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Posted on Mon, Apr. 18, 2005

Builder's condo craze bet is unprecedented

THE CONDO KING: With nearly 50 high-rise projects underway, developer Jorge Perez is reaching for the sky.
THE CONDO KING: With nearly 50 high-rise projects underway, developer Jorge Perez is reaching for the sky.

Driving down Miami's Brickell Avenue in his dark gray Mercedes-Benz S500 one recent morning, developer Jorge Perez did not like what he saw. Surveying a stark sidewalk edging bland office lobbies -- and even worse, a parking garage entrance -- Perez pronounced the avenue ''totally pedestrian unfriendly.''

Then Perez declared he will change that.

The 55-year-old high-rise condominium developer, more than anyone, is in a position to do it with seven towers planned for construction along Brickell Avenue, the boulevard at the heart of the city's financial district. His plan: erect new towers with ground-floor restaurants and shops and spruce up sidewalks with shade trees and benches.

The Brickell towers are just a fraction of the staggering number of Perez projects that, if all built, will put his imprint on the rapidly changing face of South Florida's cities, beachscapes and skyline.

At a time when even the most aggressive builders rarely have more than two or three projects going at once, Perez -- chairman and chief executive of Miami-based The Related Group of Florida -- has more than 40 condo towers in the works across South Florida. Projects in Fort Myers and Las Vegas boost that number to nearly 50, and Perez has plans for several more condo towers that have yet to be announced.

''We are in territory we have never seen before with Jorge,'' said Ezra Katz, chairman and chief executive of Coconut Grove-based real estate investment firm Aztec Group. ''There is no precedent anywhere in the 34 years I have been in real estate. I have never seen anything of this magnitude or production.''

In the last decade Perez, who got his start developing government-subsidized rental apartments in Miami, has become Florida's biggest condo developer with 14 completed buildings to his credit.

But now, in a move fraught with risk, Perez is making his biggest bet yet, throwing himself full force into a South Florida real estate market so frenzied some compare it to the boom of the late 1990s.

''It is so hard to even build one project, to get it financed and built efficiently,'' said developer Gregg Covin, who is building the Biscayne Boulevard high-rise Ten Museum Park and renovating South Beach's The Angler's Hotel. ''He is just an unbelievable force doing more than 40 buildings at the same time.''

If anyone can pull it off, it may be Perez. But even he acknowledges a downturn is coming in the superheated condo market.

His financial might, he maintains, will enable him to weather any market correction.

Unlike most South Florida developers of today, Perez has more than 25 years of experience. And he has demonstrated a knack for spotting and aggressively pursuing under-utilized markets before anyone else.

Perez was part of the development group that built City Place, the downtown mixed-use revitalization project that transformed West Palm Beach. Similarly, he built four high-rise towers in South Pointe, the once blighted neighborhood at the southern tip of Miami Beach that has morphed into some of the priciest real estate in South Florida.


''He is very careful with his money,'' said Matthew B. Gorson, a Greenberg Traurig lawyer who is Perez's attorney. ''He watches things, that is why he has done so well. Jorge is extremely disciplined.''

But Perez's huge bet on the condo market comes with equally enormous risks.

Though Florida's housing market, and the condo sector in particular, has been red hot, many observers suspect a downturn is looming.

The condo market is filled with speculators and the sheer number of condos going up or planned have led many to conclude it's all too much for even South Florida's booming market to digest.

Within the city of Miami, for instance, roughly 7,000 units were built in the last 10 years. Now some 62,000 units are in various phases of development.

In March, Credit Suisse First Boston downgraded the stock of Bonita Springs-based WCI Communities, one of the few publicly traded high-rise condo developers, due to concerns over ''investor speculation in high-rise real estate development, specifically in Florida.''

Similarly, Raymond James issued a report stating its belief that investors and speculators accounted for as much as 85 percent of condo sales in downtown Miami.

Perez himself predicts a correction, but maintains builders with staying power will see values rise to even higher levels longer term.


''Real estate is extremely cyclical,'' Perez said at a National Association of Home Builders conference two weeks ago.

''Talking to fellow developers, you sometimes feel that has been forgotten,'' he said. ''But there will be a correction in the market... it is impossible to sustain the supply announced.''

Perez said he has socked away loads of cash and carefully selected properties that are either near the water or in a city center. Such sites, he contends, will not dramatically lose value in a downturn. And if need be, he said, he can rent rather than sell units until prices rise to new heights.

While Jeff Morr, chief executive of the Miami Beach-based brokerage Majestic Properties, thinks Perez will continue to succeed despite a downturn, he also wonders about the impact of Related's plans on the market.

''I think he is going overboard in the number of units he is bringing to market on an annual basis,'' said Morr. ''He has the potential of slowing down the market because of oversupply. He should leave a little room for other developers.''


Headquartered in drab offices on Miami's Coral Way that contrast with many of the glitzy projects it develops, The Related Group of Florida is a privately-held, 500-employee company.

Perez owns the vast majority of Related while his long-time business partner, Stephen M. Ross, chairman and chief executive of New York City-based Related Companies, owns a small share.

The company's fortunes have rocketed skyward as it has aggressively built new condos. In 2000 The Related Group of Florida's revenue stood at $506 million. By 2003, annual revenue more than doubled to $1.083 billion. In 2004, it doubled again, coming in at $2.125 billion.

Condo sales, which account for 90 percent of the firm's revenue, are expected to total $6 billion for the years 2004, 2005, and 2006, said Perez. The company generally has a 20 to 30 percent profit margin on condo sales.

While refusing to disclose the size of his personal fortune, Perez recently said at a homebuilder conference that he has made ''unconscionable sums of money.''

The Related Group of Florida's success is built on its record, and reputation among lenders and buyers, for completing what it starts and quickly bringing its projects to fruition.


''He will decide on a building, stick to the budget, and deliver it on time,'' said Carlos Migoya, 54, Wachovia bank president for Miami-Dade and Monroe counties. ''When you buy a unit from him and he says it will be done in 2006, he will deliver it in 2006.''

Now the slender Cuban-American developer -- known for his energy, art collection, liberal politics, affinity for fine food and tennis, and periodic tempestuous outbursts -- has set a dizzying pace.

Five of his condo towers are slated to go up in downtown Miami, an area with few residential buildings that is a virtual ghost town at night. Following Perez's decision to build there, some 20 downtown towers have been proposed by other developers.

''He was the first to ever go in downtown with market rate residential product,'' said Otto Boudet-Muria, the city of Miami's development chief. ''The fact Jorge was willing to do that gave a lot of credence to the belief that residential downtown would work.''


Two more condos, with two more on the drawing board, are set to go on South Pointe, alongside his terra cotta and blue Portofino Tower.

In addition to the Brickell properties, five more condo towers are underway in West Palm Beach, four are going up along the Sunny Isles coast, and three more are nearly finished in Hallandale Beach.

Dozens of others are sprinkled from Fort Lauderdale to Lantana.

In perhaps his most high-profile move, Perez is joining with White Plains, N.Y.-based Starwood Hotels and Resorts to demolish the Sheraton Bal Harbour, located between the beach and the tony Bal Harbour Shops, to make way for a condo and condo-hotel.

''He has built more developments, and currently has under contract more developments than most developers would ever dream of building in their entire career,'' said real estate analyst Michael Cannon.


Yet until 1995 Perez had not built a single condo unit in his career.

Instead, for some 16 years he was a rental apartment developer.

Perez, along with New York developer and business partner Ross, founded The Related Group of Florida in 1979. They built government-subsidized rentals and eventually graduated to market-rate garden apartments, becoming the biggest apartment builder in the state.

In May 1997 The Herald's Business Monday featured Perez on its cover, with the headline: ''Florida's Apartment King.'' At the time he called apartments a ''much safer business than condominiums.''

But even prior to that, Perez had dabbled in condos. In 1993, German developer Thomas Kramer and Daly, who were building high-rise condo Portofino Tower, ran into financial trouble, and Perez jumped in and developed the project.


The building was completed in 1995 and sales went well. It prompted Perez to convert a rental project he was building called Yacht Club at Highland Beach into condos in 1997. Two years later, he built a condo called Ocean I in Sunny Isles and he was on his way.

The South Florida condo market, he realized, was heating up. Buyers from the Northeast and Latin America were increasingly looking to snap up South Florida condo units, interest rates remained low and waterfront properties were available.

''One of the reasons for the success of the company is nimbleness, our capacity to adapt,'' said Perez. ''We decided there was a huge pent-up demand for condos.''

In 2000 Perez shifted his company away from rentals and focused exclusively on condos. Almost simultaneously, the South Florida condo craze erupted and the rental market descended into the proverbial dumps.

''He read the market correctly,'' observed real estate analyst David Dabby. ''If he was still developing rentals today, he would be out of business.''


The way the condo game generally works today is that a developer buys a property, architects come up with renderings, public relations and advertising agencies market the product, a multimillion dollar sales center is erected, lavish condo parties are thrown, investors put down deposits on units, and the developer uses the deposits to get a construction loan.

Finally, the building is constructed and investors resell their units to a buyer who closes on the property and either lives in it or rents it out.

Perez not only plays the game well -- he does so with lightning speed.

Generally, he sets prices at a reasonable level so a unit will immediately appreciate in price. Such prospects have created an intensely loyal following whereby buyers sometimes camp out overnight and his projects often sell out in a day.

''We will sell product for a fair profit and allow people to make money,'' said Tom Daly, a developer who works exclusively with Perez.


The two-tower One Miami project, which is topped off and due to be fully completed in six months, is a case in point. Perez said units in the downtown Miami project were sold for $230 per square foot but are now being resold for $400 per square foot.

''That is why people follow us,'' he said.

While insisting he does not court investors, Perez's formula is perfectly suited for the investor or speculator. He said between 30 and 60 percent of his buyers are investors, but some estimate the number is even higher.

Perez said Related tries to keep speculators out by limiting buyers to one unit -- though he said they may vet the financial wherewithal of a buyer and allow more units to be purchased -- and requires the standard 20 percent down payment. But he acknowledged such efforts are circumvented.

Providing an added source of income, Perez owns Related Cervera Realty Services -- the brokerage that sells the units. When a building sells out, investors are allowed to put their units up for resale, and Perez's brokerage often sells those units as well.

He also offers mortgages and insurance to buyers.


Meanwhile, Perez draws from a select group of general contractors and subcontractors for each of his projects. Providing regular work allows him to build at a cost as much as 10 percent lower than competitors and often begin construction sooner, he said.

He similarly has a select group of banks. The result: while other developers are often still cobbling together financing or finding a general contractor, Perez is topping off a project.

If all his projects are built, many of Perez's buildings will likely be defining features of skylines from West Palm Beach to downtown Miami for decades to come. ''I want to build buildings that are a catalyst for an area, that have a multiplier effect and lead to a more livable city,'' said Perez.

But if they don't get built, Perez may find himself vulnerable to the perils of the unpredictable South Florida condo market. Perhaps mindful of that, Perez recently quipped: ''If you find me under a bridge, you'll know I made the wrong call.''

The Related way: speed, efficiency, agility -- and more speed


The Related Group of Florida is both a strict top-down managed company with clear lines of authority and also a freewheeling enterprise focused on speed that can quickly move on deals because there is just one decision maker -- Chairman and CEO Jorge Perez.

''Jorge gets velocity in every deal,'' said Matthew B. Gorson, Perez's lawyer. ''He sells quickly, builds quickly, closes quickly. Jorge is very good at pricing right.''


Perez's top three lieutenants -- Joyce Bronson, Bill Thompson and Roberto Rocha -- are charged with meticulously overseeing each development.

Project managers must make detailed presentations to Perez on the status of buildings every two weeks.

Perez himself, usually traveling alone, makes monthly unannounced visits to each work site to personally inspect the properties.


In a ritual rarely missed, Perez meets with Gorson and developer Tom Daly, who works exclusively with Perez, every Saturday for a long lunch at South Pointe eateries such as La Piaggia or Smith & Wollensky, and the three review projects and discuss pending deals.

Daly is not an employee of Related but doesn't do business with anyone else. He partners with Perez, effectively serving as the No. 2 man at Related, on many of the most high-profile projects such as Apogee, 50 Biscayne, One Miami and ICON Brickell.

A brusque New Yorker, known for pushing and cajoling architects and engineers with myriad building questions, Daly said: 'In kindergarten, they ask children what their parents do for a living. My son answered, 'He yells at people on the phone.' ''


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