Building Boom

Related Development CEO Steve Patterson weighs in on the return of Florida development markets.

Related Development CEO Steve Patterson weighs in on the return of Florida development markets.

Almost completely written off not so long ago, Miami has suddenly come roaring back with a vengeance. Feeding off of an apartment shortage, multifamily development is once again hyperactive in “The Gateway to the Americas.” Since its inception in 1979, the Related Group of Florida has been a prime player in not just Miami, but the entire state of Florida, having developed more than 80,000 condominium and apartment units. The company is currently developing more than 11 projects. In an interview with Keat Foong, executive editor of MHN, Steve Patterson, CEO of Related Development LLC, shares details and explains why he expects the inevitable business cycle to repeat itself.

How are financing requirements different today compared to the
last real estate cycle?

Debt and equity is readily available for well-conceived projects to be developed by worthy sponsors. Having said that, I have seen some recent fall-out of new deals of our competitors due to lack of equity commitments. I suspect this has more to do with thinner margins caused by higher land and construction costs than availability of capital. The types of capital structures are similar to the prior cycle, but the deal terms and documents are much more difficult. The only way to get comfortable with these is to be absolutely confident you will not default.

Do you think there could be the same dangers of overbuilding again in Miami?

There must be oversupply to end the expansion phase of the cycle, and I am confident the market will continue to cycle; therefore, there will be overbuilding. To what degree is yet to be seen. Miami is very difficult to forecast because the demand side is extremely elastic due to the appetite of a diverse group of international investors. Unlike most other markets, job growth is not the primary demand factor in Miami.

BH3 Management has announced a 160-unit condo development on Florida’s last buildable private island between Williams Island and Sunny Isles Beach. Do you regret there are no more private islands to build on? And would you say sites are running out in Miami and other cities in the Miami MSA?

I do regret that the last private island is being developed with something other than my dream mansion, but there are 160 potential new condo buyers and three developers that are very excited about it. It’s a good thing. We are running out of empty sites, but there will always be opportunity for new development as neighborhoods and highest and best uses change.

Are you actively seeking buildable sites today, and where are you finding these sites?

We seek out and underwrite new development sites every day at Related and we say no to most, but clearly not all. Most of the yeses are deals that are not obvious opportunities from the surface. Miami multifamily land is becoming quite pricey. I expect that waterfront condo sites will only get more expensive [going forward].

What distinguishes the quality and design of Related Groups’ products from those of your competitors? How is your product design and quality changing in this cycle?

At Related, we consider ourselves builders of cities, not buildings. We look for ways to enhance neighborhoods though our development. Everybody wins. As for the structures themselves, we take open livable spaces and dress them in a sexy façade that is sure to create positive emotion.

How many more apartments in the Miami area are you developing in this cycle compared to the last?

It’s difficult to make an accurate comparison cycle over cycle because I don’t know exactly where we are in the expansion phase of this cycle, or how long it will last.

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