DEVELOPERS AND RETAILERS THINK THE URBAN CORES OF MIAMI AND MIAMI BEACH ARE PRIME TERRITORY TO BUILD BIG-BOX STORES. BUT HOW MUCH IS TOO MUCH?
BY ELAINE WALKER
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Welcome to a new Miami game: retail musical chairs.
The music is playing and the retailers are dancing around. The big question: Where are they going to end up sitting when the music stops?
After years of having no big-box retail shopping centers in Miami's urban core and Miami Beach, suddenly the market is crowded with projects trying to outposition one another.
The Shops at Midtown Miami, Bayview Market, Omni, City Square and Fifth & Alton on Miami Beach are all vying for a piece of the market. Essentially they are competing for many of the same tenants and ultimately for some of the same consumers. Can they all make it? Probably not, at least not in the near future.
Midtown Miami is already partly open, and Fifth & Alton is about to break ground next month. That's likely to ratchet up the competition among the rest of the field, which just got more crowded in recent weeks as Omni has jumped back into the mix. Most industry experts predict that between Omni, City Square and Bayview, only one or two will become a reality in the next few years.
''They can't all get built,'' said Greg Masin, senior director of retail services with Cushman & Wakefield. ``There are not enough tenants for the space who can afford to pay the prices that the developers need to generate.''
TENANTS ARE SHOPPING
There are dozens of potential tenants, as most national retailers have no stores between Kendall and Aventura. Miami has been slow to catch onto a trend happening in urban markets across the country, as retailers seek nontraditional locations to meet consumer demand.
The list of potential tenants with no stores in the downtown Miami or Miami Beach market includes Home Depot, Costco, Best Buy, Lowe's, Wal-Mart, Staples, Kohl's, JC Penney, and Bed, Bath & Beyond. All have spent much of the last year or two scouring the market.
''They're all going to shop around and see which project is the best bet,'' said Paco Diaz, senior vice president of retail services with CB Richard Ellis. ``The players are there. It just depends on who is going to pull the trigger.''
At the end, Diaz and other industry experts say the decision for each tenant will come down to the cost of each project versus how soon it can get built, the exact location and the physical limitations of the site.
Most urban stores require nontraditional layouts including multistory retail and parking decks, all things that retailers are slow to accept.
Adding to the decision-making challenge has been the skyrocketing cost of Miami's urban real estate, which has translated into average rents increasing from $30.95 per square foot in 2005 to $53.69 per square foot in 2006, according to CB Richard Ellis. That number is even higher for premier downtown retail space, where rents can run between $60 per square foot and $75 per square foot.
`CRAZY LAND COSTS'
''Retailers just can't justify some of these crazy land costs,'' said Alan Esquenazi, senior vice president of Continental Real Estate, who represents Target, Kohl's and Lowe's, among other retailers. ``If the economy gets ugly as some people predict, you're definitely going to see a softening of expansion and what they are willing to pay.''
That uncertainty has taken hold in recent months with the slowing in Miami's residential market downtown, which has forced retailers to think again about how many stores the downtown, Miami Beach and Brickell area can support.
''If I were a tenant, I would take a wait-and-see attitude,'' said Mickey Finkle, managing director for Koniver Stern Group. ``I can't afford to jump into a market prematurely, where I could be outpositioned by my competition.''
Even if all the projects don't happen, it's a big improvement for urban consumers living in a shopping wasteland for years.
''Before you had to go all the way north or south, it was a real headache,'' said Yves De La Costa, 34, a Miami resident, who was shopping at Target at Midtown Miami with his wife and baby last week. ``Hopefully some more little things pop up like Blockbuster. It's made life easier that's for sure.''
Here's a rundown on the status of the major projects:
• THESHOPSATMIDTOWNMIAMI: The leader of the pack got an early start on the competition when Target opened last fall. More stores have been gradually opening their doors: Circuit City, Linens 'N Things, West Elm, Loehmann's, Marshalls and Foot Locker.
Coming this summer: PetSmart and Ross Dress for Less, plus a string of small stores including Subway, Fed Ex Kinko's, Payless Shoes, Famous Footwear, T-Mobile and Five Guys Burgers & Fries.
Industry experts say JCPenney is finalizing a deal to be the anchor tenant for Midtown's far south block. The store would be one of the first in South Florida featuring the chain's new format.
Ongoing construction has made it challenging for customers getting into the project, but that's starting to change and traffic is increasing, said Lenor Ryan, general manager.
But visitors are already finding the project's layout, which stretches several city blocks with garages at either end, is not conducive if you're planning to shop at multiple stores.
''You want a one-stop shop, especially if you are loading up with a lot of stuff,'' said Alison Zhuk, 29, a mother of two from Miami Beach who still loves shopping at Target.
• FIFTH&ALTON: After five years of planning and numerous delays, developer Jeff Berkowitz is ready to go forward on South Beach.
The big stumbling block for Berkowitz and his partners Alan and Robert Potamkin has been the skyrocketing construction costs on the $80 million project. From $35 million, they ballooned as high as $55 million.
''At that point the rents didn't justify the costs,'' said Berkowitz, who wrestled costs down closer to $50 million. ``It was no longer viable. But I don't give up.''
Berkowitz went back and renegotiated all his leases. But he did lose at least one tenant: Bed, Bath & Beyond.
The 180,000-square-foot project will have three floors of retail and almost 1,100 parking spaces, including 500 the city of Miami Beach is paying for and will own. Groundbreaking is planned for June 7, with an opening about 18 months later.
Although Berkowitz declined to name the final lineup of tenants, industry sources say the main anchors will include Publix, Best Buy, Staples and The Sports Authority.
• OMNI: The old mall has been the story of unrealized potential for almost a decade. Owner Argent Ventures has bounced back and forth from various development plans, always just missing the latest market trend. Those plans have run the gamut from retail to telecommunications, residential and office.
Now, they're back with retail again, due to the residential slowdown that has made plans for condo towers unrealistic.
''We're not totally walking away from the plan, it's just too expensive to maintain and carry a property like this,'' said Mark Teitelbaum, Argent Venture's chief operating officer. ``The asset has become too valuable from a retail standpoint.''
The new plan calls for 250,000 square feet of big-box retailers, stacked on top of each other in four floors where JCPenney once stood. There will be another 35,000 square feet spread around the building's perimeter for restaurants and other small shops.
''The idea is to activate the whole perimeter of the building so it becomes pedestrian friendly,'' said Michael Comras, the project's retail consultant and broker.
The mixed-use project also includes offices, remodeling the hotel and possibly residential towers later.
The new plan addresses some key problems potential retail tenants have griped about -- particularly parking and garage access.
Argent plans 850 new parking spaces where the mall's small stores once were. Plus, a speed ramp will get customers quickly to the right floor.
Plans call for starting construction in the third quarter with an opening in late 2008 or early 2009. Omni is touting its advantage of cheaper real estate costs and a quicker building process.
But industry experts say owners first have to prove to the market they are serious, unlike some previous efforts where Argent turned down potential retail tenants.
''They've gone down this path so many times, that was their biggest black eye,'' said Sharon Dresser, partner with The Shopping Center Group, which had worked on leasing for the project in the past. ``It really looks like they've had a change of attitude.''
• BAYVIEW MARKET: Lowe's announced last fall it would anchor the project's first floor. Developer BDB Miami says it is between 30 and 90 days away from announcing other tenants.
Industry sources say Wal-Mart is trying to finalize a deal at the site, which would be the retail giant's first supercenter in Miami.
Jeff Weil, a BDB Miami principal, won't discuss speculation about potential tenants, other than to say the project will include a major food market.
The project has been scaled back slightly to 554,000 square feet of retail divided over four levels, plus 2,303 parking spaces over another 10 floors. The entire building will be 120-feet tall. The original plan to line the project with condominiums has been changed to office space due to the slowdown in residential sales.
Site work has already begun and construction should begin late in the third quarter or early fourth quarter with an opening by mid-2009.
''These urban projects are much more difficult deals to do,'' Weil said.
• CITY SQUARE: This project is probably the furthest behind the curve, as developer Pedro Martin's group still has not closed on a $190 million deal to buy the land from The McClatchy Co., The Miami Herald's parent company.
Martin is then supposed to flip much of the property to Indianapolis developer Mark Siffin for at least $230 million, say sources familiar with the deal.
But at those prices industry experts aren't sure how Siffin can make the deal work. Siffin declined this week to discuss the project.
''I'm sure the retailers know where they want to go,'' he said. ``It's really up to them. They know best.''
Miami Herald business writer Bridget Carey contributed to this report.
