Already trailing two rival projects in a soon-to-be crowded Brickell office market, the developer of Brickell Financial Centre is adjusting tactics to better compete for tenants down the road.
Unencumbered by existing debt, Brickell Financial developer Foram Group is trying to position itself to stay in the race long-term. Not having a lender forcing Foram to rush to finish the 40-story office tower allows the company to sit back, if it so chooses, and let some of the nearly 2 million square feet of office space in the Brickell pipeline fill up, executives say.
And with 1450 Brickell and Met 2 scheduled to be completed in the first two quarters of 2010, Foram has backed off placing a timetable on when Brickell Financial will be completed.
Foram President John Breistol said the company has enough cash in place to complete the major office project at 680 Brickell Ave. even without obtaining financing, which is only being offered at extremely high interest rates. Foram founder Loretta Cockrum turned over day-to-day control of the project to Breistol about a year ago.
The Foram entity funding the project, Brickell Financial Centre LLC, has pumped about $160 million into the 600,000-square-foot project, which executives say is about 70 percent complete. The remaining stages of construction — building a glass curtain wall, the interiors and landscaped plaza — would cost about $140 million. Curtain-wall installation should be completed by June 2010.
But Foram is no longer targeting a specific completion date, Breistol said. With 1450 Brickell and Met 2 far ahead of Brickell Financial Centre in construction, Foram is backing off earlier pronouncements that the project would be completed in the third quarter of 2010. The two other projects will add nearly 1.3 million square feet of office space to the Brickell area.
Foram plans to let market demand dictate when Brickell Financial Centre should be completed, Breistol said. Not having construction debt allows the company to maintain a flexible timetable. Without pressure from lenders to fill the tower, it can also be more aggressive in pricing rents.
“We do not have someone looking over our shoulder saying ‘you must do this,’ ” Breistol said. “We’re not just developing this property to sell it. This is a long-term hold for our portfolio, and we will be a tenant in this building.”Breistol would not rule out obtaining financing when the capital markets open up.
“If there is reasonably priced debt at the right term, we would entertain it,” Breistol said.Backing off a target completion date is a sound strategy given the glut of office space under construction in Brickell, said one observer, real-estate attorney Steve Silverman, a shareholder at Kluger, Kaplan, Silverman, Katzen & Levine in Miami.
With Brickell Financial Centre clearly third in line, Foram must maintain its credibility in the marketplace by not naming a target completion date, said Silverman, who is not involved with the project. Setting a completion deadline and missing it would lead to a major backlash from prospective tenants.
“If [Foram] was my client, I would counsel them not to put a date on it,” Silverman said. “Putting out timetables that will not be met for any reason will diminish their ability to attract the type of tenants they want. There will be a glut of office space in the downtown Miami and Brickell markets for up to five years,” he added.
A major benefit to moving ahead with remaining construction, if Foram has the cash in place, is significantly lower material and labor costs, said real-estate attorney Eric Neuman, a partner in Boca Raton’s Buckingham Doolittle & Burroughs. Construction expenses are down as much as 25 percent, he said, but will not stay at that level much longer.
“If [Foram] waits too long, the occupancy levels might be on the upswing but so will the cost of construction,” Neuman said. “Those who have the option can build on the cheap now.”Rival Luis Palenta, principal of Met 2 developer MDM Development, declined to comment.
Alan Ojeda, CEO of 1450 Brickell developer Rilea Group, also declined to comment on Brickell Financial Centre.Not having existing debt on Brickell Financial Centre offers both advantages and disadvantages for Foram, Silverman said.In a difficult commercial real-estate market where “cash is king,” having enough cash in hand to finish without additional help puts Foram in a rare position within the development community, he said. But falling behind the other two major office projects negates that advantage.
“They do not have anchor tenants and do not have a demonstrable cash flow in an oversaturated commercial market,” Silverman said. “There’s always a downside when you pump so much cash into an asset that is not generating any returns.”
The lack of a completion date does not mean work on the project has stalled, Breistol said.Rumors circulated throughout the commercial market that construction had ceased after January’s topping-off ceremony, when cranes were brought down.
Those rumors intensified in February, when the law firm of Bilzin Sumberg Baena Price & Axelrod, a would-be anchor tenant, backed out of a deal to occupy 115,000 square feet for 10 years.But work on the Leadership in Energy and Environmental Design (or LEED) pre-certified tower — in the form of installing the exterior skin of the building and windows — continued throughout the year, Breistol said.
And between 30 and 50 workers have been on site in recent months installing, glazing and testing the windows, he said.Brickell Financial Centre topped off on the same day, Jan. 30, as 1450 Brickell. But Foram’s project has not kept pace with 1450 Brickell, which is scheduled to be completed in the first quarter of 2010.The curtain wall, which Foram has yet to install, was topped off at 1450 Brickell in August.Meanwhile, Met 2 is on target for an April 2010 completion and has already landed three major tenants: Greenberg Traurig, Deloitte and Business Centers International.