracts that govern these relationships.
There is a series of major decisions. People want to capitalize today, but they also want to make sure they can partner and ride out the wave.”
Agreements must cover several areas. including spelling out who directs the project, who makes major decisions and how to gauge the value of the land
both under current market conditions and post-development.
“We say in the development business there’s a bogeyman behind every wall,” Mr. Comras said. “The development business is not for the faint of heart. It’s
for people who can truly understand where all the obstacles will occur … and are able to respond.”
Source: Miami Today
