The once-gritty Miami Design District is nearing the final stages of its transformation into a luxury shopping destination and cultural hub, filled with designer shops, restaurants, museums, hotels, home furnishings and art collections.
Designer boutiques like Louis Vuitton, Hermès, Christian Dior, Tom Ford and Giorgio Armani have opened on mahogany-tree-lined streets, alongside open courts and paseos dotted with such outdoor artworks as Buckminster Fuller’s Fly’s Eye Dome and Xavier Veilhan’s sculpture Le Corbusier.
The district — broadly defined as the area from Biscayne Boulevard to North Miami Avenue, and from the north side of 36th Street to 42nd Street, with the center the Paseo Ponti and First Avenue — is the subject of a multimillion-square-foot revamp that will ultimately include 120 stores and at least 15 eateries in the neighborhood by the end of 2018, asserted Craig Robins, president and CEO of Dacra, the driving force behind the redevelopment.
“The plan is to be a creative laboratory, where you can walk around and see amazing art, fashion, design, and graphic design,” Robins told The Real Deal.
Yet to date, just about 50 percent of the renovation is completed. Much of the area is still a construction site. And foot traffic remains relatively light.
“We’re still at the infancy of what we are becoming, and that is nice, because there is a lot of room to grow, and I am learning in the process,” Robins acknowledged.
In the next 12 months, Prada and Gucci will move into their flagship stores, and the Institute of Contemporary Art will open, as well as restaurants like ABC Kitchen and Estefan Kitchen.
Miami Design District Associates, a partnership led by Dacra and L Real Estate (an affiliate of LVMH), with additional investors General Growth Properties and Ashkenazy Acquisition Corp., represents the largest landowners, with 70 percent of the privately owned property in the neighborhood, Robins said. The partnership is developing 1 million square feet of space and has development rights to another 1.5 million to 2 million square feet on its remaining property, he said. Dacra and L Real Estate have an equal share of just under 40 percent each, while GGP and Ashkenazy have 22.5 percent combined.
In recent years, other major investors have followed Robins’ lead. Brooklyn-based Redsky Capital and its joint venture partner, London-based JZ Capital Partners, are now likely the second-largest land owners, while New York-based Helm Equities, the Gindi family, Thor Equities and David Edelstein’s TriStar Capital are also significant property holders.
“You look at the makeup of those investment groups, the quality of those investors — they bring an authenticity into the market,” said Michael Fay, principal and managing director of Avison Young in Miami.
“When you have that patient capital, you can do more and create more, and it becomes more of a longer-term play. It’s more lasting, not a flash in the pan, not a temporary fad,” Fay maintained.
Scott Sherman led Thor Equities’ $100 million assemblage purchase, which it sold for $200 million two years later to Redsky and JZ Capital, in his previous role as vice president of acquisitions at Thor. “When you have an opportunity to make that much money that quickly, it’s hard to say no,” he said. Thor still has other holdings in the area.
Sherman, now co-founder and managing partner of Miami-based Tricera Capital, said investors gained confidence in the district when they saw brands like Louis Vuitton and Hermès commit.
“Luxury brands tend to move in herds, and when those big ones move into an area, others follow behind,” he said.
“The main driver has been Craig,” Sherman added. “And the next phase is the people who bought around him and what they do with the properties as well.”
Redsky and JZ made their first purchase in February 2014 and since then have spent close to $250 million on properties from 1-35 Northeast 40th Street, 2-54 Northeast 40th Street and 15-81 Northeast 39th Street.
Ben Bernstein, founding partner of Redsky, has become a strong proponent of the neighborhood. “The Design District has the chance to be Rodeo Drive with humidity,” he quipped.
Bernstein said he started looking at the district because he shares the same zoning lawyer as Robins, and Ben Mandell, formerly of RKF and now co-founder at Tricera Capital, found him assets to buy. “I liked the price, so I bought a few, and then I bought a few more, and then I got lucky because I have a relationship with Joe Sitt [who leads Thor Equities], who was thinking about selling, and I made him an offer, and he liked it, so I bought their pieces.”
Redsky and JZ plan eventually to redevelop a mixed-use project with parking, retail and office space on the back-to-back 39th Street and 2-54 Northeast 40th Street sites, which encompass nearly a square block. They also plan to create retail and parking on the 1-35 Northeast 40th Street property, Bernstein said. Architect Chad Oppenheim is designing the projects, though there is no current timeline for construction.
“I am a huge supporter of the Design District. It’s a great location, I think it’s a great use of the real estate, and I think he [Robins] anchored it with one of the greatest retail brands on the planet,” Bernstein said.
He continued, “If someone came to me in 2013 and said you can buy into the vacant half of a centrally located outdoor mall, anchored by LVMH, in one of the fastest-growing states and fastest-growing cities in the country, I would have said, ‘Did you call the wrong guy? Were you trying to get in touch with Jonathan Gray at Blackstone or Steven Roth at Vornado?’ I was getting an opportunity to buy into the vacant part of a outdoor mall anchored by LVMH.”
In fact, the Design District’s walkable street model reflects the dominating trend in the retail industry today. “The lifestyle, or ‘street urban,’ experience seems to be thriving and growing now, where the typical enclosed mall seems to be a dying breed,” Sherman said. “It’s experiential retail that people are looking for, and that is what the Design District is going to bring. It’s not just buying a handbag; it’s walking around, seeing art, shopping, having a nice lunch and all that kind of thing.”
But store sales figures are hard to come by. Overall, Robins said some luxury boutiques are doing well, while others “are still floundering due to lack of traffic.”
Rates for two- or three-story buildings range from $100 per square foot to $200 per square foot, depending on size and whether it is ground-floor retail or multifloor, Robins said. Leases generally run 10 years. “We do subsidize furniture brands and give them preferred rates, and also restaurants, because we want to continue to support furniture in the neighborhood, and restaurants are important drivers,” he said.
Of the space Miami Design District Associates has completed, 95 percent is leased, Robins said, and 60 percent of space still to be completed is leased as well. “As you get closer to completion, they get leased up,” he said.
Meanwhile, more redevelopment is in the works by other property owners. Helm Equities plans a mixed-use project with an art-driven 21c Museum Hotel on its nearly 2-acre site at 4201 Northeast Second Avenue. Plans are to build a 135-key hotel, a rooftop pool and art museum, along with 70,000 square feet of retail, 85,000 square feet of office space, a sculpture garden and 300 parking spaces, said Ayal Horovits, principal of Helm Equities. Touzet Studio and Deborah Berke Partners are designing the project.
The total investment represents more than $60 million, and it is expected to break ground in a year or 18 months, with completion within three years, he said.
Robins began investing in the Design District in the mid-1990s, after success as one of the early South Beach redevelopers. He has developed, with partners, hotels, offices, condos and retail in Miami Beach, including on Lincoln Road. “It was clear the next place Miami Beach needed to grow was over the bridge,” he said.
Though the Design District’s roots were as a furniture district, many showrooms had moved to the Design Center of the Americas in Dania Beach by the mid-1990s. Lyle Chariff, then a Dacra in-house broker, was charged with leasing Robins’ buildings. Tenants were then paying $6 a square foot, and he tried to bring them up to $15 to $20 per square foot and lure new tenants to sign leases for $30 to $35 per square foot, Chariff said. By 2000, Dacra had lured back many of the furniture showrooms.
“We were doing well and gaining rents. Furniture does attract people, it’s a very good business, but how often do people buy sofas?” Robins said about the commercial mix. “The neighborhood wasn’t what I wanted it to be ultimately.”
Fashion was the missing component, he realized, yet luxury boutiques at Bal Harbour Shops were not allowed to open additional stores in Miami due to a radius clause in their contracts. Robins first lured Christian Louboutin in about 2008, and in the ensuing years, dozens more have left Bal Harbour or negotiated to open additional stores.
In the last few months, designer boutiques including Saint Laurent, Tory Burch, MM6 Maison Margiela, Alice + Olivia, Loro Piana, Theory, COS and Tod’s have opened in the district. And in the next year, others, like Isabel Marant, Van Cleef & Arpels, Rag & Bone and Warby Parker will also launch stores. Together, they join other tenants, including design stores, boutique fitness studios, restaurants and art collections.
“We want to be accessible, not be elitist,” Robins said, citing cultural events, free museums, and low-cost parking garages as a way to lure shoppers who might otherwise find the district too high-end or intimidating. “This is something you have to see and connect with and be part of, and that is really what our goal is.”
Amid the growth, long-term property owners are thinking of cashing out. The price of retail property in the area has skyrocketed in value, with prices at $2,500 to $5,000 per square foot, said Chariff, who is now president of Chariff Realty Group.
Lionheart Capital is among those thinking of selling, and it has spoken to Chariff about its 3,856-square-foot building at 4218 Northeast Second Avenue, which it bought for $710,000 in 2003, or $200 per square foot, Chariff said. (Lionheart Capital declined to comment.)
Laurie Lynn Stark, a real estate investor who with her family owns the boutique Chrome Hearts, was among the neighborhood’s early arrivals during the rebirth. She purchased a 5,496-square-foot building at 4025 Northeast Second Avenue for $2.6 million in 2007 and believes it is now worth more than $20 million. “I like locations that are underdeveloped, rather than [where] everyone is already there,” Stark said.
In the meantime, institutional investors have grown attracted to the area.
“Now we have major domestic and foreign institutional investors that feel highly comfortable in the Design District or near the Design District,” said Robert Given, vice chairman of Cushman & Wakefield in Miami, citing such heavyweight investors as JPMorgan, Mesirow Financial, the Chinese Real Estate Chamber of Commerce and Chinese City Construction.
He calls it a paradigm shift. “Ten years ago you wouldn’t even have had a conversation about it. It was very difficult to explain to investors.”
Still, experts agree that for now, as the area continues its evolution, it still lacks critical mass. More restaurants, in particular, are needed. “That’s the next big ingredient to make it a success,” Given said.
“The goal should be footsteps on the street 24/7 to make it a sustainable community,” Comras said.
In the meantime, investors like Bernstein say they remain committed.
“It doesn’t matter what the score is in the first inning. It matters what the score is in the ninth inning,” Bernstein said. “We might be down right now or not getting the foot traffic right this minute, but once it is completed, it will be one of the hottest, most exciting places in South Florida.”