Miami office developers looking ahead to next construction cycle
By Marilyn Bowden
Even as new office buildings drive up vacancies in a market still trying to recover from the country's economic woes, some experienced developers are looking ahead to the next building cycle.
"Office development is not a business for the faint of heart," said Allen Morris, president of Allen Morris Co. "It's a little bit like shooting skeet. You don't shoot at the clay pigeon, but at where it's going to be.
"Right now we see a lot of activity, people negotiating for sites. They're shooting at where the clay pigeon is going to be three years from now. A lot of us believe we are going to see a strong resurgence in demand for office space in our community."
Starting from scratch, he said, a large office project takes three to four years to complete. With all approvals in place and the design phase complete, Mr. Morris said his company's next project, Ponce de Leon Towers, a 16-story, 203,000-square-foot tower to rise at 2801 Ponce de Leon Blvd., could be ready in as little as two years.
"We're in the process of lining up a co-anchor tenant to join an executive search firm affiliated with Rockefeller Group and our own company," he said.
"We are conservative in our approach. We like to have our projects substantially preleased before starting construction — in this case about 50% preleased.
"It makes it easier for prospective tenants when they know who the other tenants will be and helps our leasing program."
Plans are underway for another 250,000-square-foot office tower at Waterford at Blue Lagoon business park in Airport West, said Steven Smith, director of leasing at The Hogan Group, which leases and manages properties owned and developed by TIAA-CREF — Teachers Insurance & Annuity Association, College Retirement Equities Fund.
"Ultimately, we plan four more buildings at our core site, right next to the 701 building," Mr. Smith said, "though one could be a hotel."
The new tower will be "evolutionary rather than revolutionary," he said — "same architect, same design. We're trying to get ahead of the curve and doing drawings right now, hoping to get in it for permitting at the beginning of next year."
He estimated 18 to 20 months for construction.
"What spurred it," Mr. Smith said, "is that we are finding leasing is very strong."
The criteria for starting a new building include 50% leasing at the previous one, he said, a benchmark that has been surpassed at 1000 Waterford, which was released in 2009.
"The next magic number is to get to 90% overall occupancy in the park," he said. "But we wouldn't be proceeding if we were not encouraged by the strong activity we are seeing. The way things are going, we could be out of large blocks by the end of this year."
Codina Partners, which is developing Downtown Doral, a master-planned community at the former Koger Center site, will start looking at design work for another office building once its newest building, 8333 Downtown Doral, reaches about 70% occupancy, said Juan Ruiz, a vice president at Flagler Real Estate Services, which handles leasing. That target could be reached soon.
"That said, we would definitely need to have some preleasing to move forward with construction, which would consist of 150,000 to 200,000 square feet of class A office space," he said.
The decision to begin planning a new office property, a process Mr. Ruiz estimated would take a little over two years — five to six months for design and construction documents, about six months for permits and 14 months for construction of the building shell ——is also based on market activity, he said.
"For example, we currently have three leases out for execution and proposals out for all of the remaining space in our 8333 building. The level of activity has increased significantly.
"Rental rates and concessions have stabilized in the Airport West-Doral submarket. This year alone, we've seen a considerable number of tenants expand, which is also a great indicator."
While at the peak of the recession some tenants were willing to sacrifice location in exchange for lower rental rates in order to cut costs, "we're currently seeing tenants focusing more on location again," Mr. Ruiz said. "Location has been one of the biggest drivers of all the new leasing activity we're seeing at Downtown Doral."
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