Commercial Lands Prices Soaring
By Marilyn Bowden
Construction is suddenly rampant again across Miami-Dade County, and demand for sites is driving up the cost of commercially zoned land.
"Prices are increasing at an incredible pace," said Melissa Tapanes Llahues, a shareholder with Bercow Radell & Fernandez, a law firm specializing in zoning, land use and environmental law.
"There are many folks either in play or on the sidelines, especially for commercial land where local government encourages mixed-use development."
Patricia Birch, a property appraiser with Gallaher & Birch, said an informal survey of 24 commercial land sales totaling 188 acres throughout the county in 2012 showed an average price of just over $700,000 an acre, or about $16.07 a square foot. In the first four months of 2013, 12 randomly chosen sales comprising 51 acres averaged $1.3 million an acre, or $29.84 cents a square foot.
The cost of land is dictated by a simple industry metric called return on cost: in the simplest terms, the net operating income of a property divided by the total cost, plus anticipated profit, said Howard Taft, senior managing director at Aztec Group, a real estate investment banking firm.
"This is how value is created," he said, "and it is the only metric people are using to buy land for income-producing properties. If rents are not high enough to justify a return on cost, the developer won’t build."
Increasing office rents and sales prices for condos allow developers to pay more for land, Mr. Taft said.
This dynamic is particularly evident, he said, in the Brickell-downtown corridor, where growing demand is driven by scarce supply.
"That is driving up prices of commercial sites significantly," Mr. Taft said.
Ms. Tapanes Llahues said in the urban core, Miami Beach and Coral Gables, parcels are being assembled into larger tracts for new development.
Ms. Birch cites the purchase of the Miami Herald site on the Bay by Genting Group as a catalyst for the redevelopment of the entire corridor from Brickell through the Design District.
"There’s a lot going on," she said. "Developers are assembling or buying properties in order to tear them down and develop something else on the land."
Among recent sales, Ms. Birch said, is a 16,000-square-foot site on Northwest 36th Street near I-95 that sold for $120 a square foot, $1.92 million, which is almost $5.23 million per acre. A parcel at 1000 NW Seventh St. closed for $37 a square foot, or about $1.611 million per acre; another along the Miami River sold for around $90 a foot, or $3.92 million per acre.
Doral is another hot spot for commercial and residential growth, Ms. Tapaneas Llahues said.
"Since it incorporated," she said, "the City of Doral has been encouraging residential development in areas that were traditionally industrial, feeding the airport.
"As residential became more prominent, the voters of the city began to have issues with industrial growth, and now even in industrial areas usages are being changed to recreational commercial uses, such as Sky Zone Trampoline Park."
Ikea, the Swedish furniture and household goods giant, paid $48 a square foot for 15 acres in Doral to become the city’s largest big-box retailer to date, Ms. Tapaneas Llahues said.
Furniture stores, Ms. Birch said, are tracking the housing market and becoming quite active in the run on development sites.
"Walmart is also on a tear in Miami-Dade," she said.
Land prices have been all over the map in the last decade; Ms. Birch said a 12.6-acre site in the Country Walk area that sold in 2004 for $4.7 million shot up to $15.94 million in 2006. Taken back by the lender in 2009, it resold in 2011 for $2.5 million. It recently sold yet again — this time for $7.3 million.
"Real estate is a cyclical business," Mr. Taft said, "and like other markets goes through expansions and contractions. It is never really at equilibrium, because there are always changes in demand and supply.
"But I think the bottom line is we have seen that land values will continue to increase — we hope at a steadier pace."
"Already there are tracts of land available, but the prices don’t work, so they sit on the market," Ms. Tapanes Llahues said. "Eventually the property owner will either lower the price or decide to hold on to it for future development.
"So the market regulates itself. We anticipate in certain sectors, because of limited supply and incredible demand, prices will continue to increase."To read the entire issue of Miami Today online, subscribe to e-MIAMI TODAY, an exact digital replica of the printed edition.