Industry Titan Sam Zell Headlines University of Miami Real Estate Impact Conference
February 22, 2012
by Richard Westlund
|Jorge Perez (left), chairman of The Related Group, joined industry titan Sam Zell, chairman and CEO of Equity Group Investments, in a conversation on Global Capital and Real Estate Investment Trends during the conference's keynote session|
Nurturing professional talent, deploying capital effectively and applying fresh ideas were major themes at the University of Miami Real Estate Impact Conference, held Feb. 10 at 1450 Brickell Avenue, one of Miami’s newest office buildings. “Real estate today needs to be about ideas, technology and experiences,” said Robert S. Wennett, president of Miami-based real estate developer UIA Management, in an afternoon panel session. “Creativity is the key for architects and developers to be successful going forward.”
Some 300 professionals and University of Miami students attended the daylong conference, which explored the reshaping of urban spaces through global capital and ingenuity. “Miami is among the world’s leading cities in regard to urban design and real estate trends,” said conference host Frances Aldrich Sevilla-Sacasa (AB ’77), executive advisor to the dean of the School of Business. “What happens in Miami can truly have a global impact.”
|Frances Aldrich Sevilla-Sacasa (AB ’77), executive advisor to the dean of the School of Business, served as the host of the conference|
The conference, presented by the Kislak Foundation and The Witkoff Group, was organized by the School of Business Administration and School of Architecture, which offer cross-disciplinary real estate programs. “Collaboration across schools is one of the things that makes the University of Miami so great,” added Sevilla-Sacasa.
UM Trustee Charles Cobb, senior managing director and CEO of Cobb Partners and a former U.S. ambassador to Iceland, introduced University of Miami President Donna E. Shalala at the opening luncheon. In turn, Shalala welcomed the attendees, including members of the university’s real estate advisory boards. “There is an unbelievable amount of brain power and capital in this room,” she said. “Remember that the University of Miami is your partner in helping to develop South Florida’s entrepreneurial spirit and build a global business community.”
Global Real Estate Investment Trends
|University of Miami President Donna E. Shalala welcomed real estate industry leaders to the conference|
Keynote speaker Sam Zell, the industry giant and chairman of Equity Group Investments, and moderator Jorge M. Perez, chairman of Florida-based developer The Related Group, told conference attendees that successful global real estate investing and development is more about timing than about location in the current economy. “Sam has been inventing and reinventing real estate for four decades, and understands the U.S. and global economies and how they interact,” Perez noted. “After listening to Sam, I believe the old real estate maxim, ‘location, location and location’ has been replaced by ‘timing, timing and timing.’”
Zell began by sharing his feelings about the nation’s prospects for economic growth in the near future. “We have been playing a game of extend and pretend,” he said. “We have to look at the economy in a realistic fashion. I think a true recovery depends on strengthening the confidence of the business community.”
Speakers & Panelists
• Blake R. Berg, Managing Director, J.P. Morgan Asset Management
• Guy Bradley, CEO, Mainland China, Swire Properties
• Richard J. Campo, Chairman of the Board and Chief Executive Officer, Camden Property Trust
• Tobin Cobb, Co-CEO, LNR Property
• Carol Coletta, Director, ArtPlace
• Bernardo Fort-Brescia, Founding Principal, Arquitectonica
• Thomas F. Gilbane, Managing Member, Rockpoint Group
• Steven J. Guttman, Chairman, Storage Deluxe, and Former Chairman and CEO, Federal Realty Investment Trust
• Brian Harris, CEO, Ladder Capital
• Jorge Perez, Chairman, The Related Group
• Donna E. Shalala, President, University of Miami
• Robert S. Wennett, President, UIA Management
• Steven Witkoff, Chairman and CEO, The Witkoff Group
• Sam Zell, Chairman, Equity Group Investments
• Claudio Zichy, Managing Director, Independencia Asset Management
Turning to real estate, Zell said successful real estate investment and development depends on meeting unmet market demands. That’s why, in recent years, he has turned from the U.S. to emerging markets, developing low-cost housing in Mexico and Brazil. “It is much easier to fill preexisting demand than to create new demand,” he said. “I love the mixed-use project described earlier (Brickell CitiCentre in Miami), but I am not sure whether or not there is sufficient demand.”
The real estate industry remains on shaky ground, he contended. Zell noted that, on the residential side, new home construction has been at a standstill for the past five years. In 2009, only 100,000 homes were built, while 300,000 were lost to various causes. In the office market, he added, occupancy levels have slowly improved, although most cities still have double-digit vacancies. Zell was pessimistic about the retail real estate market as well. “A lot of the lifestyle centers are now dying on the vine,” he said. “Then there are the power centers where three of the five big box retailers are now in bankruptcy. And forget about those 300,000-square-foot enclosed malls where none of the tenants can afford to pay the operating costs.”
The U.S. commercial real estate market, Zell asserted, is now clogged with more than $2 trillion in outstanding debt, and Europe faces a similar problem. “Financial engineering is not the solution,” he said, adding that his current slogan for lenders is: “Come clean by the end of 2013.”
The hottest real estate market right now may be multifamily residential, where, Perez noted, Miami-Dade’s apartment rental market is now at full occupancy. “When you look through a demographic lens, it’s hard to imagine that anything will outpace multifamily rentals in the next few years,” Zell agreed. “Today, young adults are no longer getting married in their early 20s. They are staying single longer and want to live in a 24/7 community. … That has changed demand, benefitting multifamily rentals and hurting the single-family suburban market.”
Looking at the nation’s foreclosure crisis, Zell was critical of government policies that have slowed lenders’ ability to resolve the problem. “As a result, there are 4 to 5 million homes in purgatory where the owners are not making mortgage payments. That’s a massive moral hazard,” he added.
While Perez argued that government policies — especially support for low-income housing — have been historically important in getting U.S. families across the threshold of home ownership, Zell disagreed. “In Mexico and Brazil, I discovered you can build affordable housing today with very low default rates. Families want to buy a 600-square-foot, two-bedroom home for about $22,000. But in the United States, that opportunity is long past. Today’s buyers would say such a starter home is way too small.”
Perez then wondered if Zell saw any opportunities in the U.S. market. “Back in the 1990s, success or failure was all about scale,” Zell responded. “Today, there are no broad themes. It’s basically looking for the right spot or a one-off project. Until we sort out the financing mess, I don’t see how you can have any consistent or predictable theme.”
South Florida’s Real Estate Outlook
According to Zell, investment interest in the South Florida real estate market — as in much of the country —is centered on the multifamily sector rather than office space, and the reason is a lack of growth prospects in the business sector. “Ultimately, Miami’s future will depend on whether or not it is capable of creating a sophisticated, intellectual, educated population,” he asserted. “To me, that’s the challenge going forward.”
Perez noted, however, that Miami real estate, as opposed to other markets, has benefitted greatly from South American demand. “I sense that things have turned around here,” said Steven Witkoff, chairman and CEO of New York-based real estate investment firm The Witkoff Group and a member of the School’s Real Estate Programs Advisory Board. Witkoff moderated a panel session titled “The Role of Global Equity and Debt Capital Flows in Reshaping Urban Real Estate Markets.” Panelists Tobin Cobb, co-CEO of LNR Property, and Thomas F. Gilbane, managing member of Rockpoint Group, agreed with Witkoff’s optimism, pointing to Miami’s continuing ability to attract wealthy, intelligent people, as well as talented real estate professionals.
Others on the panel agreed with Zell. Claudio Zichy, managing director of Chile-based Independencia Asset Management, noted that large companies were choosing cities like Boston rather than Miami because of the presence of a large skilled workforce.
|The conference drew some 300 real estate industry leaders
Regardless, Miami stands on the brink of a new round of urban development that could transform the city. Blake R. Berg, managing director of J.P. Morgan Asset Management, pointed to Midtown Miami, the Wynwood Arts District and the Mary Brickell Village retail center as examples of the city’s coming attractions, adding, “We think Miami will be a good place to invest over the long term.”
Gene Anderson, dean of the School of Business, introduced the panelists, and agreed with them on the importance of an intelligent workforce for the area’s future. “We believe a strong intellectual environment is essential for economic growth,” he said. “Our university is a catalyst for developing intellectual capital, and we are targeting areas where we can contribute to the region.”
Real Estate Investing Strategy
The panelists in the equity and debt session also offered their own take on Zell’s assertions about the real estate investing market. There’s no single strategy for real estate investment success, they agreed, but there are opportunities in different markets, provided an investor has the skills to resolve complex situations, the ability to act quickly and the insights to deploy capital resources efficiently.
“I don’t think we’ll see a boom in real estate in the next ten years,” said Brian Harris, CEO of Ladder Capital. “To be successful, you have to go back to basic blocking and tackling on specific projects.” In the retail sector, Harris added that one of his firm’s strategies is to pick the best asset in the worst market, since that property, such as a local mall, is best positioned to be a survivor when others fold. “If you select the right sites and get the right prices, you can get great returns,” he said.
|Sebastian the Ibis, the University's mascot, made a special appearance at the conference|
On the bullish side, Zichy noted that many South American investors want to put their money into U.S. real estate — a positive factor for the Miami market.
Gilbane added that there are opportunities to provide rescue equity capital and restructure high-quality assets, but those windows of opportunity close very quickly. “With the flow of information in our business, once you think you’re on to something, others figure it out right away,” he said. “Today, you have to be able to get into messy situations and fix the capital stack to add value to the asset.”
Cobb added that his firm has raised $350 million in new equity to invest in real estate debt. But his company takes an approach similar to Zell’s opportunistic strategy, funding assets one or two at a time, since most investment deals are not attractive.
J.P. Morgan’s Berg said his firm is bullish on multifamily projects and has committed funds to 29, but may be taking a pause on fresh investments until the nation’s job recovery appears more solid. He added that the firm focuses primarily on coastal markets, because cities like Miami typically outperform inland secondary markets.
Global Urban Design in Miami
|Bernardo Fort-Brescia, founding principal of Miami-based architecture firm Arquitectonica|
In a session titled “Global Urban Design & Miami 2020,” panelists outlined a planned development that exemplifies the city’s leading role in urban design trends.
Brickell CitiCentre, a 4.6 million-square-foot mixed-use project, will transform a nearly four-block area just west of the Brickell Avenue financial corridor into a “city within a city.” The plans, approved by the City of Miami in 2011, call for multi-level retail stores and restaurants, office towers, residential units, medical services and a hotel, supported by underground parking, covered sidewalks and a renovated Eighth Street Metromover transit station.
Hong Kong-based Swire Properties is developing the project, and Swire’s CEO for Mainland China, Guy Bradley, noted that the Brickell area’s urban characteristics, including a growing residential population, easy access to transit facilities and an under-retailed local market, attracted the company to the site. To successfully complete it, he added, Swire will draw on its longstanding Miami presence, leading-edge developments in China, financial resources and long-term investment perspective. The company sees Miami in the same light as Hong Kong: an international gateway city whose economy is reinforced by a flow of offshore capital, Bradley added.
“Right now, this area is the hole in the donut in the Brickell neighborhood,” added Bernardo Fort-Brescia, founding principal of Miami-based architecture firm Arquitectonica and architect for several Swire projects in Asia. “It will be easy for residents to walk, bike or take the Metromover to Brickell CitiCentre, which offers easy access from I-95. The buildings will hug the streets, which will remain open to vehicles. It’s a very urban solution to the site.”
Fort-Brescia added that Brickell CitiCentre incorporates numerous energy-saving features, including a multi-block “green” roof, specially shaped trellis that funnel tropical breezes to the outdoor walkways, solar panels, and a climate ribbon that collects water for the project’s cooling towers and landscape irrigation system. “This will be the first sustainable neighborhood development project in the U.S. of this magnitude,” said Fort-Brescia said. “For us, it’s all about designing a lasting urban environment that will support the Brickell neighborhood.”
Urban Design and Economic Growth
Well-conceived and designed urban real estate projects can help cities attract the talented younger professionals who drive economic growth, according to two innovative developers, UIA’s Wennett and Steven J. Guttman, chairman of Storage Deluxe and former chairman and CEO of Federal Realty Investment Trust. “People are interested in new experiences, not new buildings,” Wennett said during a panel session titled “The Urban Developer: Investing, Place Making and Developing in Cities (Then and Now).” “They want a place where they can socialize, connect with others and share ideas,” he added. “The size and shape of the building is irrelevant to young people — it’s the social impact that matters today.”
Elizabeth Plater-Zyberk, dean of the UM School of Architecture, said that is why, at UM, “we are preparing architects to be community leaders with expertise in design and place making.”
Citing the importance of young adults in a city’s workforce, moderator Carol Coletta, director of public-private place making partnership ArtPlace, said one of the best ways to attract creative professionals and entrepreneurs to an area is to develop appealing, mixed-use urban communities. Both Wennett and Guttman agreed, but staked out somewhat different positions.
“I don’t think place-making can generate economic growth on its own,” Guttman said. “You need a local government that’s able to attract new employers. Unless the jobs are there, people will want to leave. But once those economic ingredients are in place, creating an attractive urban fabric can happen organically.” Miami Beach provides a good example of that natural evolution, he added, citing the city’s free Wi-Fi program, convenient bicycle rentals, and Sunday green market on Lincoln Road. “Even the signage and lighting make people feel better and the urban scene more vibrant,” he said.
Wennett argued that urban neighborhoods in cities like Washington, D.C. and Brooklyn, N.Y. have been revitalized “organically” by attracting artists, musicians, designers and new cultural activities. “If your city doesn’t have a cool neighborhood in your housing stock, you’ll miss out,” he said.
Wennett said his firm looks closely at demographics, market demand and social dynamics before launching a new project. A good example is 1111 Lincoln Road, an award-winning Miami Beach parking garage that doubles as a venue for weddings, VIP parties and other events. “We were very conscious of Lincoln Road’s appeal in terms of dining, contemporary design and overall esthetics,” he said. “Now, people like the idea that someone took something as mundane as parking and reconceived the whole approach.”
Developers, property owners and particularly local governments should also support creative real estate ideas, according to Guttman. “If you are going to do fresh and creative projects, you need to challenge the zoning,” he said. “Very few great projects with great architecture and design fit into an older zoning code. Unless the architect is allowed to stretch the zoning, you're likely to have a weak project right from the start.”
Ultimately, creative projects and a fresh, well-thought-out approach to decisions are required in the real estate industry, said Richard J. Campo, chairman and CEO of Camden Property Trust, a multifamily investment trust in Texas. “We just have to power through this part of the real estate cycle and try to create new value every day,” he said during the conference’s closing remarks. “I am optimistic about the nation’s economy getting fixed in the future.”
Campo said his firm recently raised about $260 billion for capital investment and continues to look for real estate opportunities. He concluded by emphasizing Miami’s professional talent pool. “We have $750 million invested in Miami,” he said, “and don’t let anyone tell you this is not a great city.”