Downtown Miami’s urban core left behind by the boom

September 5, 2011

Paola Iuspa-Abbott, DBR Staff Writer

06-13-2011

A massive building boom reshaped Miami’s skyline. Huge modern glass and steel structures tower into the air. From afar, downtown looks like a booming metropolis.

But in the shadows of the sleek buildings lies an ugly truth. The urban core of downtown Miami is a blighted district pocked with vacancies and deteriorating buildings. While there are glimmers of hope, vast challenges remain to turn around the struggling area dominated by low-end retail and still largely dependent on office workers, most of whom depart before sundown.

At the same time that Miami enjoyed the largesse of a real estate bubble, the revenues of the agency created to spur business development in Miami’s historic downtown have exploded, and critics say there is little to show for all that money.

Area retailers and new residents say there no evidence the money has done anything to revitalize the long-neglected area or Flagler Street, its principal retail hub.

“There are many things that could be changed, like restoring historic buildings, but I don’t know what the Downtown Development Authority is doing with our taxes,” resident Jaime Acosta said. “At night downtown going west is so dark. On Sundays, if you go for a walk there is nothing open. It is totally dead.”

A construction boom in Miami’s business district helped boost the agency’s revenue by about 80 percent, from $2.84 million in 2005 to $5.1 million last year. Its revenue is set to rise nearly 11 percent next year when the taxable value within its district hits $10.9 billion, up from $9.8 billion in 2010, according to the Miami-Dade Property Appraiser’s Office.

The agency levies property taxes at a rate of 50 cents per $1,000.00 of taxable value on all properties — from giant office towers to modest condo units — within the authority’s boundaries.

The authority saw 22,439 new condos and two Class A office buildings built in its district from 2004 to 2009, which includes the Brickell Avenue financial district south of the Miami River. Two luxury hotels with nearly 900 rooms opened in recent years.

That windfall brought some cosmetic improvements to the area, including the installation of large sidewalk pots that hold trees, the launch of a sidewalk cleaning program and the deployment of “ambassadors” who provide directions to visitors.

But commercial and residential owners say the DDA has made few meaningful improvements and are looking for more than minor cosmetic changes. They want the agency to help spur new development and upgrade buildings to attract better quality retailers and services for the thousands of new condo residents, guests of the new hotels and area workers.

“They need to do something to make Flagler look better, make it enjoyable for the people who live in the area,” said Acosta, who lives in a unit he bought in 2007 at the 50 Biscayne condominium on Flagler Street and Biscayne Boulevard. “There are many things that could be changed here, like helping restore the historic buildings. But I don’t know what the Downtown Development Authority is doing with our taxes.”

DDA executive director Alyce Robertson said her agency wants downtown to look nice to attract people. That’s why her board is focusing on cleaning streets, improving landscaping and hiring so-called ambassadors.

“If it looks good, it is going to make people feel good,” said Robertson, who joined the agency in 2008 following a management overhaul after a public outcry over its poor performance.

But critics say the area remains unappealing. Despite the DDA’s beautification efforts the business district continues to be a hot spot for code violations, parking and lighting problems, aggressive panhandlers and a low-quality retail mix. The area, north of the Miami River and south of Interstate 395, continues to be a ghost town after dark.

Old Infrastructure

Some downtown property owners say many buildings are prime for demolition and should be replaced with new apartment buildings and retail centers.

“But owners alone can’t do it,” said Sergio Rok, whose family owns 17 buildings with 200 tenants in the business district. In the last year and a half, Rok said he has spent hundreds of thousands of dollars to upgrade his buildings to accommodate higher quality tenants, including Lime Fresh Mexican Grill and Tre Italian Bistro on Flagler Street.

Rok said the DDA should press city and county officials to come up with a development program to overcome some of the challenges that aging infrastructure present to owners like him.

“Flagler’s infrastructure is old, which makes it difficult to deal with,” he said. “It is clearly going to be hard work. Developers will need assistance from the city to formulate a plan that will make sense.”

He said any plan should include transferring development rights from historic structures to nonhistoric buildings, parking variances, a centralized valet parking system, expanded incentives for facade improvement, wider sidewalks for outdoor seating and the relocation of utility lines along Flagler Street.

Pushing those issues is “a major role the DDA is supposed to do,” said real estate consultant Matthew Schwartz, who was the agency’s executive director from 1988 to 1994.

He said the DDA has the potential to help bring development to the area as it did in the 1980s, when it pushed construction of Bayside Marketplace and Bayfront Park on Biscayne Bay.

“Back then, the DDA’s emphasis was on major capital projects,” he said, adding that occurred before his time at the DDA. “It worked hand-in-hand with the city of Miami to make things happen.”

‘Fancy office space’

Since then, the DDA has focused on complementing basic public services the city of Miami is supposed to provide.

“The reality is, the city is not going to do it because it doesn’t have the money,” Robertson said. “We’ll fill the gap until the city can pick it up.”

But city’s Solid Waste department said it shouldn’t be any gap to fill. Solid Waste currently has people sweeping the streets during the day and a mechanical sweeper cleaning the streets of the business district at night, Solid Waste Director Fred Hobson said.

“In addition, we have a mobile crew that assists in cleaning this area during the day as needed,” he said.

Hobson said the city hasn’t slashed services to downtown, despite budget cuts.

“We have continued to provide the same level of sanitation service and the department has not cut any of these necessary services,” he said.

Some question why taxpayers are funding the DDA to do what they already pay the city to do.

“How do you justify the existence of a DDA when the city could do what the DDA is doing?” said Frank Schnidman, director of Florida Atlantic University’s Center for Urban Redevelopment Education in Fort Lauderdale. “Does that justify their fancy office space and a large number of staff?”

The authority pays about $294,000 a year in rent for an office on the 29th floor of one of the city’s priciest office buildings. Its headquarters at the Wachovia Financial Center has panoramic views of Biscayne Bay and the Port of Miami.

Including the rent, the agency spent $834,000 on administrative expenses last year. In addition, it spent about $100,000 on conferences, professional development, mobile phones and other expenses. Its staff of 18 also earns $1.2 million a year, including $172,8000 to Robertson and $110,700 per year to a deputy director, Javier Betancourt.

About 43 percent of the DDA’s revenue goes toward personnel and administrative costs, according to a Daily Business Review analysis of DDA financial statements.

The agency also pays the Downtown Miami Partnership, a nonprofit group hired by the DDA, up to $65,000 to manage its shutters-and-facade improvement program and more than $90,000 to a Miami-based public relations firm to market the DDA district.

Last year, the DDA spent $840,116 on a beautification program and to hire its sidewalk ambassadors.

‘There is no urgency’

Business owner Jose Goyanes — one of the DDA’s 15 board members — is a critic of how the agency spends taxpayer money. Goyanes said he proposed cutting expenses by moving out of the Southeast Financial Center and acquiring a small office building while values are low.

The agency has not acted on his suggestion. “There is no urgency,” he said.

Goyanes estimates the agency could buy its own space for about $2 million and make loan payments of about $180,000 a year, about $100,000 less than it pays in rent.

“They can put the [savings] back on the street to fund services or pick up the slack where the city has left off,” said Goyanes, who owns Tre Italian Bistro, Churchills barbershop and several Metro Beauty Center stores. “Not only that, they would be at ground level. You know how much more exposure they would have?”

Robertson said the agency’s lease expires in early 2014 and said its board would study Goyanes’ suggestion at that time. But that will likely be too late to take advantage of deep discounts available during the real estate downturn.

Al West, a DDA board member and the authority’s treasurer, said the group has come a long way in the last three years. It used to have a reputation of spending too much money on staff and “not enough money was going to the street,” he said.

But a recent city report concluded there were serious financial and administrative problems at the DDA.

In 2008, a city of Miami audit showed that from 2003 to 2006 the authority lacked proper internal financial controls and record keeping. Employees were overpaid and DDA funds were shifted among bank accounts without proper authorization or documentation.

West contends those issues have been addressed.

“Now, we are going in the right direction,” said West, who is also senior vice president and chief financial officer of the Greater Miami Convention & Visitors Bureau. He added that Robertson has reduced payroll by 21 percent since she joined the DDA.

The city inspector general does not regularly audit the authority and no review of the agency’s finances is planned in the near future.

Unprepared for challenges

Some suggest the DDA needs to be restructured and perhaps have its mission adjusted. For one, the areas it is responsible for developing are very different and that diversity could prove daunting. Perhaps rather than a sprawling district that flows from 15th Road on the south to 24th Street on the north should be reduced to allow the DDA to focus on the area with the most need, downtown Miami.

Rok, who sat on the board before the building boom, said it’s time to rethink the structure of the agency, which now spreads its resources and attention among four subdistricts: The Brickell financial district, the central business district that includes Flagler Street, and the Park West and Omni neighborhoods. Each area grew significantly during the housing boom. Each district is in a different stage of maturity and has different needs, making it difficult for the authority to focus on revitalizing Flagler Street, said Rok, president of Miami-based Rok Enterprises.

“The CBD needs a lot of work and maybe the DDA is too big and can’t handle it all,” he said. “I don’t know if the structure of the DDA benefits the districts individually. It needs to be looked at to see if there is a better way to deal with each district.”

The DDA offers incentives to help pay for tenant improvements, replace window shutters and improve building facades. But the program has not been effective largely because landlords must foot part of the bill, and that doesn’t happen often, said Josie Correa, director of the Downtown Miami Partnership, which administers the program.

But one expert says those incentives are not enough to transform downtown.

G. Lamont Blackstone, a New York real estate consultant who helps cities develop public-private partnerships to revitalize downtowns, said a typical incentive program calls for cities or downtown development authorities to provide tax breaks to developers and building owners.

“That can work to attract certain retailers to an area,” Blackstone said. Blackstone has not worked for the Miami DDA.

Miami developer Jorge Perez, who built most of the condos in the business district during the boom, said there are several sites around Flagler that are candidates for redevelopment. But he can’t do it without government incentives and public policies that make it feasible to build downtown.

“The reason the Loft was built is because parking was provided by the Miami Parking Authority, and we didn’t have to build a garage so the savings went to the buyers,” he said, referring to Loft II.

For that project to become reality, he had to lobby the city and the parking authority. Perez, chair and president of the Related Group of Florida, said the DDA played no role in facilitating construction of his downtown projects.

“We would to be able to go back to the CBD and hit that market segment that can only pay $200 a square foot,” he said. “But given that my construction cost is $200 a square foot, I can’t do it without some form of partnership with the public sector.” [Cont.]

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Copyright 2011. ALM Media Properties, LLC. All rights reserved.


Miami real estate market may benefit from Italy’s economic woes

September 5, 2011

Paola Iuspa-Abbott, DBR Staff Writer

08-23-2011

When Miami Beach broker Pietro Belmonte walks into the garden of Casa del Popolo on Rome’s Piazza del Popolo next month, affluent Italians savoring summer cocktails will be waiting for him.

Armed with brochures promoting condo projects in Miami Beach and New York, he will spend an evening speaking about prices, neighborhoods and the fast-appreciating condos in South Beach. While he doesn’t expect to walk out into the urban square that night with signed contracts, he does expect to emerge with a lengthy list of quality leads. Unlike any other year, more Italians have signed up to attend the Rome event, he said.

“This year we are expecting a bigger size [crowd],” said Belmonte, a broker with Douglas Elliman Florida of Miami Beach. “It has to do with the economy in Italy.”

Staggering beneath the weight of an enormous sovereign debt and a soaring budget deficit that is 3.9 percent of its gross domestic product, the Italian economy in is on the brink of collapse.

Early this month, the European Central Bank agreed to buy some of Italy’s debt in exchange for pension cuts and tax increases, among other austerity measures. Some experts said the deal — still in the making — could determine Italy’s political and economic future.

Italy’s national crisis could, in a way, benefit Miami real estate, according to Belmonte and other brokers. They expect more wealthy Italians to invest in Miami real estate, especially condos, as they search for ways to preserve capital until their nation’s economy stabilizes.

Italian investors are also concerned that the euro will weaken with the looming eurozone financial crisis which has the capacity to erode the price-discount advantage they’ve enjoyed when buying real estate in the United States. They now buy properties at more than a 40 percent discount because of the weak dollar.

“The fear that the euro will go down and the dollar will get strong makes us a safer place to park their money,” said Belmonte, who represents the luxury Mondrian South Beach, a new condo hotel project. “They want long-term investments.”

A Growing Presence

The crowd at Casa del Popolo set to gather Sept. 15 will most likely pay attention to Belmonte’s analysis of the South Beach condo market, where some properties have appreciated 25 percent in the past 18 months, he said.

Some of the fast-appreciating high-rises are Continuum, Icon South Beach and Murano Grande, located south of Fifth Street in Miami Beach. Many of those luxurious buildings are already dominated by Italians, said Vanessa Grout, president and CEO of Douglas Elliman Florida. She lives in the Continuum’s north tower.

“The majority of my neighbors in my building are Italians,” she added.

Those buildings have great amenities and have direct ocean views. Their fast appreciation is a rarity in a real estate market that continues to struggle to overcome one of the worst value drops in more than half a century.

Italians represent a small percentage of the pool of foreign buyers snatching Miami real estate, said broker Melissa Rubin, vice president of Coral Gables-based Platinum Properties.

Venezuelans, Canadians and Brazilians lead the pack, according to the Miami Realtors.

Rubin, who works closely with French buyers, said she has seen an increase in the number of French investors coming to Miami, as France’s economy is also uncertain. She said French investors represent 6 percent of all foreign buyers in Miami.

“French … are buying because the economy is challenging there,” she said, adding they prefer Aventura and Miami.

Real estate broker Philip Spiegelman said he has noticed a jump in inquiries from Italians looking to buy condos in Miami.

“For the last couple of weeks at our sales office, we’ve seen an increase in traffic, which we are attributing directly to the instability of what is going on in Europe,” said Spiegelman, a principal with Related ISG, a real estate firm that caters to international buyers.

Spiegelman said his company has money allocated for off-shore marketing, and he is looking at “whether we need to rebalance or reallocate some of it” to target the Italian market. For now, most of Related ISG marketing money goes to enticing Latin Americans to the Miami condo market. Yet, that could change if he thinks Italian buyers are ready to come in draw.

“The whole volatility in Italy and Europe has increased in the last couple of weeks and we are very much in tune with that and looking at how we can expand if there is an opportunity,” he said.

Capital Flight

Italian restaurateur Cristoforo Pignata, who moved his family from Naples, Italy, to Key Biscayne three years ago, said some of his friends in Naples are considering relocating to Miami or buying condos in the area.

“I have a lot of people calling me because they want to come here,” said Pignata, owner of Puntino restaurant, with locations in downtown Miami and Key Biscayne.

Pignata said some Italians want to take their money out of Italy and place it in a location they think is safe.

Commercial real estate broker Luigi Mercurio said the cash-strapped Italian government is going after the wealthy in a hunt for tax evaders, he said.

“If you have money, the government has a magnifying glass on you,” said Mercurio, who moved to Miami from Italy in the 1990s.

“Taxes there are more than 40 percent, and it is easy to find loopholes to take the money out of the country and avoid paying taxes.”

Mercurio, with Esslinger Wooten Maxwell Realtors in Miami Beach, said Italians like Miami because they share similar industries, including tourism and hospitality.

Like Pignata, many Italians who move to South Florida either open restaurants or boutique hotels in Miami Beach, Mercurio said.

For wealthy foreigners, obtaining a visa to live in the United States is not hard, he added.

“The real kicker has been the immigration law that allows you to get a visa with a $500,000 investment,” he said, referring to the EB-5 visa for immigrant investors. [Cont.]

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Copyright 2011. ALM Media Properties, LLC. All rights reserved.