Spanish developer shifts strategies in an ailing economy

Miami real estate developer Rilea Group spread its commercial risk
across multifamily properties, shopping centers and offices. Now all three
sectors are suffering, so Rilea is shifting strategies.

On the multifamily property front, the developer is catering to the business
traveler by renting luxury condo units at One Broadway at Brickell, a
36-story residential tower with 371 units and 15,000 square feet of
retail space, on a short-term basis.

On the commercial front, the firm is shying away from putting all of its
eggs in the Fortune 1000 basket, instead targeting smaller tenants for
its 1450 Brickell LEED-certified tower that’s set to come online next
year.

That’s the short-term play. Led by president and CEO Alan Ojeda, the
Rilea Group is looking beyond the dark clouds to the promise of Miami’s
future. Rilea has been developing real estate in South Florida since
1981, and has seen the ups and downs — and the growth of the Magic City.

The Real Deal caught up with Ojeda, a native of Spain, to talk about
the state of multifamily property, how the economy is impacting its new
projects, and what the real estate industry needs to learn from the
meltdown.

The Real Deal: What’s the current state of multifamily in Miami?

Alan Ojeda: In the last cycle in the 1970s, there were just too many
condos — period. Now, buyers are just not able to buy because of
financing. I think as soon as financing is made available to those
buyers, half of the problem will slowly, slowly disappear. There will
still be a certain percentage of flippers, but there are real buyers
out there.

TRD: How has the economy altered Rilea Group’s plans to draw tenants to 1450 Brickell?

AO: Some tenants are postponing decisions. Some tenants are
bottom fishing. But we are long-term holders and this is a storm that
we have to go through like everybody else.

TRD: Has your attitude shifted from “I want only big-name tenants” to
“I’ll take whatever tenant I can get regardless of how big they are?”

AO: There are no more big names. If I were to tell you a year
ago that that my building was half-leased to Lehman Brothers and the
other half to, you name it, General Motors, you would have
congratulated me. Now, one of the things we are learning is that there
are no big names. Some of the biggest of the biggest companies have
imploded in months. We want the big names. Don’t take me wrong. But I
would prefer to have 30 small tenants to three large tenants. It
spreads the risk.

TRD: 1450 Brickell is a green office building. Do you expect that to be
a major competitive differentiator? Are you seeing a lot of traction
with this environmentally friendly approach?

AO: Obviously, when oil was 150 bucks a barrel it was a
different story, but green is a trend that’s here to stay. In the long
term, we will see more and more companies that want to be — let’s call it
politically correct. More and more companies will want to be in green
buildings as a matter of policy than anything else. The whole world is
doing this. The United States is catching up to what the world is doing.

TRD: What are the potential long-term impacts of today’s financial crisis on South Florida?

AO: We will be in deep waters through 2009. Then we have to
learn our lessons. I hope one of the lessons is that the banks won’t
lend everything to everybody. And I hope Wall Street will learn that
many of these derivatives and financial instruments are pure gimmicks.
They don’t create value. They are a game. They are like playing in
Vegas. I think short-selling should be forbidden. I think most
derivatives should be forbidden or very heavily regulated because these
are gains that are costing many people to lose their jobs and that’s
unacceptable.

TRD: What about developers? What’s the lesson for developers in all this?

AO: Developers should be pushing the law to be changed in the
condo market. If someone buys a condo and it doesn’t close, he
shouldn’t simply lose the deposit. He should have to commit to the full
obligation. So the same way that a buyer can ask specific performance
from a condo developer, a condo developer should be able to ask
specific performance from the buyer. You have to remember that many of
these buyers were never buyers. There’s a ton of speculation, a ton of
flipping contracts.

TRD: What is the impact of foreign investment on the region?

AO: Well, the decline of the euro doesn’t help but people
invest in different places simply to spread the risk. There are a
certain number of opportunistic investors that took advantage of the
euro’s value. But I think there will always be people investing in the
United States, and particularly Florida and Miami.

TRD: Do you expect Downtown Miami to look much different five years from now? What will it look like?

AO: Much more urban. For the first time, Miami is becoming an
urban city where you have a lot of life happening after 5 p.m. There is
a crowd of, let’s call it between 25- and 40-somethings, that are
willing to live in high-rises as long as there are restaurants and
cafés and outdoor living downstairs. The main change we are seeing is
there are not as many people that want to have a little home with a
yacht and an hour and a half of commuting to work. People are trading
commuting time for urban life.