Posted on Tue, Nov. 02, 2004
Downtown office-tower plan is latest victim of condo fever
A developer rethinks plans to put up a downtown office tower but prepares to build what would be one of Miami's tallest condominiums.
BY MATTHEW HAGGMAN
The first downtown Miami office tower envisioned in over a decade has been put on hold, but the developer now plans to build a 72-story condo tower slated to rise 750 feet into the sky.
If constructed, it would be the third-tallest skyscraper in the city.
The twin moves by the MDM Development Group are another sign that developers remain aggressively optimistic about the condominium market but skittish on the prospects of office-tower construction downtown.
The trend is leading some observers to worry that condos are taking up too many of downtown's prime locations.
''If you do not have a downtown business district, you no longer have a downtown,'' said real estate analyst Michael Cannon of Integra Realty Resources.
The office and condo had been slated to rise side by side, but MDM decided to add over 20 stories to the residential building. MDM said Monday that it was reevaluating its proposed 500,000-square-foot central business district office building, Metropolitan Financial Center. If built, the tower would be downtown's first new Class A office building in over 10 years.
This would be the second proposed office building downtown to be shelved this year in favor of a condo project. In July, Atlantabased Cousins Properties jettisoned plans for an office tower at Flagler Street and Biscayne Boulevard. Instead, it partnered with Jorge Perez's Related Group of Florida to build a 54-story condo.
Tim Weller, Miami-based MDM's vice president of development, said its decision was based on ``rising construction costs, overall economics, the strength of the office market right now.''
He declined to elaborate.
MDM sought to sign the law firm of Steel Hector & Davis, the accounting firm of Morrison Brown Argiz & Farra and the insurance and consulting giant Aon Corp. as tenants for the proposed office tower, but negotiations with Aon collapsed three weeks ago, according to a person familiar with the deal.
Antonio L. Argiz, managing partner at Morrison Brown, said he was told a week and a half ago that the project had stalled.
MDM, led by Ricardo Glas and Luis Palenta, developed the J.W. Marriott Hotel and the Mellon office building on Brickell Avenue.
MDM, meanwhile, is convinced that the condo market remains stubbornly strong despite the unprecedented number of condo towers slated to be built, Weller said.
That assessment has prompted the developer to up its plans for a 51- or 52-story condo to a 72-story tower with 650 units.
The Four Seasons Hotel & Tower, which has condos, a hotel, retail and office space, is 789 feet high. The Wachovia Financial Center stands 764 feet tall. MDM's building would rise 750 feet.
MDM plans to break ground on the project in May, Weller said.
The condo tower and the stalled office building are envisioned for a square block bordered by Southeast Second and Third streets and Southeast Second and Third avenues. The parcel sits between the Wachovia Financial Center and the Bank of America Tower at International Place.
MDM's two towers were planned to sit atop a 12-story parking garage slated to have a Whole Foods grocery store on its ground floor. The development is part of MDM's overall project, which will occupy three downtown blocks.
On one, it plans to build a 40-story condo with 447 units and a retail and entertainment complex, including a movie theater. Weller said that condo development was 85 percent sold.
Ground breaking on the condo, to be called Met One, had been scheduled for September but is now slated for December. MDM hopes to have the condo and retail location, dubbed Met Square, completed by March 2007, Weller said.
MDM plans to build a residential tower on the third block, across from the Hyatt Hotel, he added, but there are no specific plans.
Developers are shying away from office development, experts say, because condo demand is so strong and provides a quicker return on profits.
In addition, current office-rental rates do not justify the expense of building a Class A office tower. The 20 to 30 percent price hike for materials in the past six months has made office construction even tougher.
Peter Harrison, a veteran real estate broker with Transwestern Commercial Services, said Class A construction requires rents in excess of $35 per square foot. Current rates, he noted, are mired between $32 and $35 per.
''You can't justify building a Class A building at those rents,'' said Harrison, who has represented MDM. ``The office market has been flat for several years. In the early 1980s, rents were as high as $36 a square foot.''
But not everyone is convinced that current market conditions rule out office development.
Said Cannon: ``I believe that if the professional office developer did his homework, he would be pleasantly surprised.''
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