Terranova TRENDS SpringSummer 2018

spring/summer2018

801 arthur godfrey road suite 600 miami beach, fl 33140

By Andrea Speedy

Over the past five years, industrial real estate has been turning in annual returns approximately 1.3% higher than the entire real estate industry average. Typically, the historical norm for industrial properties stood at 10% annual returns on an unleveraged basis… but recent performance is now closer to 12.8%. While this has definitely caught the eye of capital markets looking to diversify investment portfolios with real estate that has been delivering above office, retail, and apartments – the shift reveals an evolution taking place in the overall commercial real estate market.

SUPPLY AND DEMAND

Big changes are already underway in traditional retail development – from building more immersive store environments, to innovative mixed-use properties, to adaptive re-use and re-development of underperforming spaces. On the other side of the spectrum, the industrial property inventory has been unable to keep up with ravenous demand from e-commerce uses, driving up the cost of industrial space. In South Florida in particular, this supplydemand scenario is heightened by a lack of available large parcels of land suitable for new industrial development. Since 2008, residential and mixeduse has driven much of the development landscape in Miami-Dade County, with commercial properties joining the development cycle a few years later.

Changing dynamics on the demand side of the equation are also shaping a new future for industrial real estate – not least of which is the ever-increasing business related to e-commerce fulfillment. As more and more businesses look to serve digital consumers with prompt (or even same-day) delivery of everything from apparel to electronics to groceries, industrial warehousing space has become a highly sought-after commodity.

A recent Terranova joint acquisition in Doral was selected for precisely this reason. “Our new industrial property in Doral has unbeatable proximity to the Palmetto Expressway (SR-826) as well as Miami International Airport,” Stephen Bittel, Chairman of Terranova. “That is a location that can serve nearly any type of tenant, which allows us to focus on maximizing the utility and functionality of the space itself.”

The rise of workshops and small factories have also been influencing the demand for industrial space, particularly as cottage industries in food, beverage, and home design goods outgrow the capacity of home-based or other small manufacturing sites.

In a 2016 issue of TRENDS, we highlighted the emergence of craft breweries, many of which like Concrete Beach and Wynwood Brewing are now catching national attention. At the heart of these businesses are an industrial property that allows for manufacturing or production at an economy of scale that drives profitability. Without a location that is both zoned for industrial use and has enough size to accommodate the operation, these businesses must spread resources over multiple properties or scale back production to less profitable levels.

02

standard of success in the not-toodistant future.”

Specifically, Bittel is pointing towards the lack of available room for industrial expansion anywhere in South Florida. A total of 5.3 million square feet of industrial space worth nearly $419 million was sold over the course of 2017 – according to a report by the Commercial Industrial Association of South Florida. High demand brings high rental rates, but as real estate inventory fails to keep pace, upward rental rate pressure will continue to drive new development.

LOCATION… LOCATION… LOGISTICS?

Across all retail markets, the business has become a strategic game of positioning and who can serve the most customers the fastest from a single (or select group) of locations. Leading the latest push behind logistics planning is the almost exponential growth of e-commerce. According to the U.S. Commerce Department, e-commerce represented 13% of total retail sales in 2017, and 49% of all retail growth.

Consumers spent more than $450 billion on web retail purchases last year, which was a 16% jump over the previous year. That’s the highest growth rate for e-commerce since 2011.

In order to serve that market, e-commerce relies on last-mile distribution – getting goods directly to purchasers’ homes. Until recently, the industrial real estate market has been focused on big-box warehouses for “first-mile” distribution. Core markets for standard retail sticks-and-bricks distribution have historically centered around cities like Atlanta, Chicago, Dallas, New Jersey, and Houston, where it made strategic sense for serving a network of retail stores. With last-mile distribution, urban warehousing is not only a convenience, it mitigates rapidly expanding supply chain costs associated with transporting un-sold cargo to various retail locations.

It isn’t simply about creating larger nationally centralized spaces, but rather multiple localized distribution centers in top-selling markets.

“When you start talking about last-mile delivery, the first inclination is always towards Amazon-esque businesses,” explains Stephen Bittel, Chairman for Terranova. “The reality is that there’s much more to the retail and industrial market than just e-commerce.

There are the delivery companies like UPS, FedEx, DHL, and others that actually complete delivery to the customers’ doorsteps. There’s also design and home furnishings companies that are servicing highrise developments with hundreds, if not thousands, of products like faucets, floor tile, cabinets, and appliances. There are even new, emerging sectors like fresh-food delivery like Blue Apron and Hello Fresh, where proximity to customers is essential, as well as specialized industrial needs like refrigeration and food-safety measures. Industrial real estate has come a long way in a very short time.”

Consumers have also come a long way. Doral, in west Miami-Dade County was recently recognized as the fastest-growing big city in the State of Florida and the 11th fastest-growing city in the country with a population increase of 26.1%. The city of Miami also among the top 10 fastest-growing cities in the State of Florida with a 13.1% increase in residents.

Broward County and Palm Beach County also had sizable population growth over the past few years, adding 24,000 and 22,000 new residents, respectively. Add to that South Florida’s status as a way-point for foreign destinations throughout Latin America and the Caribbean, and there is a huge

population of shoppers – and businesses – in need of last-mile delivery solutions and well-placed bases of retail operation.

South Florida’s existing industrial real estate inventory has generally fared well in its ability to check numerous boxes in this regard.

• Major International Airport with World-Class Cargo Handling • Industrial Seaport Within Short-Range Trucking Distance • Access to Major Highways North-South as Well as East-West • Existing Technology Infrastructure for Communications • Connection and Proximity to Foreign Markets However, this is really just the tip of the iceberg for the types of businesses in need of industrial real estate. Highly predictable weather conditions yearround means fewer interruptions to daily production or delivery schedules. Even in the case of tropical storms and hurricanes, advanced forecasting allows for industrial businesses to plan ahead for such events. Compared to ice and snow storms that often paralyze the Midwest and Northeast for weeks at a time every year, business continuity is an attractive feature of industrial real estate in South Florida.

“We often hear about Miami being the ‘Gateway to Latin America’ from a business standpoint,” said Josh Gelfman, Director of Development for Terranova.

“That used to be a one-way street… Goods moving through South Florida to foreign destinations. Now, more than ever, Miami, Doral, and other South Florida cities are the pot of gold at the end of the e-commerce rainbow. This is literally and figuratively where the buck stops.”

Logistics also stands as an important advantage for Industrial property owners – who need to be able to answer their tenants’ demands for more fully integrated properties.

• Spaces where retailers could feasibly operate a storefront and a factory in the same place.

• Or, a centralized kitchen for serving multiple café or restaurant locations.

• Design showrooms that have a furniture production facility on the same site

INDUSTRIAL REAL ESTATE’S NEXT CHAPTER: LOOKING UP “The demand for industrial real estate is already there,” continued Bittel. “But that doesn’t mean simply turning over existing inventory. Redeveloping these assets will prove to be the

Other industry experts agree.

The same Commercial Industrial Association of South Florida report also highlights a more than 20% increase in the square footage sold over the previous year, while the number of buildings decreased. A simple mathematical analysis shows that larger (and newer) properties are those at the forefront of the market, while smaller industrial spaces may be struggling to keep a solid base. The answer for existing properties and new acquisitions alike is to transform the space to do more than serve current tenants’ needs, but also anticipate the needs of tenants still to come in the years ahead.

For the new property in Doral, T2.0, which is jointly owned by Terranova and Terra Group, Terranova chairman Stephen Bittel offered a look at possibilities on the horizon. “This is a 23.7-acre site close to major transportation hubs, so clearly there is a high degree of flexibility for what this property may become,” said Bittel. “We’ll be conducting a thorough analysis of the best ways to maximize the site through redevelopment – and that could take many forms.”

Though Terranova and Terra Group have yet to reveal formal plans, some of the new industrial real estate concepts around the globe may provide a glimpse into the future. The property may follow in the footsteps of industrial properties in major shipping ports like Shanghai, which has gone vertical in terms of industrial space. In 2016, the Qingpu district of Shanghai saw the launch of a 1.2-million-square-foot multistory warehouse space. A similar 1-million-square-foot multistory space opened not long afterwards near the Beijing Airport. Cities from Vancouver to New York to Seattle are considering similar designs as available land for industrial development becomes scarce.

The cost of constructing a multistory warehouse could be at least double the cost of redeveloping an existing single-story building, depending on the location and materials needed for construction.

So a careful analysis of potential revenues against the rising costs of land is an important part of the development planning process. In creating a specialized space, industrial property owners will need to find tenants willing to pay a premium for the locations. In destinations like the San Francisco Bay Area, New York City, Miami, and the South Bay submarket of Los Angeles, the current price of land is already creating a strong argument for multi-story development.

Another option industrial properties are pursuing is simply expanding the vertical space of single-story properties. The Boundary Bay Industrial Park in

spring/summer 2018

Canada, for example, opened in 2014 with 36-foot height ceilings. That’s almost a full standard story taller than the average of 26-feet for warehousing space.

The usable storage space increases tremendously, and can be serviced by robotic conveyor belt systems, or moveable ramp and lift systems for forklifts – both of which would be tenant costs as opposed to an investment necessary from property owners.

“The previous generation of industrial properties are not optimized for today’s last-mile retailers,” said Bittel. “But those are the properties that currently occupy the most desirable urban locations. Building new facilities far outside of town doesn’t solve the problem.”

Low clearance heights, shallow bay depths, and a lack of employee amenity spaces for break rooms, restrooms, parking, and even modest offices are among the challenges future industrial spaces must answer. The new standards include: • • • • • •

28- to 32-foot clear height ceilings Extensive glass or windows for natural light Modern/contemporary design Numerous dock-height and ground-level doors 50 x 50-foot column spacing LEED elements

According to the NAIOP Commercial Real Estate Development Association (formerly the National Association for Industrial and Office Parks)

VISIONARY PROBLEM SOLVERS

“Clearly, we’re not looking to just ‘stay the course’ for the property in Doral,” said Bittel. “Like we’ve done time and time again at Terranova, we’re looking to deliver ‘What’s next.’ We want to be visionary problem

03

solvers… like we were with the NoLi district on South Beach.” When retail rents started breaking all-time highs on Lincoln Road, Terranova was among the first property owners and management companies to recognize a growing gap in the retail and restaurant market. Start-up concepts and businesses that operate on smaller margins (like food & beverage) were being pushed out by corporate retail and restaurant entities that could support the top-of-market rents. Rather than accept this as a natural shift in the Lincoln Road retail market, Terranova looked to a combination of opportunities – including micro-unit retail, adaptive re-use, and strategically positioned new development geared towards value retailers and start-up concepts.

In doing so, the company has ensured itself a steady audience of potential tenants for decades to come.

The objective is to achieve the same with the industrial space in Doral.

Currently, the property is occupied by PepsiCo – the previous owners. Used primarily as a distribution facility, PepsiCo will be staying on as a tenant in the near term. Though the property is well maintained and well suited for a similar operation, the desire to expand its potential makes it a ripe candidate for innovative redevelopment.

“Whenever we can be first at something, or prove that a new concept works, those are the kinds of opportunities we like to pursue,” said Bittel. “It doesn’t take a crystal ball to see that industrial real estate of today is not what it will be even two or three years from now – let alone 20. Maybe we’ll be the first multi-story warehouse concept in the Southeast U.S., or perhaps we’ll find a completely new idea no one has thought of yet. The exploration is going to be exciting… and the results are going to change the future of industrial real estate.”

Chairman’s Corner In the last month, 17 innocent people were murdered at Marjorie Stoneman Douglas High School in Broward County, Florida. Students and teachers alike had their lives senselessly ended with a weapon of war, an AR-15 assault weapon.

Families wept at their loss and survivors mobilized to, once and for all, demand our elected officials stand up to the gun lobby and act to save lives.

Common sense laws in the form of universal background checks have long been supported by an overwhelming majority of United States citizens, yet our state and federal elected officials have done nothing. We require a car operator to be educated, have a license and have insurance.

Guns are at least as dangerous as a car, maybe the same standards should apply.

Military style assault weapons are for killing people, not hunting or any other purpose. Their ownership outside of the military continues to the allow mass killings that have plagued our country.

In Florida alone, we have had over thirty instances where more than four people have been killed in one incident in the last two years.

Gun safety legislation at both the State and Federal levels that saves lives while ensuring responsible gun ownership is long overdue and desperately needed. Our students are demanding we act like adults and protect them. Isn’t it enough already?

Our real estate community is uniquely positioned to push the ideas of universal background checks and a ban on assault weapons forward into legislation. We have spent our entire careers building relationships with elected officials to gain project entitlements, variances, permits and the like. What if we used the relationships we have developed to ask them to lead on new laws? The power to protect our communities is in our hands, if we only take the time to use it.

Stephen H. Bittel

— Chairman Bittel will be posting regular thoughts on areas real estate developers can engage more fully in our communities on Terranova’s website, Bittel on Business. Please visit www.terranovacorp. com/trends when you have time or follow Stephen on Facebook or LinkedIn.

04

Thinking Small:

Inside Real Estate’s Next Huge Movement

By Andrea Speedy

Ask typical consumers in the Western hemisphere to describe a “micro unit” in terms of real estate, and after they take a few moments to think, they might tell you about the tiny apartments they’ve either seen or heard about in Japan… but they’d only be partially correct. Today’s micro units now exist throughout the globe, are growing in popularity in the United States, and extend well beyond the residential sector to include retail, hospitality, office spaces, dining & entertainment, and more.

Generally defined as spaces ranging between 300 and 600 square feet, micro units are becoming increasingly popular due to the value proposition they offer to consumer audiences, and the strong potential return on investment they deliver to property owners. Even better, the cost-benefit equation on micro units plays out almost exactly the same no matter where or what the space will be used for.

Consider two scenarios that typically have very different real estate priorities: residential tenants and retail tenants. Traditional perspectives would dictate that the residential tenant wants as much square footage as he or she can possibly afford for a certain monthly price. Retail tenants, on the other hand, value location over size – knowing that a small store or restaurant that is always full is better than the large space that always seems empty.

Recently, however, these two audiences have started to converge.

As of the last U.S. Census on record (2010), the Urbanization of America continues to grow.

spring/summer 2018

05

N. lincoln lane FEATURES “Micro Suite” tenant space – 274 to 400 square feet Vanilla box space with unique nanowall system offering visibility to and from Lincoln Road Prime location between Lincoln Road & 17th street – main thoroughfare to Lincoln Road

Frontage along Meridian Avenue and Lincoln Lane

While the trend has not been universal in all metropolitan areas of the U.S., major downtown destinations with strong, diverse job markets are drawing people further away from suburbia and closer to central city cores. As more people spend more time working, dining, shopping, and enjoying leisure and entertainment opportunities in the urban environment, an increased demand emerges for housing in close proximity to the “center of everything.” This, in turn, feeds a cycle of commercial and retail growth, as eager businesses move in with the hopes of capitalizing on a new and growing market.

There is a catch – space. Most downtown and urban cores were initially developed decades ago and are now hemmed in by other development on

their borders. Expanding out is rarely an option, and expanding “up” comes at greater expense, longer construction timeframes, and ultimately slower return on investment. Micro units solve this challenge for everyone involved.

“Micro units are so positively received because they address a previously unmet market niche,” explains Mindy McIlroy, Terranova’s Executive Vice President, who itself owns and operates a collection of retail micro units adjacent to Miami Beach’s world-famous Lincoln Road pedestrian shopping destination. “The appeal of a multi-million-dollar deal is undeniable, but the reality is that smaller deals and smaller spaces still make up a significant portion of the real estate market.”

Despite their smaller size, micro units did not achieve high occupancy rates by cutting price per square foot. In fact, many of the micro unit properties were renting at higher-than-average price per square foot than their larger-scale counterparts.

The same phenomenon occurs in other commercial properties outside multi-family units.

PROOF OF CONCEPT: EXISTING SOLUTIONS “Finding the ‘just right’ tenant for 3,000 square feet of prime retail space is challenging,” offers Vanessa Frances, Commercial Associate for Terranova.

“Finding 6 tenants for 500 square feet each is a much easier task.”

In fact, Terranova has seen an enthusiastic response to its first micro-unit offering – The Lincoln Eatery, a food hall concept in which the majority of units fall within the 120-500 square-foot range. Linked by a shared dining area, the individual vendors need not pay for table space on their own. “It’s a feature of the property that is worked into the rental rates, but it is definitely priced well below what it would cost for exclusive use of the same amount of space.”

Indeed, lower overhead is one of the most compelling benefits of micro-units – for any tenant.

“It’s simply a smart way to have a footprint in a bustling area without assuming a great deal of risk,” says Frances.

Terranova’s newest addition to the micro unit market is just down the street from The Lincoln Eatery. The retail micro suites at 1656 Meridian Avenue offer a desirable Lincoln Road location for shops that are not as reliant on walk-up business and retail frontage. Designer fashion, art galleries, florists, jewelry shops, and interior décor services are all ideal prospects who would typically not have been able to afford retail rents near Lincoln Road.

As of 2017, the average rental rate per square foot on Lincoln Road was $305 per square foot, for spaces starting at 1,500 square feet for a total cost of $457,500. The micro suites developed by Terranova just off Lincoln Road, average $200 per square foot with units averaging 315 square feet for a total cost of $63,000. “Everybody wins,” adds Frances.

ONE PROPERTY. MULTIPLE LAYERS OF REVENUE. Lending additional support to the idea that micro units are gaining traction across multiple audiences is the rapid rise and success of co-working spaces.

Like other micro unit offerings, shared co-working office spaces developed out of a market sector with unmet needs. Individual entrepreneurs, e-commuters, satellite offices for larger corporate entities, and freelancers had been continually faced with the painful decision of spending full market rate on an office, without the necessary local business to support it. The only alternatives were home offices and coffee shops – until clever minds applied a retail approach to office tenancy. The product, in this case, was access to space itself. Much like a gym charges for access to its space through membership, coworking spaces provide office atmosphere and business amenities at rates commensurate with the needs of its clientele. Pricing increases or decreases depending on the number of hours of access clients requires, the number of persons associated within

06

each organization, and the level of exclusivity or privacy they prefer. Unlike traditional offices, the co-working platform has the ability to collect multiple micro-rents on the same micro-space – since tenants limit themselves to a number of hours or agree to more flexibility over “ownership” of an individual desk.

The same concept is also about to shake up the hospitality industry with a shared-space solution

powered by industry giant, Airbnb. For the first time ever, a rental apartment building is being built specifically for those wishing to lower their own personal overhead by renting their living space (in part or in total) to vacationers and other travelers.

Expected to open outside Orlando by early 2019, the property developer will not only earn revenue based on year-round tenants, but also a percentage of those hosts’ Airbnb rentals. The property may also provide micro unit inspired amenities such as

a business center, social/occasion room, gym and fitness center, and more. The crossover solution is designed to eliminate vacancies, reduce tenant turnover, and bring more stability to property cash flow.

MORE THAN A NEW MARKET. A NEW ECONOMIC DRIVER. Even though the inspiration behind micro units lies in a desire to capture a previously underserved audience, the economic implications of the microunit trend are far reaching. From a development standpoint, micro units require less actual real estate. As property costs around the country continue to rise – particularly for commercial space – the need to do more with less is prevalent. In 2003, low-rise development took a sharp decline.

What formerly accounted for more than 70% of all new construction nationwide, dropped to just over 50% in the years that followed. High rise development increased modestly, but mid-rise development surged – very nearly doubling in the years that followed. (See Fig. 1) “It’s tempting to think that the solution to smaller space is to build as many stories as possible,” says Josh Gelfman, Director of Development for Terranova, “but the higher you go, the most restrictions you have to address. Midrise buildings typically can avoid these.”

The restrictions Gelfman mentions vary from city to city, but generally involve principles such as required set back from streets and sidewalks, shadow and shading to neighboring buildings, and provisions for parking ingress/egress that fluidly accommodate the maximum capacity of people who live in, work in, or otherwise use the building. Communities and zoning officials are often reluctant to grant permission for a 50-story tower that will cause considerable disruption to surrounding properties. Likewise, some historic downtown districts have statutes in place that cap the maximum height of new buildings with an eye towards maintaining the character and uniformity of the area.

Terranova has faced such rules multiple times in some of its key Miami markets – including Miami Beach and Coral Gables, which all have restrictions on property heights in certain commercial and residential areas. Mid-rise development has been one of the firm’s most successful solutions.

Besides compliance with local building and zoning, mid-rise structures are generally better received by the public, which provides more economic opportunity for ground-floor retail, restaurants, and other business space. Upper-floor micro units help support the financial viability of the entire property by attracting tenants wishing for better value, better urban proximity, or both.

“Mid-rise and micro go hand in hand,” explains Gelfman. “A typical mid-rise building footprint on a standard city block would allow for maybe 10-20

spring/summer 2018

spaces of 1000 to 1200 square feet. Going micro doubles that inventory on each and every floor. Even if a tenant wishes to combine multiple micro units for a larger space, you simply don’t need 40 floors to quickly cover the carrying costs of owning and managing the building.”

The lower construction expense and the ability for the property to become self-sustaining in a shorter amount of time then allows developers to move on to the next project without over extending capital or having to take on more and more investors. For those developers that work on investor-funded models, mid-rise/micro scenarios offer attractive projections for return on investment. Once again, with available capital to spare, development can continue in a way that is more sustainable from a business standpoint.

Not to be undersold, however, is the economic impact that micro units create within consumer markets. A general rule of thumb is that a favorable rent-to-gross-income ratio falls somewhere between 5 percent and 10 percent, which means that the cost of operating from a specific space should not exceed 10 percent of what the business makes in gross sales. In high-demand areas or places with expensive rents, this can be challenging for start-up concepts to manage. Micro units present a scalable way to grow the business incrementally, perhaps

07

expanding to a micro unit in a nearby destination, or even moving into a larger more traditional retail space with the consumer base in place to support it.

Another benefit of the micro-unit model is flexibility in spending. When rental rates rise, as they usually do, businesses must cover those increases.

They may pass along the increase in pricing to consumers, or they may simply work to make more sales. Likewise, they can choose to cut back on other expenses such as advertising, labor, or cost of goods/materials. Larger, established businesses are typically more fluid in their ability to make these decisions as they’ve built up a customer base and some positive cash flow. For smaller operators, micro-units allow a level of flexibility to respond to business changes without placing unnecessary stress on fundamental operations. The result is a business district that spirals upward toward becoming a strong, vital commercial scene.

McIlroy elaborates. “We’re very careful to form relationships with concepts we believe can succeed.

It doesn’t do us any good to have failing retailers in our spaces. What we’re seeing with increasing frequency is that one-size-fits-all does not apply any more. It may have back in the heyday of shopping malls, but it isn’t working today. Micro units have allowed us to close the gap between the realities of

modern-day commerce the ways retail responds to that environment.”

McIlroy’s comments are highlighted by an ongoing shift in big-box and department-store retailers “going small” in locations across the country. Many brands have opened “Express” versions of their big-box stores in standard size retail spaces in an attempt to connect with consumers where they live. Smaller spaces allow marquee retailers to maintain a physical presence without cannibalizing their growing e-commerce divisions. Rather, quite the opposite, micro units and smaller traditional spaces can support e-commerce with a “pick up today” option for locally available inventory that can be housed in a shared warehousing facility and distributed to small and micro storefronts within hours of an order.

“Micro unit retail represents a ‘back to basics’ sensibility for commercial real estate that’s probably been a long-time coming,” says McIlroy. “The storefront, the office, the apartment being offered, any of it is first and foremost the space where relationships begin. Socially, we’re seeing a return to personal service and a higher value placed on owner-operated establishments. Micro units support that development in a way that is scalable, certainly… but it’s merit lies in also being profitable, for everyone involved.”

Mid Station

08

Inside the Inner Workings of

Commercial Real Estate

A Spotlight on Retail Property Managers

By Andrea Speedy

After the deal is done and the lease is signed, the heavy lifting in the commercial real estate business truly begins.

The Property Manager becomes the key point of contact for multiple stakeholders in a particular space, including the tenant, contractors, city and municipal inspectors, business improvement district (BID) directors, marketing teams, and the property owner or landlord itself. It is a fast-paced, non-stop, always-on career that is as challenging as it is rewarding.

“To say we’re jacks of all trades would be an understatement,” says Ozzie Dominguez, a 30-year veteran of property management, and a valued member of the team at Terranova. “Sure, we collect rents – as most people know. But we also coordinate hundreds of different tasks in a given day and oversee dozens of relationships. Those relationships are essential to how anything gets accomplished.”

improvements if necessary, and other finer points.

The actual tenant often is unaware of his or her obligations to fulfill those lease terms – especially when it comes to paying rent even if a property build out is not yet complete.

Dominguez, who has also served as a real estate Vice President, and held other leadership roles in the industry explains that his experience is not one-of-akind. Successful Property Managers who stay in the field as long as he has have all learned a number of essential truths to doing business. He then goes on to explain that what the general public believes a property manager does is only the tip of the iceberg.

“We’ll often hear that we work for the landlord, and that’s technically correct. But we’re truly resources for our tenants. We’re absolutely working on our retailers’ behalf to help them stay in business and stay profitable. A successful tenant means a property that’s producing income.”

“An official lease has a start date for rent commencement,” says Dominguez. “It doesn’t have a sliding scale of ‘when you’re ready to start making payments.’ I make sure to stay in constant contact with new tenants to make sure they’re staying on track, because rent will be expected as specified in the lease. Many national retailers already know this, but it pays to keep in touch. Local operators or firsttime business owners sometimes need a little more guidance, which I’m happy to provide as needed.”

One way he makes sure to start the relationship on the right foot is with a pre-construction meeting between the tenant and contractors in case there are any landlord concerns that need to be addressed.

When necessary, a list of approved contractors is also provided should a tenant need assistance getting their build-out off the ground.

With that in mind, Dominguez then outlines the typical tenant relationship, beginning with the signing of the lease. Generally, legal teams and real estate agents hammer out the details of pricing, square footage, agreed terms for utilities, property

The same types of relationships are also highly beneficial when working with city and local officials.

Knowing an inspector means knowing what elements of a build will and won’t pass before an inspector arrives. It saves inspection teams time and frustration

to not visit sites over and over again for the same issue – and that respect goes a long way towards special requests like expedited review scheduling in the future.

“It’s never a one-man show,” says Dominguez.

The Property Manager’s role, he elaborates, is a crossroads of multiple departments (both internal and external) working towards the same goal. “We all stand arm-in-arm to keep the greater business world and local economy moving,” he adds. “Empty retail and commercial spaces do not accomplish anything for anyone. But we all have to work together to keep the gears turning. Showing that I’m as committed to that goal as any other person creates trust that we can depend on each other when challenges arise.”

And challenges do, indeed, arise. Outside of countless little problems like parking, cracked sidewalks, a broken window, power outage, malfunctioning alarm, and other day-to-day disturbances, it is the Property Manager’s responsibility to ensure the safe keeping of the landlord’s assets in all situations – especially emergencies. In South Florida, for example, hurricane preparation is no small task. For each of the properties that Terranova owns and/or managers throughout South Florida, duties like placing hurricane shutters, sandbagging doorways

spring/summer 2018

to prevent flooding, locking down and/or removing signage, placing outdoor bistro tables and umbrellas indoors, properly securing trash or boxes, lowering or removing awnings, and other tasks all fall to Property Managers to ensure they are complete.

While tenants are ultimately responsible for ensuring the safety of their personal property, emergencies are often “all hands on deck” situations to make sure everything gets done as quickly and efficiently as humanly possible.

“During Hurricane Irma, the power of relationships was our saving grace,” shares Dominguez. “We had to check on shutters for every property that may have been in the storm’s path. Obviously, no one person can be everywhere at once, so I had to count on my tenants and my network.” With the whole city in emergency preparation mode, business owners and employees were caught between readying their homes or their places of work. Once the city started handing down evacuation orders, the challenge

09

escalated as tenants were leaving town with their families. Properties still needed to be secured, and Dominguez, tenants and his team literally and figuratively rolled up their sleeves to get it done. “It was an ideal example of what happens when you treat people right,” he says. “Some people were able to check on a property nearby while I was on the other side of town. Others sent me pictures of their properties all secured so I knew they were set and didn’t need any additional help. Still others worked alongside me to tighten those last screws until everything was ready for the storm.”

BRINGING CONSISTENCY TO AN INCONSISTENT WORLD

Beyond managing the daily operational aspects of an individual property, today’s commercial Property Managers are also handed the monumental task of simplifying a complex real estate landscape. Each business district throughout South Florida is unique, even within the greater Miami-Dade metropolitan

area, rules and codes regarding building, signage, and maintenance can vary widely. It is the job of the Property Manger to know which rules apply where, and to whom those nuances need to be communicated. One example is the ever-changing dynamic of Lincoln Road on Miami Beach. With more than 100 different buildings represented on Lincoln Road and the immediate surrounding area, each building is completely different from the next. There is no consistent design or construction to the spaces.

Some are historic and have protections in place for design features that must be maintained from the original period. Others are brand-new construction with the latest technology and materials. Still other properties are an adaptive mix of old and new. As such, code compliance also changes from property to property – depending on what may or may not have been “grandfathered in” under previous code.

Likewise, the seasonality and consumer traffic changes considerably depending on the location

10

of retail or restaurant units under the Property Manager’s purview. Lincoln Road has a seasonal influx of snowbirds and vacationers from September to May, but the local economy keeps things steady in the off season. It is a sharp contrast from other beach-front resort towns further North on the Atlantic Coast and on the Gulf Coast of Florida. Miracle Mile in Coral Gables, on the other hand, is largely immune from tourism spikes as it primarily serves the local population. A strong financial and banking sector nearby, and a large upscale residential community surrounding the area has made Miracle Mile self-sustaining for decades and will continue to do so in the future. Tenants are usually aware of these differences at the time they are considering a location, or Leasing Agents help fill in the details with demographics, spending statistics, and other localized reports. It is Property Managers, however, who serve as the vital point of contact between tenants and the landlord, managing and mitigating any questions that may arise during the course of normal business operation.

And yet, it isn’t only tenants who must navigate dozens of individual situations – Property Managers must do this too, with each and every property in their portfolios. “You simply must know every

property you manage inside and out,” explains Dominguez. “Where is that tree on the property? Where’s the main alarm panel? What are the local regulations on boxes in the alleyway? Are chairs and tables infringing on pedestrian access?

These are things that have to be top of mind because there’s simply not time to go and visit a property right at the time a question is asked.

Knowing it like it’s the back of your hand gets things done faster for everyone involved.” Related to that thinking, Dominguez admits that easily 50% to 60% of the job happens outside the office.

Relationships, after all, aren’t made over email and text message – though they’re important technology tools. “I cannot tell you how many times simply making a face-toface impression has yielded better-than-expected results,” Dominguez says. “That look on someone’s face when you can see they appreciate what you’ve done for them is so worth it.” Often, he says, it isn’t even a huge favor or a difficult ask. It is simply attending to a need with courtesy, respect, and reliability that matters most.

UNITING TEAMS. DELIVERING RESULTS. Behind the ‘front lines’ of property management, there is an equally important dynamic at play – the business aspect. Property Managers typically coordinate and overlap with a variety of internal departments for the developer, landlord, and property owner. One of the most vital roles these various departments share is the completion of yearly reconciliations with tenants.

After the billing and accounting teams compare estimated operating expenses as outlined in the lease against actual operating expenses for the year, it becomes the Property Manager’s responsibility to communicate and collect (or credit) the differences.

The Property will also rely on the accounting team to explain the process and calculations in detail so the

Property Manager can effectively communicate such to the tenant. Together, these teams depend on one another to keep business on track.

Building alliances with internal resources is one key to Terranova’s ongoing success in the commercial real estate market. “We pride ourselves on being team players,” says Chairman, Stephen Bittel. “To us, that means going the extra mile for your colleague and making your network their network. If there’s something one of us can do that helps someone else get the win, we do it. If it’s someone we can call, we do that too.”

Dominguez agrees. “The more you give, the more you get in this business,” he says. “Being passionate about creating solid relationships empowers you to tackle many things at once and never feel like you’re out of control.” Property Managers who are natural multitaskers are those who succeed. There will always be multiple tasks going on at once, so it’s all about being organized, responsive, and knowing how to delegate and work in a team. Sometimes it’s a matter of divide and conquer. Other times it means prioritizing tasks and communicating timelines to respective parties. Knowing the landlord is behind you, supporting your actions helps, but in every case, the human touch matters.

“There are a thousand opportunities to make a difference – to tenants, to colleagues, to city officials, even shoppers,” Dominguez finishes. “Each interaction has the power to make a relationship stronger. When I follow through on something I’ve promised a tenant, they know they can depend on me if they’re having a problem that needs to be addressed with the landlord.

If I help colleagues when they ask, I’ve got one more person I can turn to if I’m ever in need of a favor.

Relationships and teamwork go hand in hand. When teams trust each other, that’s when great things can happen.

spring/summer 2018

11

Spotlight

Building Better Communities

Real estate developers have long prided ourselves on meeting the demand of consumers in the marketplace. However, the ongoing acceleration of technology and capacity to deliver consumers a faster, more convenient product directly to their doorsteps is driving our industry to evolve. More store closings are announced every day and we know that investment capital is favoring industrial and data space over retail. Our traditional, reactive model of simply supplying what the market demands, would take us to a future world where everything is supplied at the click of a button and no one leaves their homes.

Social science tells us humans are social creatures and therefore it would be unhealthy for us to never leave our homes, yet a number of studies in recent years have found that loneliness is becoming one of our biggest public health threats. The need to build community in an era when people are increasingly socially disconnected by a culture of immediate online need fulfillment is more critical now than ever before. Media headlines are filled with unbelievable tragedies and attendance at religious services, block parties, school carnivals and other community events is at an all time low.

“As developers, we have to make it worth it for people to get off their couches, leave their residences to go experience something in the physical world. We need to create authentic experiences for personal interaction,” said the Chairman of Terranova Stephen Bittel. “Millennials have more spending power than any other generation and those millennials are willing to leave their homes for one thing, a unique experience they can tell their friends about on social media.

They are our future and we must ensure they have rich, resilient opportunities to build the community connections that they will need to meet the challenges of their time.”

This creates an opening for real estate developers to anticipate customers needs by providing a solution to what they aren’t aware there is a public remedy to, their loneliness and isolation.

Americans are yearning for a sense of belonging and community and may not even be aware of their need. We can build experiences and allow someone to feel connected to the fabric of a community and enrich their lives in a way the convenience of technology never can.

At Terranova we are doing just that. In our last Trends publication we highlighted The Lincoln Eatery, which is a soon to open food hall just off Lincoln Road, in Miami Beach. Inspired by food halls the world over, it will bring together an intentionally

selected collection of local artisan chefs and styles. It will be a gathering place for locals and tourists alike to eat, drink, share ideas and connect in a way often missing in this age of electronic communication.

Discussions about future potential to align our values and profits here at Terranova have lead to a number of interesting considerations. Open air spaces and roof tops for urban gardens, making a farm to table commitment a more convenient reality is one example. Permeable parking areas that double as green spaces to humanize projects and foster community gathering opportunities that make our lives more meaningful and our projects more valuable is another idea worth exploring. Public/ private partnerships for stadiums, concert halls, museums and more, affordable office and house sharing options for the new economy are also ideas being explored by other developers around the country.

Chairman Stephen Bittel says, “ I, like most in our Jewish community, was raised with a strong sense of responsibility to do good. The Hebrew phrase tikkun olam was oft repeated as I was growing up.

Tikkun olam means to ‘heal the world’ and there isn’t more we can do to heal our communities right now than facilitate connections with each other.”

Combining our obligations to do good at the same time as we create real estate developments for profit, enable us to make our communities stronger and our residents more connected to one another.

Every developer has the challenge and opportunity to build with the kind of positive intentionality to design projects that connect us to one another.

Providing an engaging, unique experience will make our customers want to visit us more frequently, stay longer at each visit, and individually contribute more to the success of our projects and the resiliency of the American experience.

By Sally Boynton Brown

801 arthur godfrey road suite 600 miami beach, fl 33140 www.terranovacorp.com