Stuart Meyers has been bucking market trends since he launched real estate development firm Cornerstone Group with Jorge Lopez in 1993. Instead of erecting high-rise luxury waterfront condominiums like his competitors, Meyers and his partner got their feet wet building affordable suburban apartment complexes.
But as land values and construction costs ballooned, and demand for condos grew, the lure of big money nudged Meyers to take the Coral Gables-based company in a different direction. Several years ago, Meyers and Lopez dove head first into building condos for sale, instead of apartments for rent. The pair tried to stay true to Cornerstone's roots by building more affordable dwellings than the competition, some in areas long overlooked by other developers.
"Our strategy since the inception of the company has always been to strive for the lower price points. That's carried through to our condominium division," says Meyers, Cornerstone's chairman and CEO.
Meyers and Lopez founded Cornerstone more than a decade ago after departing from developer The Related Group of Florida. As of yearend 2004, Cornerstone had built 17,000 multifamily housing units, and the 400-employee company is now the nation's No. 8 largest multifamily developer, according to Builder Magazine. Revenues followed, with the company booking $240 million for 2003. Meyers and his team expect revenues to grow to approximately $1 billion by 2006, as the company focuses heavily in pro-development cities such as Hollywood, Hallandale, Riviera Beach and Boynton Beach. A look at the company's strategy can provide a window into South Florida's mid-cost development future.
Parsing the expertise
Facing the challenge in the months and years ahead will depend heavily on new company divisions Cornerstone has launched. In areas where Cornerstone lacked experience, Meyers and Lopez have hired veterans from other companies to head up new divisions. The partners have also promoted executives from within. For instance, last July, they appointed 25-year industry veteran John Barr to head up the townhome division. Eric Weiner, formerly the director of the asset and risk management department at Cornerstone Group, was installed as president of the company's new Cornerstone Realty Services division last November.
The idea is to take advantage of South Florida's soaring multi-family sales market. Consider the statistics: During the first nine months of 2004 alone, real estate brokerage firm Cushman & Wake-field reported an annual 46 percent spike in the number of multifamily closings. The average per-unit price for a South Florida multifamily property is up 25.5 percent. And the multifamily transactional volume during the first nine months of 2004 totaled a whopping $2.9 billion, up $1 billion from 2003.
While the landscape is more profitable, the challenges have become more daunting. Land to develop is in short supply, and what is available is expensive--as are construction costs. Some municipalities in Miami-Dade, Broward and Palm Beach counties have also tried to put the brakes on real estate development, and the risks of rising interest rates or over-building are keeping some developers awake at night.
Meyers, however, is signaling plans to forge ahead and develop approximately 3,500 units during the next 12 months.
And why should Meyers take such a risk? Gary Saul, a partner at law firm Greenberg Traurig's Miami office, says the current market has proven to be a good risk. "I'm watching building after building close successfully," Saul says. "Good developers know how to adequately manage the challenges and risks."
Is there a bona fide land shortage in South Florida? That depends on whom you ask.
Gil Dezer, the Sunny Isles condo developer and business partner of Donald Trump, says there definitely is a shortage of land along the coast. "There's nothing left," Dezer says. "The market is here. Buyers are buying all day long, and if you build it they come. We set up sales offices before we start construction and buildings are selling out in record time. Who are we to fight the market?"
Indeed, the competition among developers for coastal property is so fierce, Cornerstone instead has turned to an urban in-fill strategy to keep momentum and stay out of the fray.
Richard Lamondin, president of Cornerstone's condo division, points to Hollywood Station as a prime example. The $170 million, mixed-use multiphase development will span four city blocks across eight acres of land on the corner of Hollywood Boulevard and South Dixie Highway, in Hollywood. The project will include 600 condominiums and 15,000 square feet of ground floor retail in an urban setting. Construction will start in the spring, with units starting from at just more than $200,000.
"We are going into areas that, up until now, people thought were blighted," Lamondin says. "There is still a lot of land available. It does take foresight and patience to find it. It took us two-and-a-half years to put the property deal together for Hollywood Station."
Despite the long time horizon, Cornerstone considers Hollywood "developer friendly" with a "pro-culture" attitude. Those two factors combine to make it one of the most attractive locations for condo developers and buyers alike, says Lamondin, and the company plans to seek additional opportunities in the city.
Lamondin says he likes Hallandale for similar reasons. In addition to the 14-story Park Vue that will begin construction in March, and range from more than $200,000 to $375,000 per unit, the company is planning other projects for the Broward city. Company executives are hoping to capitalize on the $650 million redevelopment of Gulfstream Park racetrack that is expected to revitalize the area and is betting the Hollywood Greyhound Track will follow suit if voters approve parimutuel gambling in March.
Diamonds in the rough
While Hollywood and Hallandale may experience a real estate renaissance, Cornerstone is not sitting still. The company is scouting other up-and-coming areas such as Riviera Beach in northern Palm Beach County. Cornerstone has begun construction on Marsh Harbor, a 402-unit gated town home community on 34.6 acres of land in Riviera Beach. The company has also proposed a 302-unit town home community, dubbed Sonoma Bay, nearby. Both properties offer units with prices starting from $170,000--nearly half the cost of a similarly sized unit in Miami or Fort Lauderdale.
"One challenge for developers is the availability or cost of assembling the size of land needed for profitable projects," Florida Atlantic University Department of Urban and Regional Planning Professor Jerry Kolo says. "Since open space is scarce, developers are returning to built up but blighted areas to assemble land and build 'smart' projects; mostly mixed-use projects."
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Kolo says that while high land costs are typically transferred to buyers, developers may face criticisms from advocates of affordable housing. Cornerstone hopes to at least partially skirt these criticisms with its lower-price strategy.
"Riviera Beach is just now coming on the maps," says John Barr, president of Cornerstone's town home division. "We were in line early. We also like Boynton Beach because it is going through redevelopment. It wants more retail, more office space and more people living downtown. The city is very receptive to developers."
Developer Bill Hall, who is chairman of the Palm Beach County Land Use Advisory Board, says redevelopment is a huge challenge in a county that wants to maintain its low-density growth pattern. Some county commissioners are attempting to put a redevelopment program in place, but Hall says most municipalities are following the lead of the anti-density county government. Riviera Beach and Boynton Beach are two exceptions.
"Riviera Beach and Boynton Beach are ripe for development and have been proactive in creating a master plan," Hall says. "Riviera Beach has an incredibly underused waterfront. If Cornerstone can sit down and work through all the intricacies of the plan, then it will have some really great properties. The cost of dirt in Palm Beach County is through the roof."
In addition to the Riviera Beach and Boynton Beach town home projects. Cornerstone developed The Preserve in Miami Shores in 2003 and it will begin selling its 185 units in North Lauderdale's San Remo this spring.
Land may be less costly in Riviera Beach and non-coastal areas, but construction costs still present a challenge for developers nationwide, and Cornerstone is no exception. Attorney Saul says Cornerstone's experience, along with its Alliance Construction building division, gives it an advantage in the market because it has existing relationships with subcontractors.
Show me the money
Continued from page 1.
With its profitable and diverse business model, Cornerstone has attracted blue-chip investors like Bank of America, First Union and Lend Lease Real Estate. And as the company has diversified, so have its sources of funding. Meyers says equity comes from construction loans, mezzanine debt, the principals' own pockets, and private investors sophisticated enough to put together large funds.
Joe Martinez, vice president of real estate financing with the International Bank of Miami, says developers like Cornerstone can always get access to funds, and mezzanine financing is becoming a more popular alternative to traditional construction financing in today's market. Still, Martinez says the key with mezzanine financing is to bring the projects to fruition as quickly as possible to keep the debts low and the profits high.
"When times are good and a developer is working on a variety of projects, the big challenge is leveraging the transactions," Martinez says. "Capital is always a limited resource no matter how big you are. If you have $10 million you really would love to split it up into several projects instead of sinking it all into one project, because the more you leverage, the greater potential you have for profitability."
Meyers is confident about his company's ability to secure the capital it needs to continue its race to the front of the multifamily developer pack.
"The demographics are in our favor," Meyers says. "Interest rates aren't going to go up enough to kill the goose. The 'for sale' market will still thrive. But we are not going to play the game of bidding up land prices so high that we don't have a cushion and can't make a buck. Unforeseen circumstances can happen and often do. We need a cushion to ride out storms because I think there's going to be some bloodletting among developers."
Future looks diverse
Meyers and his partners have a reputation for morphing Cornerstone as the economic climate evolves. Meyers and Lopez made their name building affordable housing; added lucrative market-rate, rental communities during the late 1990s; dove into the high-rise condo development market to make the best use of its land acquisitions in 2002; and added a town home division to offer more affordable products in 2004.
Meyers also diversified the company by adding residential management and realty services divisions along with a communications division that provides cable, alarms and Internet services to properties under the Cornerstone corporate umbrella. Meyers is even growing 25,000 trees in South Dade for several projects.
In addition to plans to take the town home division north to Jacksonville, Tampa, Gainesville and Daytona Beach, Meyers says Cornerstone will launch a condo conversion division this year. Analysts say it looks like another good move, since one-third of the multi-family real estate transactions that took place between January and October 2004 were from condo converters, according to Cushman & Wakefield. In fact, Cushman & Wakefield says 86 percent of all multi-family transactions in Miami-Dade last year were condo conversions.
"In order to get good land for condos in premier areas, you have to do conversions," Greenberg Traurig's Saul says. "Finding a redevelopment area where you can commit your money is part of the solution to the land shortage problem."
Meyers says he will continue to look for new opportunities and new markets during 2005 and beyond. That may include exploring some vertical integration--moving backwards down the supply chain to manufactured housing. Meyers says he has even looked from time to time at the economics of financing the purchases of the condos and town homes his company develops. He hinted at the possibility of moving into single-family home development if the market continues in the direction it has taken during the past few years.
In other words, there are no sacred cows for Cornerstone, only a willingness to pursue opportunity.
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"We are entrepreneurial guys and we are always looking for opportunities," Meyers says. "But only in areas where we can differentiate ourselves from everybody else. We have no interest in being in a business where we are just another 'also and.' It's all about bringing something special to the business in the way of people skills, financial skills or industry skills--and with the right timing."
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