396 Alhambra project a risky move entering saturated Gables office market, real estate advisers say
By Yudislaidy Fernandez
The entry of 396 Alhambra into the Coral Gables office market is a risky move, real estate advisers say.
Within two years, if completed, the project is to deliver 285,000 square feet of additional Class A office space in the Gables' already-saturated office market.
The $130 million office project is to rehab an existing 7-story office building and construct a 15-story Class A office tower at the southeast corner of Alhambra Circle and LeJeune Road.
Matthew Goodman, principal of CresaPartners, a corporate real estate advisory firm that specializes in tenant representation, said with weakened tenant demand and an influx of Class A office supply in the local market, the 396 Alhambra project looks to be a big challenge.
He said additional supply coupled with deteriorating demand has already hurt a market that could worsen in months to come.
The Class A office project is to compete with once-for-sale office condos in the Gables now available for leasing plus the 2 million square feet being delivered in downtown and Brickell, he said. Potential tenants are to use those sub-market options to leverage better deals in the Gables, he said.
"Being able to secure $40-plus rates — it's going to be challenging," he said.
But 396 Alhambra is confident it can ask for leasing rates in the range of $50 to $55 gross per square foot for the new office tower and $40 to $43 gross per square foot rates for the redeveloped office building, said Pete Harrison, senior vice president of Transwestern, which will handle the project's leasing..
Local competitor Allen Morris Co. is offering rent rates of $34 to $42 on a triple net basis for Ponce de Leon Towers, a 215,000-square-foot luxury office building set to open first quarter 2011 as part of the seven-acre Old Spanish Village.
396 Alhambra developer Hector Fernandez said area competitors like Allen Morris motivate him to build a high-quality, luxury product able to compete with other major developments in Coral Gables.
Two years from now, CresaPartners' Mr. Goodman expects that average tenants, seeking 3,000- to 5,000-square-foot spaces are going to look for short-term leases. And bigger tenants, he said, are to ask for cost-effective deals before deciding to relocate their entire operations.
But Mr. Fernandez said he plans to offer long-term leases because they are making a long-term investment in the site and plan to develop lasting relationships with their tenants. "We always try to meet their (tenants') needs."
Mr. Fernandez is confident that the economy will rebound in the next 24 months. "Hopefully, by then, things will be better," he said.
Mr. Fernandez's company Agave Florida Investments, owns 80% of the office project and real estate developer Eddie Avila the remaining.
Mr. Fernandez hopes to attract Latin American-based companies to set up corporate offices in Coral Gables.
Transwestern's Mr. Harrison, the leasing agent, said they hope to start attracting tenants to the rehabbed building soon.
But he plans to hold off on new office tower leasing until the economy improves, which he hopes is about midway through construction.