“A little bit more creative”: Developers seize on aging offices

For years, a four-story office building at the Beacon Station business park in north Miami-Dade County has been abuzz with Ryder System employees. The logistics firm made the beige building its headquarters 18 years ago, and it held as many as 800 staffers at one time. 

But the 250,000-square-foot building will soon be gone. 

Due to the shift towards hybrid work, Ryder is downsizing and looking for its new home elsewhere in Miami-Dade. In March, it sold the Beacon Station building to a developer that plans an industrial complex in its place. 

It’s a scenario playing out across South Florida. Some of the tri-county region’s biggest employers are shedding some or all of their office space — much to the delight of developers that are scooping up the campuses with plans to demolish existing buildings and build in-demand asset classes such as industrial and residential. 

The redevelopment of office buildings presents a stark contrast to the storyline that has defined South Florida’s market over the past three years. As Northeast and West Coast firms expanded or flat out moved here, the region gained a reputation as an office real estate haven compared to the rest of the nation, which is continuing to struggle with increasing vacancy rates in the commercial sector.  

Nevertheless, longtime South Florida-based firms are no longer unscathed from the increasing popularity of remote-work, prompting many to reduce their footprint, according to industry insiders.

“What you are seeing today is office space is at the forefront of concern,” said J.C. de Ona, president of Centennial Bank’s Southeast Florida division. “So some large developers are pursuing these properties with the intent to reposition them.” 

Bridge Industrial, which bought Ryder’s headquarters, plans a pair of warehouse buildings spanning 330,000 square feet combined, according to an application filed to Miami-Dade. Ryder will remain based in the building for the next year through a sale-leaseback deal until it finds its new home. 

In Fort Lauderdale, Grover Corlew is planning the seven-story Mayla Cypress Creek, which will include 312 apartments. It will sit on the site of an office building at 6261 Northwest Sixth Way and on adjacent land that was part of Citrix’s headquarters, though the cloud computing firm has kept the rest of its campus. Farther north, Pebb Enterprises and BH Group are expected to add apartments and retail to the Office Depot campus in Boca Raton that they purchased, while also giving some of the existing office space a facelift, the South Florida Business Journal reported. 

BH, led by Isaac and Liat Toledano, also has partnered with the Pérez family’s Related Group on the redevelopment of a vacant office building in Plantation — formerly occupied by AT&T — with possibly more than 400 apartments, including workforce housing, and retail. 

The trend of seizing on offices as development sites is as much a result of slowed leasing as it is a factor of South Florida’s age-long issue of scarce buildable sites. 

“There’s not a whole lot of land here,” de Ona said, “so sometimes you have to get a little bit more creative and search for properties that can be repositioned.” 

What’s old is new

Redevelopment of a struggling asset class into a thriving one is a well-known real estate play in South Florida. 

First, it was golf courses. About five years ago, amid an over-supply of tracks and the financial woes that some courses faced, developers made the properties their prime targets for residential projects. 

In 2021, a slack retail market made shopping centers all the hype, with real estate players scooping up the brick and mortar properties with plans for multifamily projects. 

Most recently, as universities contracted due to a drop in undergraduate enrollment, developers quickly snatched up the centrally located properties. Plans range from replacing existing buildings with condominiums to repurposing dormitories into apartments. 

Now, office redevelopment is the latest addition to the trend. The office buildings that are poised to be razed are often aging, with most of them built in the early 2000s, but some date back as far as the 1980s. They are also in suburban areas and have reaped little benefit from the out-of-state business influx. They lack the modern feel and amenities that the transplant tenants want and haven’t experience the rental increases for more in-demand markets such as Miami’s Brickell Financial District. 

Developers “are buying an older Class B or C office building with a big piece of land,” said Alex Zylberglait, of Marcus & Millichap. “The building is somewhat functionally obsolete, so they are buying it for the value of an office building, which isn’t valuable because the [rental] rates aren’t as high because, again, no amenities.”

Ryder’s headquarters at 11690 Northwest 105th Street is in an unincorporated area of Miami-Dade that’s west of Medley. In the first quarter, the average asking rent in the Medley submarket was $36.14 per square foot, much less than that of Brickell at $83.23, according to a Colliers report. 

In March, Bridge paid $42.1 million for the building, or pretty much the same as the 16.8-acre property’s price tag of $42 million nine years ago. 

Office Depot’s 650,000-square-foot headquarters at 6600 North Military Trail is in Boca Raton, a city in south Palm Beach County. Boca’s average asking office rents were in the $30s per square foot in the first quarter, though they go up to the high $40s in parts of the city, according to Colliers. That’s less than the $80.86 average asking rent in West Palm Beach’s Central Business District, the county’s office market epicenter. 

In April, Pebb and BH scooped up Office Depot’s 29-acre headquarters for $104 million, marking a 21 percent discount from the property’s $132.1 million price tag six years ago. Office Depot leased back some of the space for two years. 

The suburban locations of the office buildings primed for redevelopment mean the properties come with large land tracts. At the same time, the sale-leaseback deals give the buyers some cash flow while they hammer out project plans. 

Developers “can buy an existing asset, arguably at a discounted basis, to have the covered land play, and they have enough mass to do multifamily and mixed-use and retail,” Zylberglait said. 

Whether office redevelopment takes a stronger hold in South Florida depends on how the market fares. 

De Ona, of Centennial Bank, sees the trend continuing, though it also could be in the firm of developers buying an office property with excess land where they can to add apartments. 

In a likely sign that more offices could become development sites, security services firm ADT renewed its Boca Raton headquarters lease last year but only took 104,000 square feet — 26 percent less space than it previously occupied. Completed in 1980, the building is owned by Pebb and Tortoise Properties. 

“Where there is a value-add play, where they can reposition and repurpose a property for better use,” de Ona said, “I think we will continue to see this.”