Real Estate Demand in Florida with David Martin | Ep. 90

- Hello everybody, this is Darren Powderly welcome back to this edition of StreetBeats, it's good to see you again. Today my guest is David Martin. He's the co-founder and CEO of Terra. And since founding the company with his father Pedro Martin back in 2001, the two have really established themselves and their company as a force in South Florida real estate both building commercial and residential and portfolio spans 4.5 million square feet and about $4 billion worth of commercial and residential development since they founded the firm, that focused on sustainable design oriented communities, they focus on enhancing the neighborhoods where they develop and bringing people together, which is really really a noble cause. And then they also, you know, some of the things that I've I really appreciate about when I sort of learn more about Terra is their focus on design. They develop some of the most beautiful buildings in all of South Florida, secondly, and perhaps more importantly they're really focused on sustainability and philanthropy. They give back to the communities where they develop, where they live and they employ over a hundred people, but they really think about the contribution to the community where they're building which is something that all of us especially all developers can learn from their role model for developers, they're everywhere. So with that, hey David, welcome to the show. Please introduce yourself and your firm.

- So thank you, Darren and great to be here. You know, our firm was founded here in Miami Florida, since 2001, really been studying all the growth and evolution of our and we really played in different asset classes whether it's, you know we've probably developed and sold over 2,500 homes in certain sub-markets of South Florida. We've developed a garden apartment communities throughout the market and we've also done, grocery-anchored shopping centers, some commerce parks and some high-end residential. And so we've really had a diversified approach to this market. You know, our firm has been establishing strategies for each neighborhood and some include neighborhoods like Doral, Miami Beach, Western Pembroke Pines. So really just a collection of cities and neighborhoods that we develop products that work, you know, given the DNA and kind of the demand drivers of those markets. And so one of the primary neighborhoods where our offices are actually headquartered is Coconut Grove Florida. And so we built a hundred thousand square foot office building here where we currently just completed last year. And in Coconut Grove kind of, you know was where my family lives, my kids go to school and it's a special place in South Florida. And so we're here gonna be talking about one of our projects at Grove central which is a special project that really at the hub at the transit hub of Coconut Grove. So we're looking forward to having that dialogue and thank you there for the introduction.

- Of course, yeah. It's really eye-opening to me just how much activity is going on in Miami. I mean, other than Houston, in Houston in Miami are kind of neck and neck with growth and the pandemic has accelerated that of course but really what's going on on the ground in Miami right now give us a sense for it, I mean, you know I was just educating myself about things like the METRORail and other aspects of what is life like in Miami. And especially as a developer, trying to look, read the data, get the insights and develop for future but what's going on, what's driving the market there right now.

- Sure. I think Miami's evolved from a cultural standpoint, intellectual standpoint. I think, from the 70s and 80s, I think Miami's really come a long way with art museums and symphony halls and and performing arts centers. And so for us we view that as growth of a young city. And so what we've seen is, what's unique about Miami is the barriers to entry is the security, is the historic preservation, the environmental preservation. We really wanna have an amazing bay. We wanna have, amazing beaches built. Then for us our community is very, has a lot of focus on environmental protection. And I think that's a good quality for a neighborhood because when you do have development rights and you have a project like Coconut Grove, that's sitting on this the Coconut Grove, a station for the METRORail along a 10 mile linear park called the underline that I'm on the board of, that's actually under construction right now.

- And what does that as a 10 mile linear park and you're on the board of, what is that?

- So what we have is Coconut Grove is a kind of a village that is right outside of Miami's Financial District. And it's basically all the waterfront really Coconut Grove has kind of looked like the Olympic sailing team, the you know a lot of yacht clubs. So it's probably the best Southern most kind of a marine destination to really get out and enjoy the water. When we think the arcs in Miami and in Coconut Grove, we think of our cream parks but we also obviously, you know think of our water parks and in all our different keys and those environmental quality. So what happens is, you know Coconut Grove is really positioned itself to be a leader in park space and green space. Even if you look at Google earth you'll see kind of this green canopy. I actually was on the board of the Grove treatment trust which kind of protects trees in the neighborhood. And it's kind of an amazing experience to live in this neighborhood because it's a little more ceremonial peaceful, but it's so close to the Financial District. So what the underline is, it's basically a 10 mile park that connects the Financial District to Coconut Grove. It's really gonna activate the biking community as well as the whole activation of what it's like to live next to transit, but also have a beautiful uncomfortable green space around that's accessible. And I think that's a large part of this migration that we've been seeing there in which is, you know, people are looking at the qualities of our city and seeing the environmental quality, seeing the ability to kind of 24/7 be outdoors and be healthy and really feel free. And it's a city that I think has very low barriers from a social circles. And so people really feel at home. We believe really the city of the future and I think more and more with the technology and the innovation and automation of our society I think more and more people are looking in saying where can I spend the rest of, you know spend time for the rest of my life? Where do I want to work with this remote working phenomenon as well and so I think a lot of that now is people are feeling less strapped to their cities that they currently live in and are really realizing that they love to live here. And so our projects kind of speak to that demand and that diversity in demand and there's different segments. And so we really believe that given the scarcity of development rights and the high barriers to entry in the restrictive zoning that you see, the assets and properties that we're developing are somewhat unique and special and really resilient given the fact that there's not going to be a lot of new supply that kind of can dilute it. So it's a really special time in our city and just seeing the families that are moving here, the businesses that are moving here, it's really a special time. And something that we we're really excited about. Let's transition to the other aspect of your firm which is remarkable in my mind which is when I go to your website and I look at your projects, I'm like, wow, that's those are the most iconic, beautiful towers and developments that you can't find anywhere and especially Miami has some of the most beautiful architecture. What convinced you and your dad to spend more, to invest more, to emphasize design. And then how has that progressed over your career until now?

- You know, it's funny, I've always worked with great architects mostly local architects for probably the first 10 years but after the crisis of 2000, call it eight, nine-

- Which Miami got hit hard, right?

- But we recovered faster than any city. So what was interesting was that was we bought a hotel that was in bankruptcy. And when we bought the hotel, we repositioned that into a residential, to residential buildings. And we hired a Danish architect, the Bjarke Ingels and our thesis was that we were gonna have empty nesters kind of that wanted to relocate from their homes into the building and want urban and some walkability services, et cetera. You know, Miami doesn't really didn't have that urbanism that other big cities have. And so what we saw was, you know 'cause obviously the international demand was kind of used to that, but kind of that local demand was a market that we wanted to tap. And so for us, you know bringing in Bjarke Ingels on that project in Miami beach we worked on a project with Renzo Piano, and we created like the 60 boutique residences that, really broke records from a pricing standpoint in that market as well. And what we saw is that, these guys and girls that we bring in that are really remarkable thinkers and thinking about our city, like you know we would put them together with this historian Paul George who try to understand the culture the history kind of really, so that they're not coming in with some preconceived idea or notion. And, but it was just that design process for me, it was just I learned so much working with these great minds whether it's, or may run cool house we did another project with them in Coconut Grove. This growth central we're working with Jackie and Carlos, today Jackie and Carlos are like they're husband and wife, but they're like masters. They do all the Apple stores here in South Florida. You know, when we got the development rights to build at the County station, we wanted to bring someone that kind of understood the Grove, but also kind of, could relate to what the ground floor experience was gonna look like and feel like from a retail shopping tendency perspective but at the same time elevated in a way that the people feel that they're proud to live in these communities. And so, you know, when you look at the amenities, you look at the package that Grove central offers, for the value and cost on a monthly basis including obviously living next to transit to less reliability of the audit, the train automobile costs. It's just that it's pretty remarkable and I think Jackie and our influence on our other jobs kind of we just felt that a good design will and a good product is gonna really be something that stands the test of time for us by us creating this credit worthy anchored retail experience that anchored by target and great companies like that in grocers, et cetera. And then we have beach 400 residential apartments that have remarkable views of the bay of downtown and having... In a transit hub having a significant amount of parking, which that is adaptable. Obviously some of that residential parking is adaptable to additional leaseable area down the road but for the most part today, you know, we're at a transit hub and we have over a thousand parking spaces. It's just something that for us, meets all the kind of requirements of responsible development today. And even around 15% of our units are gonna be workforce housing units, which for us it's 60 units et cetera, but it's an important element of society today and mix things up and really trying to serve the public and at the same time have a great business model. And I think we really hacked that on this project.

- Yeah I know that you've developed all types of housing, from workforce housing and studios and one bedrooms up to luxury condominiums. So you cover the whole breadth, which is fantastic. You're doing it with a partner, Grass River, how did you guys meet, how did that relationship form?

- My relationship with Dustin and Toby really started out as friends and colleagues and so they actually, you know when they got the development rights for this property, they reached out and asked if I wanted to do it with them. And so we, you know, to deal together and we really get along and kind of everybody has their strengths and we try to add value and we were very creative to each other. And I think overall, it's been a it's been a great partnership with great minds and it's been a really positive experience.

- That's awesome. I'm happy to hear that. I didn't know all the background of that story. So always helpful to have two leading firms coming together on a project like this. So let's talk again and go back a little higher level again, you talked about Grove central, the project that's forthcoming. Congratulations on breaking ground. I just, as I was doing some research in advance of this I saw you guys just broke ground and hit the news. So congrats on that.

- Thank you.

- In Florida, in Miami, in particular are you seeing continued retail demand? 'Cause like most individual investors are that out there, they're reading the headlines and thinking retail is little scary, you know but you're seeing great demand in that project in particular. And I know you own a lot of other commercial shopping centers. So what's your observation with retail demand in South Florida right now given the immigration and the positive population growth?

- Sure. You know, I think overall retail is definitely contracting. I think the overall supply of retail what we're seeing is more and more redeveloped. We've purchased a 38 acre per person who came at our shopping center that we are redeveloping into 1200 apartments, 300,000 square feet of office and kind of repositioned the retail mix. But overall what we're seeing with firms like targeting, and if you kind of read some of their reporting, their fulfillment costs go down from 40% when customers use shifts and those down around 90% when customers use, when they return to the store. And so there is a bricks and clicks model for certain tenants. There's a certain void of one of the reasons my Coconut Grove is so special is this restrictive zoning. And so what happens with that restrictive zoning is there's no sites where you can build any significant retail to serve this income and the demographic that we have here. So what happens is you may have certain pockets of the market that are oversupplied retail. And I will tell you Coconut Grove for decades has been underserved for retail just for basic groceries. And so the amount of distance that you have to travel because all the lots are very small. There's no large land. I mean we have five acres here. You need a significant amount of scale in order to really be able to position something. So in some respects, I think from a micro standpoint, they're showing some markets that are kind of just a natural for retail. So for us what we've seen is, you know, we've signed deals with firms like Publix, like target and others that we're working on another projects that I think that there is a segment of the market that will continue to be strong and successful. And another segment that won't. And I think it's a lot of those companies that I think are continuing to creating their online experience and how they use kind of the bricks and clicks kind of approach and their strategy. I think for instance, on this project we're having a 50,000 square foot target, right? So that we'll have the Starbucks, we'll have the CVS Pharmacy, but it's 50,000 square feet. So it's a little more urban in size and scale but you still have the great credible units of and backing of the tenant and innovation of the tenant. So for us we're really you know, we have plenty of parking. That was one of the other things with urban retail that you see in today's market is there are so much of it that has no parking a lot of times. So our parking ratio, I think is extremely high for the amount of retail we're building. So I think from a convenience standpoint, a location standpoint, kind of the fact that there's a void of retail given the restrictive zoning, we're very bullish on the retail.

- You'll have some built in demand with the 400 units. And more than that in terms of residents when fully leased. But when they were drawing the circles of demand around the property, how much of the retail demand is going to be kind of coming to the property because they live in the surrounding areas either walking because it's a walking, high walkability destination. Taking the METRORail because it might be a stop or two away or driving to the site because you have 1000 parking spaces.

- Right. So it's a very good point that you're making which is, this is a an area that is regional, but it's also neighborhood, right? And so it's kind of a regional market that I in my opinion, requires or needs a three or 400,000 square foot power shattered. But basically what we're joined is we're bringing those tenants that would traditionally be in a power center and be, and have it in a much smaller footprint with an older parking. So we see this project kind of generating demand from the the local market and the neighborhood market. When you look at the income levels of this market it's pretty significant. But for the most part what you have is, you have all these schools. And so you have so much density and families. And the lot sizes of the single family are very small. And so you have a very dense, but high net worth kind of a market that needs basic services and wants that accessibility. And then from a regional standpoint, you have hundreds of thousands of cars going through Dixie highway. Then you have the ridership that you have on the METRORail. And then you have the connectivity along 27th Avenue that really is an important artery that goes like from the where the Miami Dolphins play stadium all the way to south and kind of ends up the Coconut Grove. So you have the a regional infrastructure for activity, and then you have this local neighborhood demand. So you know we feel very confident in a lot of our tenants. Very confident that they're going to do extremely well on their sales and what happened. Again, a lot of the tenants we look at it. We're looking at their online footprint and and their strategy. And I think for the most part, we're getting the best tenants.

- Yeah, and as you mentioned, retailers generally speak on a national basis shrinking. So that's an incredibly unique situation to be in where you have this property that is in high demand by retailers who do not sign leases without doing all of their homework clearly you're experts at site selection. So they are obviously supporting your development thesis in that particular location. We've seen and heard the news about different companies like Goldman Sachs, and Blackstone and Elliott Management relocating down to Miami, at least offices and in some cases headquarters. How much is that changing the landscape? And how much are you altering your development thesis for the next a couple of years around the fact that companies are enforced coming down there?

- For the most part, what we're seeing is not only these big funds, but also guys that are in the financial services business, right? And so we have a lot of money managers, a lot of corporate executives from some of the biggest banks in the world that are just wanting to relocate their families and work from here. And so speaking to a lot of the office brokers that are friends of ours, the backlog that they have and the demand that they've seen is pretty significant right now. And for the most part our sub market was not a high rent market. We traditionally had a stable kind of $35 a foot triple net number. Today, we're seeing rents on the office space market, very high because there is you know, there's not a lot of office spec building happening for the most part. What we're saying is that demand is now bringing with them a workforce. And the more and more people that we speak to, that we interface with that are friends of ours that are relocating here the more of their friends and their family members are also making that decision. So it's a really special time for the city. And I think we're prepared today in from an infrastructure standpoint and-

- Yeah.

- Thoughts standpoint, and kind of strategy and really thinking of our future. And I think people are appreciating that and enjoying it and really acclimating to what what we believe is, really a city that welcomes everyone. It's a city that welcomes diversity and welcomes different cultures. And I think it's something that people are appreciating and realizing more and more. You know, I think after this-

- Yeah. Yeah. Well it's fascinating to hear and be a part of what's going on in Miami, and being a partner with you and your team at Terra. So we're really grateful for the relationship you with David and I wish you all the best. And thank you everyone for joining us today for this edition of StreetBeats. Until next time, thank you.