“The amount of wealth that’s coming… it’s going to be insane.”
A home in north Coconut Grove sparked a bidding war, even though the house wasn’t built yet. One buyer was paying all cash, and the other was financing his purchase.
The seller, a spec home builder, saw an opportunity. The builder raised the price to $4.9 million from $3.8 million, said the listing agent, Compass’ Liz Hogan. The all-cash buyer then made the developer an offer he couldn’t refuse: $3 million on the spot, with another $1.5 million once the house is built, likely next year.
It’s fair to say money wasn’t an issue for the winning bidder, who is a partner at Citadel Securities, the market-making firm founded by billionaire Ken Griffin.
“It was great for my developer,” Hogan said. “He ended up with another $1 million, guaranteed.”
The slowdown in the residential market this summer is well-documented, but there’s an opposing force that’s providing welcome momentum for brokers and sellers while supercharging the commercial market. Let’s call it the “Citadel effect.”
Since Griffin opened up temporary offices in South Florida, agents are seeing an uptick in Citadel executives and well-heeled mid-level employees looking for homes. That intensified after Griffin announced he would relocate the companies’ headquarters from Chicago to Miami.
“One hundred percent, they are looking,” said Hogan, who is having trouble finding enough available homes to show them. “I’m sitting here knocking on doors, begging agents for inventory.”
On the commercial side, Citadel’s move is a big boost for the thesis that Miami’s brokers and developers have been touting since the pandemic began: that the region is becoming the “it” destination for blue-chip financial and tech firms.
A wave of name-brand firms have already moved to South Florida or announced plans to do so, driving up commercial rents, land values and home prices. Asking rents for new Class A office space can now top $150 per square foot.
Citadel considered leasing space at Related Group’s new Terminal Island office project in Miami Beach, as well as at 830 Brickell, an under-construction office tower where Microsoft, Thoma Bravo and Marsh Insurance are taking space, sources said. But ultimately, Griffin decided to partner with Sterling Bay to build an office building where 1,000 Citadelers will be based. (After this story went to press, news emerged that Citadel leased 95,000 square feet at 830 Brickell as interim space.)
In June, Citadel purchased a bayfront lot in Miami’s Brickell financial hub for $363 million. Some said that Griffin is also behind the $286.5 million purchase of 1221 Brickell Avenue, the existing office building across the street, which is expected to serve as a temporary space for Citadel employees while the tower is being built.
In Palm Beach, about 200 executives are expected to work out of the former Neiman Marcus space on Worth Avenue.
A spokesperson for Citadel confirmed that a few hundred employees are expected to relocate to Miami over the next year, but declined to comment further.
Place to crash
Citadel’s arrival, spec home developer Todd Michael Glaser predicted, will “jump-start the finished product market of homes.”
“The last two years have been incredible,” said Glaser, who is active in both Miami Beach and Palm Beach. “But the next two years, with the amount of wealth that’s coming … it’s going to be insane.”
“There’s going to be more off-market listings than you’ve ever seen in your entire life,” he added.
Griffin has already paid at least $350 million assembling land in Palm Beach for his personal real estate portfolio over the last decade, in addition to owning homes or residential lots in Miami Beach and Coral Gables.
Now Citadel’s more senior executives have enlisted top brokers, including The Jills Zeder Group, Dora Puig, Julian Johnston and, in Palm Beach, Lawrence Moens, Chris Leavitt and others, to find them homes, sources said.
“These people need a place to live. These people need a place to work. These people need a place to go out to dinner,” said Camilo Miguel Jr. of Mast Capital, which has condo and rental projects planned two blocks from the Citadel properties as well as in Miami Beach. “That just continues to support our business plan.”
South Florida has been recruiting companies for years, touting the state’s lack of income tax and business-friendly climate. But the lack of restrictions during the pandemic provided “rocket fuel” for the inbound migration, said Justin Oates, an executive at developer Cain International. Cain is co-developing the 830 Brickell office tower with Vlad Doronin’s OKO Group, as well as luxury condo projects in Miami and Miami Beach.
The developers are asking $150 per square foot for remaining spaces at 830 Brickell, with closed lease deals at “well over” $100 per square foot. Three years ago, top rents were in the $70-per-square-foot range. It’s become a landlords’ market for most, and that has trickled down to Class B properties and nearby neighborhoods.
“When we were sitting here three years ago, it was definitely an aggressive — some would say risky — thing we were doing,” Oates said. “It was almost like an ‘if you build it they will come’ mentality.”
Now bidding wars are common. “I wish we could build another 10 stories,” he said.
What Citadel plans to do is similar to what billionaire investor Barry Sternlicht of Starwood Capital has already done. Sternlicht, who relocated to Miami Beach in 2018, partnered with Integra Investments to develop a Class A building in South Beach, near his 1 Hotel & Homes South Beach, for Starwood’s new headquarters. Companies were “clamoring” to lease space there, one broker said.
Miami-Dade’s vacancy rate fell to 2.5 percent in the second quarter. “If I’m representing an office tenant looking for space, they’re in a tough position,” said Lee & Associates broker Matthew Katzen.
With record rents and low vacancies, the investment sales market is in overdrive.
“We used to see, maybe once a year or a couple of times a year, these sizable deals of $200 million-plus,” said RelatedISG broker Tomas Sulichin. “It’s just incredible.”
New York developers, including Steve Ross’ Related Companies and Michael Shvo, are betting that demand for top-drawer product will persist. Related is teaming up with Swire Properties on One Brickell City Centre, a 1.6 million-square-foot supertall office building that would rise 1,000 feet. Shvo’s project is smaller, at just 250,000 square feet near Lincoln Road.
Related and Swire reportedly have new-to-market tenants interested in 800,000 square feet of their project, one developer said.
“The developers we are talking to for the most part have not been in South Florida before,” said Colliers broker Stephen Rutchik, who is handling leasing of Deco Capital Group’s Eighteen Sunset, a boutique office and luxury condo building that’s rising in Miami Beach’s Sunset Harbour neighborhood.
Bradley Colmer, CEO of Deco Capital, said leases for three-fourths of the office space will be signed in the coming weeks.
“It’s gone so well, we might even consider converting the penthouse and rooftop to office,” Colmer said. He added that it would be “foolish not to build more of this product” in Miami Beach, “even as turbulent as the capital markets are right now.”
Brandon Charnas, a broker who represented Silicon Valley venture capital firm Andreessen Horowitz in its lease at the new Starwood building, said that Miami’s social scene and ability to attract huge wealth has been a magnet for firms.
“What you’re seeing is these billionaires saying, ‘I can play this game too,’” said Charnas, of Current Real Estate Advisors. “They’re being creative and playing off this whole craze. Let’s see the next round. If you’re going into a recession and people aren’t spending like they used to … I don’t know how Miami fares.”