Planned Brickell Apartments Now Will Be Offices
By Suzy Valentine
One developer is bucking the trend by shifting plans for rental apartments to office use for part of a Brickell project because he thinks it will balance an area heavy with residential offerings.
Alan Ojeda of Miami’s RG Rilea Group said he plans to apply for a permit to build a 30-story, 400,000-square-foot office tower for $120 million on Brickell Avenue at Southeast 15th Road. He had planned to build rental apartments.
"People need a job and a place to live both," he said. "Adjacent to this project, I’m developing Phase I of Park Place, comprising 371 rental apartments. If you have different uses in the same street, the society will have more equilibrium. In a properly urban district, you work, you shop and you live on the same street."
Brickell Avenue, he said, has started to lose balance.
His decision comes on the heels of an announcement that builders of Met I, under construction in downtown Miami, plan to change their plans for an office component to residential.
"There are so many units coming along on this street that it might have become a dormitory town," said Mr. Ojeda. "I think the balance is restored by having the three uses – residential, office and retail."
Mr. Ojeda said he had considered occupancy rates in existing commercial spaces and the pace at which the city has been growing when making his decision.
"The best indicator is how much empty office space there is. Occupancy rates vary from 80% to 88%," he said. "You break even around 50-something percent. Above 80%, you start making decent money."
Each year, 30,000 people relocate to Miami-Dade County, he said. Some will be looking to work somewhere that doesn’t present a difficult commute or is within walking distance of their home.
"You can improve the quality of your life by avoiding a 21/2-hour commute," said Mr. Ojeda. "There are no traffic jams like there are in the northern part of Brickell near the river, and there’s an adjacent Metromover station."
"This man is obviously a forward thinker," said real estate attorney and investor Jerrold Wish. There isn’t demand for office space now, he said, but sometime there might be.
"He’s the guy that most developers don’t want to be – the first guy," Mr. Wish said. "Most developers are happy to be the second guy after they see how the first guy fares."
Mr. Ojeda has lived in Miami for 23 years and has worked on other high-profile projects, including Barclay’s Financial Center, now called Mellon Commercial Center, on Brickell.
The developer said there is a demarcation between the tendency to build residential properties north of the Miami River and commercial spaces elsewhere. "The office market in Brickell is definitely moving south," said Mr. Ojeda.
The structure would form a triangle of office towers with Espirito Santo and the Four Seasons on Brickell Avenue. Mr. Ojeda said much of the necessary infrastructure is in place to support further office space.
Naming rights for a tenant leasing a quarter of the available space or 100,000 square feet may be offered by Mr. Ojeda, he said.
"Let’s say someone who takes 20% to 25% could get naming rights for the building," he said. "The building has great exposure. You will see it from Brickell and the bay but also from I-95."
Developers have to read a market well if their projects are to meet future demands.
When the project was conceived in 1999, Mr. Ojeda intended both phases of Park Place to be rental apartments. Five years later, a change to office space for the second phase indicates that Mr. Ojeda sees a market change by the time his project is completed in 2008.
"Is it a leap of faith? Yes, it is," he said. "A lot of things can happen in three years, both good and bad."
Many of his peers have placed their faith in the residential market and have converted use from office to condo – decisions Mr. Ojeda agreed have merit because low interest rates have created a demand for residences and made condos that were once out of reach more affordable.
But he doesn’t think he’s going against the tide.
"A developer can become the tide, taking the market in a different direction," he said.
Among those riding the condo wave is MDM Development Group, with whom Mr. Ojeda worked on Barclay’s Financial Center. MDM has put on hold Metropolitan Financial Center – an office component in downtown Miami – while turning its attention to an adjacent 72-story condo complex.
In July, plans for an office tower at Flagler Street and Biscayne Boulevard were abandoned in favor of a 54-story condo development when Atlanta-based Cousins Properties reevaluated the market.
Mr. Ojeda is reading the market differently.
Though office-rental rates haven’t provided developers the necessary return on a first-class building, that could change over the next three years, according to one real estate broker who reacted to Mr. Ojeda’s plans.
"There will be upper pressure on rents as there have been no new products for some time," said Peter Harrison, senior vice president of Transwestern Commercial Services.
"The issue becomes economics," he said. "If he’s expecting a 10% profit, he needs to get $44 per square foot. Today’s Class A space is commanding $33 to $35 per square foot, including operating costs – $10 shy of what he needs," said Mr. Harrison. "If he’s pricing the space net of operating costs, then he’s on target. If it’s gross, there may be some reevaluation."
The broker said Mr. Ojeda has chosen a great spot.
"It’s a good location, across from the Four Seasons, which my partner and I leased," he said. "It did well being so far south on Brickell."
At the Beacon Council offices on Southwest Eighth Street, a few blocks from the site, news of the development was warmly received.
"We’re very positive about mixed-use," said Beacon Council Executive Vice President Holly Wiedman. "It can’t be all condo or all office, and the proximity of home to work works well. You need the infrastructure, too, the service industries.
"What we’re seeing is that Miami has an astounding quality of product," said Ms. Wiedman. "Now we’re planning space well so that you can live, work or play on Brickell."