In many ways, Miami Beach’s Lincoln Road has come full circle.
In its original heyday during the 1940s and ’50s, Lincoln Road was known as the Fifth Avenue of the South with an impressive collection of retailers that included Saks Fifth Avenue, Harry Winston jewelers and Bonwit Teller.
Once again, Lincoln Road is back on top, gaining recognition from retailers and investors as one of the great shopping streets in America. Only this time, the new anchor tenants include this week’s opening of H&M, followed later this month by Forever 21.
“What’s driving Lincoln Road is what’s driving the rest of Miami: We’ve become the capital of South America,” said Michael Comras, a local broker and property owner on Lincoln Road. “Everyone is enamored of Lincoln Road because of the volume of people. But you have to pay to play.”
Long gone are the days when retailers and investors had to be convinced of the viability of South Beach as a shopping destination. Today, Lincoln Road is near the top of the wish list for many national and international retailers. The biggest challenges: finding space and rising prices. Recent openings include Lacoste, Fossil and Desigual. Coming soon are fashion retailers Armani Jeans, Custo Barcelona and John Varvatos, along with specialty shops Dylan’s Candy Bar, Tesla Motors and Lush cosmetics.
That doesn’t include national chains like Nike, Urban Outfitters and Microsoft, all of whom are reportedly scouting for expansion opportunities. Plus, long-time tenant The Gap plans to demolish its existing stores on Lincoln early next year and build a two-store building with a dramatic curved glass façade.
“There are more tenants that want to be there than there is space available,” said Stephen Bittel, whose firm Terranova and an affiliate of Acadia Realty Trust paid nearly $52 million last year to buy property on Lincoln Road. “The challenge is selecting the right tenants that lift the street higher. It takes the right owner with the right balance sheet that has the vision for the future.”
While Lincoln Road’s transformation has been in the works for more than 20 years, it’s now reaching a new level of critical mass.
One key step was developer Robert Wennett’s creation of the 11 11 Lincoln building, designed by famed Swiss architect Herzog & de Meuron and opened in spring 2010. The $65 million mixed-use project added a new level of upscale tenants to Lincoln Road that include Nespresso, Juvia restaurant, Taschen books and fashion boutiques Coltorti, Alchemist and Y-3.
“I saw the potential of Lincoln Road and thought it could get a lot better than what it was, but it needed a catalyst,” Wennett said. “Our project has helped re-invigorate locals coming to Lincoln Road. We brought the kind of tenants they wanted to have.”
Another catalyst was the New World Symphony’s move in 2011 into its new campus designed by architect Frank Gehry, complete with a city park featuring a video projection wall for live outdoor concerts.
Add to that a booming tourism market, with an influx of luxury hotels in and around Lincoln Road. Together, the changes have reinforced Lincoln Road’s position as a must-stop destination for tourists visiting both Miami Beach and Miami.
“Lincoln Road represents an amazing opportunity because of the consumer base,” said Steve Birkhold, president and chief executive of Lacoste North America, who also in a previous job brought Diesel jeans to Lincoln Road. “It’s one of the premier shopping streets. All over the country, they’re building lifestyle centers to do the same thing as Lincoln Road. It’s hard to replicate this because it’s so authentic.”
Locals like Catherine Cozias have mixed feelings about the changes. She likes the arrival of the more upscale boutiques on Lincoln Road’s west end and the closing of some of the rundown older shops, but she doesn’t want the unique character of the street to change.
“I hope they don’t eat up all the small businesses totally and replace them with bigger chains,” said Cozias, 35, who lives on Brickell Avenue and was enjoying lunch one recent day at Juvia on Lincoln Road. “I don’t want to be at a mall when I’m on Lincoln Road.”
The problem: most local tenants are getting priced out of Lincoln Road.
Long gone are the 1980s when you could get retail space on a rundown Lincoln Road for less than $5 per-square-foot. By the late ’90s, it seemed like a boom when rents hit $40-$60 per foot and the first national tenants like The Gap and Pottery Barn arrived.
Little did anyone know that was just the beginning. Even through the recession rents held strong. In 2009 retail spaces were leasing at $150 per square foot. In the last year, rents broke the $200 mark and continue to climb as high as $300.
“When pricing gets really high you don’t get crappy tenants, you get better tenants,” said Lyle Stern, a local broker and property owner on Miami Beach. “You need people that can generate the sales to pay the rent.”
Many retailers on Lincoln Road ring up sales of $1,000 to $2,000 per square foot or more — numbers that rank among the top five shopping streets in the country. Bal Harbour Shops’ sales last year were $2,555 per square foot, putting it as the top mall in the country. While Lincoln Road sales are not at the level of New York’s Fifth or Madison avenues, it’s definitely close behind — think Rodeo Drive in Los Angeles or Michigan Avenue in Chicago.
Yet, before H&M made the decision to open one of its five flagship stores in the U.S. at the Lincoln Theatre, North American President Daniel Kulle spent a half a day camped out across the street at Sushi Samba restaurant. Kulle wanted to be sure he was getting the right location. Over the years, he had turned down several other options on Lincoln.
“When you make that kind of investment, you have to believe in it both from a branding perspective and a traffic perspective,” Kulle said. “There is no other way to do it but to be there and see it for yourself.” By the end of the day he was sold.
Interest from such high-profile retailers is fueling demand and prices for real estate transactions on Lincoln Road. Volume of property sales on the eight-block street has more than quadrupled over the last decade, with prices hitting an unheard of $1,081 per square foot in 2012, according to data from Real Capital Analytics and HFF.
In July, the New York-based Vornado Realty Trust paid $132 million for the 1100 Lincoln Road property that is home to Regal Cinemas and Banana Republic. A subsidiary of Crown Acquisitions of New York paid $16 million for the Van Dyke building at 846 Lincoln Road this summer.
Danny Finkle, senior managing director of HFF in Miami, said his commercial real estate firm gets multiple calls every week from investors interested in purchasing retail property on Lincoln Road. These requests are coming from a wide range of clients including private individuals, off-shore families and multi-billion dollar U.S. real estate investment firms.
“Pricing for Lincoln Road retail is at an all-time high,” Finkle said. “Lincoln Road was one of the few retail streets in the U.S. that grew rental rates through the recession, and many are very bullish on its ability to continue that growth going forward. Investors are placing a significant amount of value on the future potential revenue, in addition to in-place revenue.”
Joe Sitt, chairman of Thor Equities, was one of the first institutional investors to see Lincoln Road’s potential when he started buying property more than five years ago. At the time Sitt says other institutional investors “laughed” because they thought the market was too much of a party town. Now those same investors are outbidding him. Sitt says Vornado paid about 30 percent more for the Lincoln Center property than he thought it was worth.
“I’m spoiled by where it was before. Now that they’re getting crazy numbers, it’s more tempting to stay on the sidelines,” said Sitt, who says Lincoln Road property remains an “important part” of his $7 billion real estate portfolio. “We’re still big believers in the long-term viability of Lincoln Road and the market in general. I still believe it’s got a little more room to grow because when institutions come in, they often overpay.”
The high prices of real estate sales on Lincoln Road also trickles down to tenants. Many of the locally-owned tenants that once gave Lincoln Road its artsy feel have been found themselves priced off the street. In the next couple years, even some of the Road’s first national tenants will face the prospect of rents increasing more than four-fold or having to relocate.
That’s all helping to fuel demand for expanding the success beyond the one eight block-long streCity officials have been promoting the development of Lincoln Lane, the old alley located just north of Lincoln Road that faces the New World Center park, and the area stretching up to 17th Street. Comras nicknamed the area NOLI — North Lincoln.
H&M and Forever 21 have designed stores with large glass windows facing the lane. Other national retailers like CB2 and Bang & Olufsen have already chosen to open stores on the side streets. Others like Icebox Cafe and Post Blue Jean are moving a little farther away to the burgeoning Sunset Harbour area where developer Scott Robins is leasing the ground floor of the city garage, as well as developing a retail building at 17th Street and Jefferson called the 1000 building.
Developers like Wennett and Bittel want to continue the processes, with their plans for building mixed-use projects on the city-owned parking lots north of Lincoln Road. The city of Miami Beach is currently reviewing the proposals for the Lincoln Lane parking lots, as well as developer interest in the Miami Beach Convention Center. Any of these could have a major impact on the area going forward.
For now rents on the side streets are a third to half of Lincoln Road’s prices. That’s why for restaurants in particular, it’s a better option. Yard House is opening on Lenox just north of Lincoln Lane. Local restaurateur Amir Ben Zion opened Cooper Avenue last month on the ground floor of the New World Symphony building, while restaurateur John Kunkel will open Khong River House later this month just north of Lincoln.
“If you didn’t get in on the ground floor of Lincoln, you have to be on the sidelines,” Ben Zion said.
But as retailers and restaurant development expands, ultimately everyone benefits.
“Lincoln Road is no longer just one street,” Ben Zion said. “It’s now an area.”