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Miami's billion-dollar real estate boom

Miami Downtown
"They see Miami has all the potential to be at another level in three or five years, and they're paying top dollar. These guys from Asia are grabbing everything."

— condo developer Harvey Hernandez
[Photo: Daniel Portnoy]

Even by the standards of the city that put the "over" in overbuilding, the projects announced this year for Miami are colossal:

Swire Properties, a global real estate company based in Hong Kong, unveiled plans for Brickell CitiCentre, a $700-million retail, office, hotel and condo tower project totaling 4.6 million square feet on nine acres off Brickell Avenue in downtown Miami.

Then, Malaysia's largest conglomerate, casino-resort developer Genting Group, paid more than $400 million to secure more than 30 acres on the bayfront for its $3.8-billion Resorts World Miami. The project will include four hotels that total 5,200 rooms; a casino; 1,000 condos; a pool more than three football fields long; and a column-free convention ballroom that will be one of the largest in the nation.

Both developers have such deep pockets that they won't have to worry about the credit markets. And Genting says it will build regardless of how the legislative scrum plays out on casino gambling.

Meanwhile, the construction crane has returned to the city's skyline with an Argentine company's new condo tower. Foreign developers — and projects backed by foreign investors — have emerged in force ["Foreign-Backed Projects," page 44], and more may be in the offing. "There are a lot that have invested — and it's not even public — that are of equal financial strength and stature as Genting and Swire," says a land-use attorney for those two firms, former Miami Beach Mayor Neisen Kasdin, managing shareholder for Akerman Senterfitt's Miami office.

"This is completely different in quality and quantity and depth and staying power than anything we've ever seen before, and it bodes very well for us," says Kasdin. "It's a recognition that Miami has arrived as a major global gateway city."

What a change for a downtown that was ground zero for the real estate recession. Beginning in 2003, developers put up 22,250 condo units in 80 projects downtown, begetting excess inventory, foreclosures, falling prices and

discounted sales. As recently as 2009, it was projected to take a decade to

absorb. Instead, the last of those units will be sold by next year, projects Peter Zalewski, principal of Bal Harbour-based real estate firm Condo Vultures.

Seven of 10 new buyers, says Zalewski, come from abroad, and the wider Miami area is on pace to pass the sales volume at the height of the boom in 2005, according to the Miami Association of Realtors.

A bustling, more densely populated downtown is emerging. Women feel comfortable jogging alone. Parents exit condo lobbies with kids in strollers. Spanish, Portuguese, Russian and German are spoken.

The foreign buyers and investors are responding to multiple draws: The city's location and appeal, a new strength in the arts, the widening of the Panama Canal, a strong market for renting out units, a weak dollar, fears of political developments in home countries and real estate that's cheap relative not only to New York but also to São Paulo. Prolific condo developer Jorge Perez says South Americans "have effectively saved the real estate market."

And they've prompted new building. Zalewski counts eight towers totaling 2,800 units planned for downtown Miami alone. Melo Group, an Argentina family business, has an 18-story, 96-unit condo tower rising in the city's arts district. Another condo developer, Harvey Hernandez, hopes to break ground in the second quarter on Brickell House, a 46-story condo tower he's building with backing from U.S. and foreign investors. He has his eye on foreign buyers. They pay cash and, as is customary back home, put 70% down during construction.

Jobs will be welcome in Miami. Unemployment countywide in September was 11.5% — higher than both state and national averages. Construction employment has fallen by 45% — 25,300 jobs — from the 56,200 who were working in 2007, the market's peak.

Condos aside, direct foreign investment in Miami commercial real estate also has rebounded, hitting $472 million this year. That marks a huge jump from 2010's $16 million, though well off the recent peak of $1.5 billion in 2008, according to Real Capital Analytics, a New York research and consulting firm. Market analysis director Ben Thypin says the $472 million figure is almost certainly understated because the firm tracks only direct commercial investments of more than $2.5 million, not individual condo purchases or investments through conduits. "A lot of people in the industry have been shocked by how less volatile Miami was in the last few years," Thypin says.

Hernandez, a native of Venezuela who has built in Florida for 20 years, says "what you're seeing nowadays is unprecedented." Miami always has drawn foreign investors interested in a condo or two or a single commercial property. "Now what we're seeing is a lot of the tier-one investors," Hernandez says. "They see Miami has all the potential to be at another level in three or five years, and they're paying top dollar. These guys from Asia are grabbing everything."

One of those guys is Tan Sri Lim Kok Thay, 60, executive chairman of Genting, who Forbes reckons is worth $665 million. (In Miami, he goes by the westernized K.T. Lim. Tan Sri is a title awarded to select Malaysians.)

Miami Herald Property
Genting purchased the Miami Herald property on Biscayne Bay

Lim's late father, Lim Goh Tong, a native of China, emigrated to Malaysia in the 1930s. The elder Lim owned the only casino in Malaysia and built a conglomerate from the proceeds. His son first came to Miami 40 years ago, "literally backpacking," while on break from studying civil engineering at the University of London. He went on to Orlando — "I only wish I had bought real estate. I should have followed Walt Disney." And he enjoyed a grandstand seat for an Apollo night launch. "I felt the earth shake and the heat. It was one of the incredible experiences."

Lim joined his father in business and took Genting international with casino resorts and Genting Hong Kong, the world's third-largest cruise line. "K.T. Lim is a brilliant man, a visionary, a strategic thinker," says Walter Revell, a former Florida Secretary of Transportation who has known Lim for 12 years through serving on the board of Norwegian Cruise Line, of which Genting now owns 50%. Lim broke the cruising mold at Norwegian with the introduction of freestyle cruising.

Genting's "crowning achievement," according to a six-minute promotional video it plays for community leaders, will be Resorts World Miami. "Approach from any direction and prepare to be awed," a narrator intones. A seven-story terraced base will hold 50 restaurants and bars. Atop that will sit a four-acre pool stretching from Biscayne Boulevard to Biscayne Bay. Rising above that will be towers with the hotel rooms and condos. "A $3-billion investment in Florida, an engine for more than 15,000 direct and indirect construction jobs and another 30,000 jobs for the years to come," the narration concludes. "A vacation hot spot, an economic catalyst, an architectural icon, the heart of the city of Miami, a source of pride for all Floridians. This is Resorts World Miami."

World Resort Miami
Genting's project will include a seven-story terraced base that will hold 50 restaurants and bars. Atop that will be towers with hotel rooms and condos. [rendering: Resort World Miami]

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Florida Destinations for Foreign Investment
(Commercial real estate 2011 in millions)
Market Investment
Miami $471.54
Palm Beach 142.00
Broward
(Fort Lauderdale MSA)
120.26
S.W. Florida
(Naples-Fort Myers-Sarasota)
75.10
Tampa 32.55
Central Florida
(Seminole-Osceola-Volusia-Lake)
14.15
Orlando 12.75
Daytona Beach 6.00
All other Florida markets $76.80
Not to mention — which the video doesn't — a casino, perhaps the largest in the world. Genting says that if Florida rejects casino gambling, it still will build its resort, but over the course of up to 15 years rather than in three to five years after groundbreaking. Genting U.S. principal Colin Au told a Greater Miami Chamber of Commerce audience in October that the Genting tide will lift all ships. In contrast with local "racinos" that attract local customer bases with a mix of horse or dog racing and slot machines, Genting's casino aims to attract gamers from outside the state and country. "Gaming cannot be parasited on the local economy around it because it is never sustainable. In Asia, we have what we call an export mentality. We want to get people from far away from us, as far as possible."

Namely, Latin America and its 560 million people. "Miami is our proxy for Latin America," Au said. Between Latin America and the northeast U.S., he says, Miami will draw 5 million more tourists a year, with windfalls for airport concessions, local attractions, venues and hotels, shops and tax coffers.

Investment in Florida by Country
(Commercial real estate 2011 in millions)
Country Investment
Malaysia $252.25
Canada 235.00
Germany 172.04
Israel 89.21
United Kingdom 77.00
Mexico 49.95
Switzerland 48.50
Argentina 14.10
Hong Kong 13.10
Total foreign investment $951.15
Source: Real Capital Analytics
Note: Figures reflect direct commercialreal estate investment only.
Plenty of other gambling industry players, however, don't want Genting to be the only game in town. Potential competitors include Fortune 500 casino company Las Vegas Sands, Wynn Resorts and others.

More than a few in Miami worry that the city could end up as Vegas on the bay. In their view, Miami is doing just fine, thank you, as an international city without gambling. Already, nearly eight of 10 city residents speak a language other than English at home. Approximately 1,000 multinational companies and 41 international banks have a Miami-Dade County presence as well as 71 foreign consulates and 20 trade offices. Two of the 10 largest Florida-based banks, City National Bank and Sabadell United, both based in Miami, are owned by Spanish banks.

Some of the most concerned about casinos are business people historically eager for economic development. "God forbid we be like Las Vegas," says Miami businessman and developer Armando Codina.

Codina, who led an anti-gambling effort in the past, plans no role in the latest contest but hasn't changed his personal views that gambling is a regressive tax, "like the lottery," a magnet for social ills and a siphon from local business. "Traditionally, casinos are very selfish businesses," Codina says. "They encourage you to spend all your money inside their establishment. As a result, very little tends to grow in the shadow of a casino. I will be happy and pleased should Genting break with that pattern if they come to Miami."

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K.T. Lim
"We hope to play a catalytic role to stimulate the right sort of development to come and build up this city."

— Genting Group
Executive Chairman K.T. Lim
[Photo: Daniel Portnoy]

The Florida Chamber of Commerce opposes expanded casino gambling. The board of the Beacon Council, the local economic development group, hasn't taken a position, but in October President Frank Nero urged caution and creation of a task force that would take up to a year to study casino impacts, including the effect on diversifying Miami beyond tourism into an international business center.

Perez says he could be open to a couple of casinos but rejects a shift to a Vegas-like identity for the city. Without a doubt, he says, Miami will join the ranks of Hong Kong and Singapore but asks, "Did you see those cities become great cities because of gambling? The answer is no."

Lim says it's natural, but a mistake, for Americans to think of Vegas when they hear casino. He says he sees the casino as just one attraction within a resort, a means to the end of enticing people here who may wind up investing in Miami as he did.

Top 10 U.S. Markets for Foreign Investment (Commercial real estate 2011)
Market Investment
Manhattan $6.07 billion
Chicago 1.62
Boston $619.40 million
Dallas 559.80
Los Angeles 535.66
D.C. and Va. suburbs 486.53
San Francisco 479.49
Miami 471.54
Washington, D.C. 438.40
NYC boroughs 421.60
Source: Real Capital Analytics
Note: Figures reflect direct commercialreal estate investment only.

"I came here 40 years ago, and I enjoyed the city and I came back again and again and again and now that has resulted hopefully in investing billions of dollars into the place. We hope to play a catalytic role to stimulate the right sort of development to come and build up this city as a living city where people can come to work, can come to play, can come to enjoy themselves and also to live in. Ten, 15 years I like to think I see another Singapore here — that city-state, which is a more modern version of New York City. It's better planned, well laid out and it's safe, it's interesting, it's diverse. It is in my interest to try to move that city-state model to proceed," he says.

Whether big-time gambling comes to Miami or not, says Raul Valdes-Fauli, CEO of Professional Bank in Coral Gables, the new international investments are a "game-changer" for Miami.

Valdes-Fauli, who chairs a chamber committee devoted to downtown, says the "safety valves" of Brazil, Venezuela, Argentina and the like have helped the community recover economically faster than it otherwise would have — and faster than other parts of Florida — from the downturn and condo boom.

"I'm just absorbing now that maybe Miami is a more unique and special place than I ever thought possible," says Valdes-Fauli, "and we're attracting some real unique and special developers to downtown."

Says Valdes-Fauli, "Miami's ready for a new chapter."