Inside Kushner Companies’ $1B expansion into South Florida

Since the start of the year, Kushner Companies has rolled out plans to build three major apartment projects in South Florida that will bring a total of 3,000 units at a cost topping $1 billion.

That’s a major investment for the New York-based developer that had not previously set foot in the Sunshine State. And it comes at a time when condo development has nearly ground to a halt and when South Florida’s multifamily market has already delivered more than 10,000 units over the past year. With what one industry player called an “overwhelming” supply of apartments on the market, the question becomes, did Kushner arrive too late to the party?

Kushner had been eyeing the Miami area for five years before it decided to plunge in, said company president Laurent Morali. South Florida’s growing population was the primary driver, he said.

“Demographics are the very reason why we’re going to South Florida,” Morali said. “If you look at the population growth and what’s projected, it’s really staggering.” Over the next 10 years, Florida’s population is expected to grow to nearly 26 million from 21.3 million, according to state demographers. In Miami-Dade alone, the population could swell to 3.5 million people from 2.7 million.

“These people are going to need to find housing. That’s the case for development,” he said.

Kushner has purchased one site in Wynwood and one in Fort Lauderdale for a combined $81 million. It has a third assemblage under contract in Miami’s Edgewater neighborhood in an Opportunity Zone. That development is expected to cost over half a billion dollars and deliver more than 1,000 units in three phases.

A rendering of the Wynwood project

The Wynwood project is expected to cost $100 million to develop and the Fort Lauderdale could cost as much as $650 million, based on early estimates, Morali said.

Bullish on multifamily
The company, led by Charlie Kushner, is bullish on the multifamily market. In May, Kushner Companies closed on its purchase of a $1.1 billion portfolio of 6,500 rental apartments in Maryland and Virginia. In all, it manages more than 21,000 apartments in the U.S. and has 6,000 in the development pipeline nationwide.

“[Apartments] are really our bread and butter,” Morali said.

Multifamily construction is booming in South Florida’s tri-county region, and for the first time in five years, demand is expected to outpace new deliveries, according Berkadia’s third quarter multifamily report.

Rental development has exploded at a time when condo developers in Miami have mostly stopped launching new projects. As a result, some sites that were earmarked for condo towers have been sold to apartment builders — Kushner’s among them.

As many as 10,755 units have been completed between the third quarter of 2018 and the third quarter of this year. In the same period, the occupancy rate in South Florida rose 30 basis points to nearly 96 percent, according to the report.

Peter Zalewski, a real estate investor and expert in the Miami market, believes Kushner Companies would be better off waiting for the market to absorb more units before embarking on large apartment construction.

Zalewski, a principal with the Miami real estate consultancy Condo Vultures and an investor in the bulk-condo market, said that with an “overwhelming” supply of rentals, some developers are listing their units on Airbnb in order to generate income while they try to sign long-term tenants.

“It’s ludicrous for an out-of-town developer to come down here and start throwing around cash in a market [with so much supply],” he said.

Morali doesn’t believe there is potential for oversupply.

“I heard the same concerns when we were building apartments in Jersey City and we were proven right,” he said, referring to 65 Bay Street, a 53-story, 447-unit luxury rental tower that the firm completed about five years ago. In Jersey City, demand has kept up with the growing supply of new rental construction.

“We rented 50 to 60 apartments a month, which is pretty amazing for a market which had ‘oversupply,’” Morali said. “It’s been fully leased for four years now.”

And while some investors and developers are moving into South Florida in part because of changes in the rent laws in New York City and California, Morali said that had nothing to do with Kushner’s expansion.

“The timing is interesting but there’s nothing to it,” he said. “It just [so] happens they’re all closing at the same time.”

The Mid-Atlantic apartment portfolio that it closed on earlier this year is the firm’s biggest acquisition since it paid a then record $1.8 billion for 666 Fifth Avenue in Manhattan in 2007. Kushner sold the ground lease on that troubled asset last year to Brookfield Asset Management, and has since returned to its roots of buying and developing multifamily real estate. Kushner also owns a portfolio of industrial, retail and office space, and has hotels in the works.

Over the past two years, Morali said he has toured several rental buildings in the Miami area to research the competition. Part of what will separate Kushner projects will be the amenities, he said.

For the first phase of the project at 1900 to 2000 Biscayne Boulevard, amenities will be geared toward health and wellness. In addition to a fitness center and yoga room, 2000 Biscayne will have a zen garden, sky lounge and a recording studio. It will also offer health and cooking classes and host a local art showcase.

Morali is projecting that rents at the first building will exceed $3 per square foot. Units will likely range from studios to three-bedroom apartments. Competitive luxury rentals along Biscayne Boulevard range from about $2.85 a square foot to $2.90 a square foot.

The details
In March, Kushner announced plans for its project in Edgewater, which at 1,100 units and a cost of about $550 million, could be the largest of the three. The development — which will be built in phases and likely without partners — will be split into three buildings that will rise in a designated Opportunity Zone. Morali said the company works solo in about half of its deals and that the partnerships are arranged on a case-by-case basis.

Investor Enrique Manhard is under contract to sell the property for an undisclosed amount to Kushner. Manhard bought the main site at 2000 Biscayne Boulevard last year for $13.1 million. He paid another $21 million to assemble 11 parcels nearby between 2017 and 2018.

Kushner plans 2000 Biscayne as a single tower with about 400 units, and 1900 Biscayne as two towers with roughly 700 units. They will be built in two phases, with 2000 Biscayne rising first. The first phase will cost about $160 million to build, Morali said.

Kushner stands to benefit from substantial tax incentives due to the property’s Opportunity Zone status. Investors who develop in those areas and hold onto to their properties can defer federal taxes on capital gains until Dec. 31, 2026.

In Wynwood, Kushner is partnering with the Miculitzki family’s Block Capital Group to build two mixed-use buildings on 1.5 acres at 127 Northwest 27th Street and 129 Northwest 26th Street. They paid $32 million for the assemblage, which will be developed into a total of 152 rental apartments, 50,000 square feet of office space, 34,000 square feet of retail space and parking.

Morali said that the Wynwood project could be the first one Kushner begins building, although the firm could work on both Edgewater and Wynwood at the same time. He expects to break ground on the Wynwood development in the first half of next year.

“I like telling our teams that whoever comes first and is ready to start building, I’m not going to tell them to slow down. We may start both at a very similar time,” he said.

A month ago, Kushner closed on an assemblage of properties in downtown Fort Lauderdale’s Himmarshee District, across the street from the Virgin Trains station. Morali said it’s too early to tell what Kushner will build in Fort Lauderdale, but it will likely include multifamily units.

Swire Properties of Hong Kong and its partner Lionheart Capital sold the lots at 200, 300 and 520 West Broward Boulevard, a 4.2-acre assemblage.

Looking ahead
Kushner is eyeing other markets outside of South Florida and the Northeast. One city it has considered is Jacksonville in northern Florida, which ranks as the largest city, geographically, in the continental U.S. Over the past couple of years, Morali said the firm has considered the Atlanta market, as well as Texas and California.

“Orlando and Tampa are definitely on the radar because they actually have the fastest growth rate in Florida,” he said. “We’re definitely looking at other places, and I would not be surprised if next year we’re talking about other markets. To look at where we were 12 months ago to where we are today, we’ve expanded dramatically.”