Why Are Developers Still Pouring Billions Into Waterlogged Miami?

Why Are Developers Still Pouring Billions Into Waterlogged Miami?

(Bloomberg)—On Sunday, an ebullient procession of artists, performers, and city residents filled Collins Avenue between Miami Beach’s 32nd and 36th streets to inaugurate the Faena Forum, a 43,000--square-foot, $150 million, performing- and visual-arts space that’s the cultural centerpiece of the Faena District, a $1 billion development comprising luxury hotels, restaurants, and real estate. The complex is the brainchild of Alan Faena, an Argentinian fashion designer-cum-developer known for his all-white outfits, and Len Blavatnik, a Ukrainian born, New York-based billionaire whose net worth is estimated by Bloomberg Billionaires to be $18.6 billion.

The parade/carnival/performance was was titled “Side by Tide,” which might be an overly optimistic assessment of Miami Beach's sea level. With "king tides" flooding parking garages and a University of Miami study reporting that Miami Beach has seen a 200 percent increase in flooding in the last decade, the tide isn’t on anyone’s side. It’s already beneath the city, seeping upward, often as not, through the ground’s porous limestone and into buildings’ backlogged storm drains. Aside from ruining the undercarriages of residents’ Porsches, this ground-up flooding has a second, perhaps more deleterious effect on the long-term feasibility of Miami Beach: Normal defenses against a rising ocean—such as sea walls or dykes—are useless.

This doesn’t surprise Faena, who takes a frank approach to the strip of sand he’s just spent half a decade developing. “The water will start coming up from the floor,” he said. “There’s not much we can do. That’s the reality.” He hastened to add that the city’s new hydraulic pumps, installed as a result of initiatives by Miami Beach’s mayor Philip Levine, were “very effective,” and he advised a wait-and-see approach. “We have to see how long [the pumps] will last,” he said. “And I can tell you that we have a lot of help from the mayor.”

A Wave of New Buildings

It remains to be seen how much the mayor, or anyone, can do. In the meantime, Miami is witnessing an unprecedented flurry of development. One Thousand Museum, a skyscraper designed by the late starchitect Zaha Hadid, has more than 62 stories and sits on the bay front overlooking Miami Beach; farther down the coast, architect Bjarke Ingels' Grove at Grand Bay, a recently completed 98-unit development, overlooks the Dinner Key Channel; SLS Brickell, a 55-story hotel/luxury apartment building, was recently completed and sits two blocks from the water in Downtown Miami; north of Miami Beach in Sunny Isles, the Armani/Casa tower, which is directly on the beach and is estimated to cost $1 billion, has broken ground. The list goes on, with current, future, and hypothetical towers crowding Miami’s shoreline. It all raises the question: Are real estate developers cashing in while the land is still dry, planning on getting out before disaster strikes? Or are they, like Faena, merely hoping that something will eventually be done by someone, somehow? Certainly, the brisk (albeit declining) sales in new Miami buildings could be the obvious answer: SLS Brickell is reportedly almost completely sold out. So is the Grove at Grand Bay, where all that remains on the market is a $28 million penthouse. Faena said he sold all his units two years ago; all that's left to sell, he said, are seven penthouse apartments atop his new hotel.

David Martin, developer of the Grove at Grand Bay was unavailable for comment, as were Louis Birdman, Kevin Venger, and Gregg Covin, the developers of One Thousand Museum. Carlos Rosso, president of the Related Group's condominium development division, which is involved in the development of the Armani/Casa and SLS Brickell buildings, wrote in an e-mail that "people will continue to build and develop because Miami attracts people from all over the world, and they want to own a piece of the city." He is not ignoring the issue of rising tides, he continued. "Miami is not the only city that has faced an issue like this," he said. "Steps are being taken, buildings are being raised, and Related is committed to South Florida for the long term."

Michael Laas, formerly the director of impact for SH Group, an affiliate of the private investment group Starwood Capital, and currently chief executive officer of the Miami-based environmental consultancy Sustainable Futures Group, said that current Miami development should be viewed as a combination of wishful thinking, clear-eyed realism, and pressure for short-term profits. “Developers want their buildings to be safe, fundable, insurable, and financeable,” he said. “So what they’re doing now is elevating the building at a minimum of 3 feet, and they can do that and it comes at a minimal cost.” (One study predicts that if sea levels rise by just one foot, seven-foot storm surges would have the likelihood of occurring once every 21 years.)

It’s crucial to remember though, Laas said, that sea rise is gradual—current (conservative) estimates predict a three-foot rise over the next 100 years—“so a private equity firm buys a property and invests in it,” he said. “And their time frame is what, five years? How do you reconcile those two things: It’s a 100-year problem and a five-year investment cycle.” The answer is simply that the private equity firm does not account for the long term, but that the city of Miami Beach will have to—soon. The city is already elevating its roads, and the Rockefeller Foundation recently funded Miami's “resilience officer,” the first of many in what the foundation expects to be a global array to help organize various cities' responses.

A "Stagnant" Future

But, Laas said, massive infrastructure projects cost money, and that money can be generated only by potentially crippling tax hikes. If rates were raised, things might come to a point where “developers say to the City of Miami Beach, ‘I can’t build affordably anymore,'” Laas said. “'If you want me to bring in new jobs and new business and new construction, you’re going to have to [offer tax breaks], and if not, I can’t build here.'” Laas estimated that steep tax hikes might happen within 10 to 20 years, at which point Miami Beach would become what he called a “stagnant city.”

Faena, for his part, is also looking to the long term, but his own predictions are much rosier. “I think of the Faena Forum as a legacy to Miami Beach,” he said. “This is one building on the beach that will be there forever, and we feel proud to leave this legacy.”

To contact the author of this story: James Tarmy in New York at [email protected] To contact the editor responsible for this story: Chris Rovzar at [email protected]


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