The shock of developer David Martin’s decision to end a record $1.2 billion purchase of a Miami waterfront complex is fading.
Brokers say a disappointing reality check is ahead.
The Terra-led Smart City Miami group canceled a contract to acquire Genting’s 15.5-acre portion of the Gulf property north of downtown Miami and sought to extend and revise the terms of the sale, the developer and Genting confirmed, which Genting denied. .
“Terra asked for an extension, which is understandable in this market,” said Devlin Marinoff, co-managing partner at Dwntwn Realty Advisors. “I think Genting didn’t give them an extension, which is a huge mistake.”
Many brokers called it a temporary setback. Terra may still rebid for the site at 1431 North Gulf Shores, while Genting may be in talks with four other groups that have bid in excess of $1 billion. The zoning allows for a variety of uses, which could include retail space and thousands of residential units. Condos are likely to be built on bayside parcels, while rental apartments are built inland.
But the market hasn’t improved since Genting announced its contract with Terra’s smart city nearly two months ago.
Lender Brett Forman, managing partner at Forman Capital, said the failure of the sale showed how difficult it is for all real estate deals to be financed and finalized. Using a baseball analogy, he said the market is in a sluggish second inning, even if Miami is somehow spared some of the pain that other cities are going through.
“A lot of things have changed in the last six months and it’s not for the better … the debt market is very slow and challenging,” he said. “It’s still an excellent piece of land, but the prices are different these days.”
Broker Miguel Pinto, CEO of Apex Capital Realty, agrees. “It’s a very tough deal to get this deal done in one of the toughest times we’ve had in the past 10 years,” he said. “It would be great if Terra got the deal done. It’s David Martin, and I’m sure he wants to do the deal.”
Transaction volumes have slowed considerably since peaking in 2021. Interest rates have doubled and construction and insurance costs have soared.
It also didn’t help that land deals were “the most sensitive to changes in interest rates,” said a developer who requested anonymity.
Terra may need more time to determine density and required infrastructure improvements. It may also try to negotiate a price. The Terra-led group expects to pay about half of the funding in cash, with the remainder to be paid in installments over 10 years, one of the sources said.
It is unclear how the deal will be financed, but some speculate the development company is working with a sovereign wealth fund.
Terra has projects all over South Florida, and also bought the Castle Beach condominium complex in Miami Beach for $500 million. The company also recently closed a downtown Miami lot with a partner for $40 million.
“[Developers] “They’re more selective about what they decide to do,” said Matt Rotolante, president of Lee & Associates in South Florida. “At the end of the day, I think [Terra] They may have a more beach-focused project. ”
Terra declined to comment beyond a joint statement it provided with Genting last week, confirming its decision to terminate the acquisition.
Slicing and dicing transactions
A deal of that size would set a record for the most expensive urban land sale in the state and one of the most expensive in the country.
“You can’t make a $1.2 billion business decision with investors in a short period of time,” said Tony Arellano, co-managing partner at Dwntwn Realty Advisors. “At the end of the day, if you’re using investor money, you should be checking every box.”
Kuala Lumpur, Malaysia-based gaming operator Genting put the land up for sale late last year with the Avison Young team led by Michael Fay and John Crotty. Genting has tried for years to acquire the gambling rights to the properties, but failed. With the eventual sale, it plans to keep the Hilton Miami Downtown and the Omni Center in the northern part of the complex.
Genting could also divide the site into smaller parcels, similar to how Midtown Miami and Miami Worldcenter are being built. Or Genting could sell it to a major developer that does the same. In any case, the site will be developed in stages, brokers and developers said.
“There’s a lot of things to take down at once,” Rotorante said.
Some say Genting entered the market more than a year late, and buyers missed the window to secure cheaper land debt. But others say now is actually a good time because planning a phased project of this magnitude takes years.
“I think either David [Martin] “We’re going to come back into this space, or maybe another world-class developer like Related or Starwood,” said Compass broker Ivan Chorney. “Whatever happens, It will all be amazing.”
Despite the hefty price tag, Arellano doesn’t think the deal fell apart because of the pricing.
“I don’t think there’s anything wrong with valuations. It’s a market that’s not conducive to taking zonal risk or entitlement risk, especially if you’re paying top dollar,” Arellano said. “You can’t make mistakes because you can’t lose money.”