Joint venture buys minority share in Design District


Twenty years ago, when developer Craig Robins first turned his attention to the Miami Design District, it was a run-down neighborhood. Today, it’s on its way to becoming one of the retail shopping jewels of the world with a property value of at least $1.4 billion.

The Miami Design District’s redevelopers, Robins’ Dacra and L Real Estate, have sold a minority interest in the burgeoning luxury shopping destination to a heavyweight joint venture, underscoring the rising value and potential of the area.

Already home to Louis Vuitton, Hermès, Cartier, Celine, Prada, Berluti, Lanvin and others, the area is still in transition. So far, Dacra and L Real Estate have delivered 15 buildings to 50 brands, all of which will be opening in the next few months. Among them will be Tom Ford, Givenchy, Valentino, Ermenegildo Zegna, Miu Miu, Bulgari, Loro Piana and Fendi, Robins said.

Though still pock-marked by construction cranes, even more designer stores will open by 2016, along with restaurants, art and cultural offerings. It’s a massive undertaking, turning a once gritty neighborhood into a sparkling gem within Miami’s urban core.

Now, General Growth Properties, a Chicago-based real-estate investment trust that owns, manages, leases and develops high-end retail properties throughout the United States, and New York-based Ashkenazy Acquisition Corp., which specializes in trophy and iconic retail properties in prime luxury locations around the country, have formed a joint venture to acquire the minority interest in the district that is transforming into an ultra-luxury shopping area.

The joint venture paid $280 million to acquire a 20 percent stake in the holdings of Miami Design District Associates, a partnership between Dacra and L Real Estate, a private equity fund dedicated to luxury retail real-estate developments whose investors include LVMH. Miami Design District Associates retains the remaining 80 percent interest. The development is led by Robins, Dacra’s chief executive and president, and a pioneer in the 1980s redevelopment of Miami Beach, who began buying properties in the Design District in the mid-1990s.

“My partners at L Real Estate and I did this transaction because we think it is very strategic to have dynamic partners like GGP and AAC,” Robins said. The investment also adds an extra layer of credibility and validation to the project, and will “accelerate its success,” he said.

“It really expands our reach,” Robins added. “Clearly, in the Miami market and around the world, the Design District has made a big impact, but by bringing in two of the strongest players in the United States in luxury retail that also operate in other markets, it strengthens our potential to realize our objectives in a stronger and faster way.”

Publicly traded General Growth Partners disclosed the acquisition in its third-quarter financial results and during a conference call with investors on Tuesday. Chief Executive Sandeep Mathrani said GGP bought 12.5 percent, and Ashkenazy 7.5 percent. According to GGP’s financial statements, it is paying $175 million for its share, putting Ashkenazy’s share at $105 million, for an overall investment of $280 million. At 20 percent, that would value the district at least $1.4billion.

“The reason that it is so valuable and they are able to sell a piece of it is because it’s very hard to get a mall into the densest part of a city — the hardest thing to do is to acquire the land,” said retail consultant Cynthia Cohen, president of Strategic Mindshare.

Retailers want their stores to be in “the hottest part of a city, with a very dense population of spenders, and that is what you have with that property,” she said, citing high-rises and hotels that line downtown Miami and South Beach, bringing together residents and visitors.

Mathrani named Miami as one of the “gateway” cities GGP has targeted for acquisitions. In South Florida, GGP also owns Bayside Marketplace in Miami, the Village of Merrick Park in Coral Gables, Mizner Park in Boca Raton and Pembroke Lakes Mall in Pembroke Pines.

“This presents a very rare opportunity where you can buy an entire downtown and merchandise it like you would a mall,” Mathrani told analysts. He said the joint venture will be providing leasing advice to Dacra and L Real Estate.

In January, 20 new buildings to house additional retail stores and restaurants will start construction within the district, which runs from Biscayne Boulevard to North Miami Avenue, and from 38th to 42nd streets. Until now, 70 percent of the property in private hands has been under Design District Associates. Other high-profile property owners within the district include New York-based real-estate investment firm Thor Equities in conjunction with real-estate investor Richard LeFrak, former City National Bank of Florida owner Leonard Abess, financiers the Safra family and the Gindi family, which owns the Century21 department stores.

By 2016, the Miami Design District is expected to include over 120 luxury-brand stores, a boutique hotel, 15 to 20 restaurants, luxury residential condos and lofts, galleries, furniture showrooms, and numerous large-scale public art, design and graphic art installations — all in keeping with the history of the neighborhood and the developers’ goal of bringing fashion, design, art, culture and commerce together.

During the conference call, Mathrani likened the Design District to New York’s SoHo and underscored its upside potential to analysts. Though 50 percent of the area’s square footage now rents for less then $50 per square foot, he said he expects rents to rise to $200 a square foot in a few years.

The Design District deal is not the first joint venture for GGP with Ashkenazy. Mathrani told analysts the two companies have also partnered on other deals, in San Francisco and on New York’s Fifth Avenue. Overall, privately held Ashkenazy has a portfolio of more than 100 buildings, valued at $7 billion, spread throughout the United States, Canada and England. That includes such urban retail sites as New York’s Madison Avenue and Chicago’s Michigan Avenue.

“We think GGP and AAC can give an important boost,” Robins said, “toward ensuring that the Miami Design District is the No.1 destination in South Florida for luxury retail.”