ENR Southeast's 2015 Owner of the Year: Related Group
Miami's current condo boom, the story goes, began humbly enough with the 2010 start of sales for two projects: Apogee Beach in Hollywood Beach and MyBrickell in Miami. Some were shocked that the developer, Related Group of Florida, was moving ahead in the midst of the Great Recession as foreclosures were souring the national mood and lenders were hardly willing to fund condo construction.
But that lack of lending was precisely why Related was making its bold move to sell buyers on the idea of dishing out most of the cash up front. Though the all-cash model is relatively uncommon in the U.S., the Miami-based company knew that South Americans, for instance, were familiar with it. And with some good pricing—which it could demand in 2010—and its well-known marketing savvy, Related figured it could woo them to buy U.S. real estate.
The company had purchased the two properties at what it considers "distressed" prices, and construction pricing was low, too. Matt Allen, executive vice president and chief operating officer for Related, says the developer used those facts to pitch buyers that it was passing along that value in the form of affordable pricing—about $450 per sq ft for Apogee Beach and $350 per sq ft for MyBrickell. And it worked.
"The market took to it," says Allen. Estimating that the units are now worth as much as double those prices, Allen says, "Every one of those buyers is in the money today."
Nearly five years later, it's South Florida's contractors and designers that are increasingly "in the money." Related is developing roughly 20 condo projects, plus another 13 rental properties, that will start construction sometime during 2015. While many of the company's projects are located in Miami-Dade County, it's also working in Broward and Palm Beach counties, along with select developments in the Tampa area.
The developer's projects are numerous, including the $250-million Brickell Heights, the $200-million Paraiso Bay, the $140-million SLS Brickell Hotel, the $118-million Icon Bay and the $105-million Millecento Residences by Pininfarina, all in Miami, as well as the $75-million ICON Las Olas building in Fort Lauderdale.
Moreover, other South Florida multifamily developers have quickly moved to embrace the new financing model. That is helping to whip the area's construction market into a frenzy of activity—which is somewhat unusual given the economic conditions still being experienced around the rest of the country.
"The impact has been outstanding in terms of being able to get deals done before the financial industry was ready to start lending again on residential work," says Tom Murphy Jr., president and chief executive of Coastal Construction Group.
Notably, Murphy adds, "The process took control away from the banks and put it in Related's hands. And speed-to-market was enhanced and foreign buyers were able to move their cash into a more stable currency and U.S. real estate faster than they were in the previous market."
A notable marketing pitch is also luring foreign investors to Related's many offerings: the inclusion of what the company calls "world-class" art in the developments. The company has two full-time art curators on staff who find and purchase the art, and then install it in the building.
And while speculation remains inherent to real-estate investment, this financing approach is making projects less risky for developers than during the previous condo boom, Allen contends.
"It's really a tale of two different times," he says. "Previously, it was highly speculative, much more than anybody thought. And the primary difference is the way we're selling." After that early success with Apogee and MyBrickell, Related has lowered the up-front deposit requirement to 50%, which matches the going maximum many construction lenders will provide today.