With the residential real estate market in South Florida in free fall, what’s a developer to do?
Go to the mall, along with the rest of the population.
The South Florida retail market is experiencing record-high rents and record-low vacancies, according to a second-quarter report by CB Richard Ellis.
In Miami-Dade, the most underserved by retail of the big three South Florida counties, average rents on stores increased 41 percent in 2006, from $21.52 to $30.45 per square foot. Broward and Palm Beach counties have seen similar trends.
Along with robust population increases, job growth and consumer spending, the sharp upturn follows limited development of new retail outlets from 2000 to 2004, when the “smart” money poured into condo development.
Now developers and investors are focusing on retail development. Nearly 6 million square feet of retail space is under construction in South Florida for delivery in 2007 and 2008.
“A lot of developers are looking to commercial projects as a temporary shift from the residential market,” observes Sherif Ayad, president of ID & Design International, a commercial design and branding consulting firm.
While most retail venues, from the strip shopping center to the traditional enclosed mall, are faring well, much of the new money is going into something that could seem out of place in sprawling South Florida. Mixed-use developments known as lifestyle centers or town centers are being built to meet demands for old-fashioned downtowns from consumers and local governments.
Paul D’Arelli, land development attorney with the legal firm Greenberg Traurig, is involved in one massive new project slated for Plantation in west Broward. “People here were forever complaining that there really is no downtown in Plantation,” he says. “There are a collection of shopping centers but no heart and soul. So the city, in an effort to create an urban center, created a master plan. The goal was to bring in some residential use into the commercial areas, to stimulate redevelopment of these commercial shopping centers.”
The city council laid out a 25-year master plan to encourage the development of a string of urban-style, pedestrian-friendly mixed-use centers. Plantation has rezoned 850 acres, called the Plantation Midtown District, to a special mixed-use category called SPI-3 that makes the development of lifestyle centers easy.
“Instead of having a master plan and then expecting the developer to come in and do land-use amendments, rezoning and all that,” says D’Arelli, “now we’re able to tell clients it’s simply a design exercise at this point. The city set the framework for the development community to respond, and they have responded tremendously — three or four new projects have come into the pipeline.”
One of these is 321 North, a $350 million redevelopment of an enclosed 650,000-square-foot retail mall and the addition of an elaborate open-air, Main Street-type pedestrian retail and entertainment center. The project is being developed by Plantation-based U.S. Capital Holdings Group.
Expected to be completed by fall 2009, the project will include, in addition to the renovation of the enclosed retail mall, a 114,000-square-foot office pavilion; 300,000 to 400,000 square feet of new Class A office space in two new buildings; residential towers with between 400 and 600 residential units; and a separately owned Sheraton Suites hotel.
And the project is green: 321 North, for which D’Arelli is development attorney, is part of the U.S. Green Building Council’s LEED for Neighborhood Development pilot program, which recognizes projects that incorporate smart growth, New Urbanism and green design principles.
Ayad’s ID & Design is designing the retail portion of the project. “We’re converting this center from an inward mall to an outward mall,” he says. “More of a streetscape with public spaces, plazas, places to entertain the consumer.”
The concept appeals to both time-constrained and leisurely shoppers. With ample street parking near the outdoor retail plaza, says Ayad, “you can hop out of your car, jump into a store, get back into your car and move on.” Or come for dinner and a stroll in the evening. “It becomes part of your lifestyle, a place you frequent several times a month,” he says.
While several mixed-use projects already approved for redevelopment in Plantation will take years to build, the city started running five trolleys throughout the District since February, “before the critical mass of residents,” says D’Arelli, to show its commitment to the New Urbanism.
Also in Plantation, the 1-million-square-foot Broward Mall, a solid performer for decades, is about to change hands for the second time this year. The mall was part of the purchase of the entire Mills Corp. shopping center portfolio by Simon Property Group in partnership with Farallon Capital Management for $1.64 billion in early 2007. The partnership just announced it is going to pass Broward Mall on to the Australian shopping center giant Westfield Group, along with the Westland Mall in Hialeah, for $400 million. The group is known for creating lifestyle centers by adding restaurants and theaters to existing shopping malls.
Farther south in west Broward, Turnberry Associates has won preliminary approval from the Davie Town Council to develop a sprawling mixed-use lifestyle center, called The Commons, much like the 117-acre Town Square Las Vegas the company has been building. The Vegas project is due to open in November.
While zoning on the 152-acre Commons in Davie has no residential component, the open-air mall will have a hotel, offices, two or three department store anchors, 12 to 14 restaurants and 1.1 million square feet of retail space.
According to Joe Tagliola, head of retail for Turnberry Associates, “the average household income is about $130,000 in the area, which is way above the national norm.” The center will be near Weston, an upscale bedroom community. Tagliola says there is a dearth of retail, office and hotel properties there. “Every department store chain in the country sees this as an opportunity, and there’s been a lot of interest from restaurants and the fashion business,” he adds.
Even though one of Turnberry’s largest profit centers, the 2.4-million-square-foot Aventura Mall, is a classic enclosed mall, the company’s new construction projects are mixed-use, urban center-style malls, reflecting shopping traffic patterns.
“The average stay in a regional shopping mall 10 years ago was two hours,” says Tagliola. “Now it’s under 50 minutes.” So he says “from a new product standpoint, the mixed-use, shop-work-live” scheme is retail’s future. It also gives developers flexibility during the long build-out process. “If the residential market seems to be going the wrong way, you have the ability to swap it out with offices. You can rework a project without starting from scratch,” Tagliola adds.
An equally ambitious project is planned for the City of Doral in western Miami-Dade County. Flagler Development Group is developing Downtown Doral, a 120-acre mixed-use community consisting of 2,840 condominium apartments and townhouses, almost 800,000 square feet of office space, 180,000 square feet of retail, a new city hall, a new elementary school and 3 acres of parks and green space. The project will be developed in phases over the next seven to 10 years.
“We plan to create a Main Street,” says Chris Cobb, vice president of Flagler Development. Cobb estimates the project will cost between $750 million and $l.25 billion to develop, with a projected sell-out of the residential component of between $1 and $1.5 billion, depending on market conditions.
The old paradigm of driving downtown to work and back to the suburbs at night is unsustainable, says Cobb. “The City of Doral is not set up for pedestrians; the city is set up for vehicular traffic. If we can create an environment where people can actually go down the elevator and walk out onto the main street to get a sandwich, I think both the buyers of residential and the renters of office spaces will like that.”