Tony Arellano remembers the days when inking a lease took months. Getting a tenant to commit to space involved fielding more than a dozen inquiries, just as many in-person meetings, and countless back-and-forths on pricing and terms.
That was before Silicon Valley’s tech companies, as well as California and New York’s venture capitalists and hedge funders honed in on South Florida in, well, their typical way of doing business: Fast.
Peter Thiel and Keith Rabois’ Founders Fund, along with Jack Abraham’s Atomic, and a startup backed by both venture funds called OpenStore, were among the first wave of new-to-market companies last year. It took them three weeks to lease at Wynwood Annex in Miami, said Arellano, the co-founder of Dwntwn Realty Advisors who represented building owners the Related Group and East End Capital.
Commercial real estate data startup CREXi signed a lease at the same property in two weeks, and Bill Harris’ fintech Nirvana Technology in one week.
“These are some of the brightest minds, and they know how to grow companies,” said Arellano, who also represented CREXi. “These guys know how to make decisions. So, our ability to move fast and work quickly as we become more relevant is more important than ever.”
The buzz about South Florida becoming “more relevant” has reached a near-deafening pitch. Startup transplants’ tweets extoll the region as their new mecca, and headlines rename the area the “Silicon Valley of the South” or the “Wall Street of the South.”
Commercial brokers like Arellano went from patiently working to fill vacancies in early 2020 to having to turn away tenants from fully occupied properties the following year. They have become rainmakers in their own right, signing bigger deals at much higher rents, and posting record lease-up times. They have become bridge-builders, closing the gap between newcomers’ expectations and local landlords’ practice of business as usual. And, just like the tech-savvy firms, brokers have become data wonks, using the latest software to keep up with the deluge of demand and tenants’ projected growth.
“Our whole way of doing business is different right now. It is data-driven,” said Donna Abood, who heads Avison Young’s Miami office. “It is about data, then it is about their business strategy, and then, it’s real estate.”
In late 2021, Canadian asset management heavyweight CI Financial leased 18,500 square feet for its U.S. headquarters at 830 Brickell in Miami. Now, it has opted to double its footprint in the tower, according to Abood, who represented the firm.
Said Abood: “Nothing is static.”
Brave new market
Companies are on the lookout for a combined 1.5 million square feet of office space in Miami-Dade County, according to Brian Gale of Cushman & Wakefield.
In the first week of December, Gale and his team met with prospective tenants’ agents in New York to “get out in front of those guys” as part of their marketing efforts for the Miami office towers 830 Brickell, being developed by Vlad Doronin’s Oko Group and Cain International, and 701 Brickell, owned by Nuveen. The message was clear: Tenants looking to expand to the Sunshine State want Class A space.
New York-based Apollo Capital Management inked a lease for 24,000 square feet at 701 Brickell, which was constructed in 1986 and is being renovated. That’s a small footprint by New York standards, but big for Miami, Gale said. It worked out because existing companies were either downsizing or not renewing their leases as they reevaluated their new-normal office needs.
“These tenants are not as rent sensitive, because they are used to paying higher rates in other markets,” Gale said, adding that Class A Brickell rents are up 30 percent from pre-pandemic. “Class A in Miami gets $100 a foot…Class A New York gets over $200 a foot.”
Other brokers are turning to technology to make sense of all the demand.
Abood’s team made use of a new division at the firm that pored over projected employee headcount to determine real estate needs, Abood said.
Metro 1, which largely represents landlords, embraced tools like Monday.com to automate responses to leads, instead of replying to each one individually.
“Sometimes it is 50 to 100 leads a day. How do you stay on top of that?” said Andres Nava, managing director of the firm. “It is humanly impossible to achieve that, but tech tools are getting a lot more powerful to automate emails, to automate getting back to leads immediately.”
Out with the ‘Miami way’
Mauricio Zapata of Chariff Realty Group saw a harbinger of the influx in late 2020, as heads of out-of-state companies started scooping up mansions and condos here. He figured it was time to prevent a culture clash on the commercial real estate front.
Case in point: Tenant allowances, or upfront costs bankrolled by landlords for tenants to improve their spaces.
They are expected by newcomers. But they are rare in submarkets like Miami’s Allapattah, the Miami Design District, Little Haiti, Little River and North Miami, where many of the properties still are held by single-asset owners.
They would “laugh in your face” if told they have to cut a $3,000 check up front for a tenant, Zapata said.
Tenant allowances, as well as rent abatements, are needed now, also in light of the permitting bottleneck at the city of Miami, which is slowing down buildouts.
“It’s not like the only way is the Miami way,” Zapata said. “We need to adapt to a combination between the old way of Miami doing business and the way people do business elsewhere, because they come from a different mentality.”
Overall, the Miami-Dade market’s office vacancy rate hit 16 percent in the fourth quarter of 2021, Cushman reported. Yet, the wave of new tenants is chipping away at this and prompting landlords to raise rents.
Across the county, the average asking rent was $45.04 per square foot, up from $41.48 during the fourth quarter of 2020 and $43.60 in the third quarter of 2021.
Arellano said he expects the pace to continue, and pointed to a deal close to his heart. His Dwntwn Realty moved its headquarters to Wynwood in a deal that took three days from finding the space to signing the lease, he said.
And what has all that activity meant in terms of money for local brokers?
While most stayed mum on the rewards, Arellano offered a hint.
“There are definitely fees involved, but it is very labor intensive,” he said. “They call us the brokers for a reason.”