Real Estate News

Miami condo king Jorge Pérez on gentrification, Liberty Square and federal investigations

“Nobody knows anything,” screenwriter William Goldman famously said about the movie industry’s ability to predict a box-office hit.

But in the real estate industry, experience imparts knowledge, expertise and insight — and few in South Florida are as experienced as The Related Group CEO and chairman Jorge Pérez.

Since 2010, the company he launched in 1979 has completed, planned or began construction on more than 33 million square feet of residential and 965,000 square feet of commercial properties throughout Miami-Dade, the U.S. and Latin America — at a combined value of more than $17 billion.

Pérez, 69, was also voted the single most knowledgeable person in the business in the 2016 Miami Herald Real Estate Survey. He recently sat down for a wide-ranging interview at Related’s most recent project, the 57-story condo/hotel tower SLS LUX Brickell at 805 S. Miami Avenue, which opened its doors in May. (You can read his comments on sea level rise from that same interview here.)

The conversation below was edited and condensed for clarity.

Q: The Related Group broke ground last May on a five-year, $307 million redevelopment project of Liberty Square. You have said you want that project to be part of your legacy. What makes this one so special to you?

A: The reason why that project is so important is because this will be one of the first affordable housing projects done in the U.S. after the recession, in a formerly segregated neighborhood of Miami where a wall literally used to separate black people from white people. And we want this project to not just be a housing development, but the start of a transformation for that entire area.

The original affordable housing built in Liberty Square was beautiful. But the developers forgot about the issues. If you concentrate poverty in one area and don’t include businesses and training and employment and all the other things you need to generate household growth, that area will become a ghetto. You can see that now in Liberty City, with all of the gang activity and the killings.

We’re taking a more holistic approach with Liberty Square. We want to include businesses, retail, shops, artist studios, maybe even a museum or performing arts center. We’re not going to just build affordable housing. We’re going to mix incomes and add retail and employment opportunities. That will make the neighborhood sustainable. This will not just be a project that looks nice. That’s why I think this could be a great legacy project and why we’re devoting so much time and thinking to it.

Jorge Pérez, chairman and CEO of The Related Group, one of the biggest real estate developers in South Florida. Jose A. Iglesias

Q: Last year, as part of a wider probe of fraud in Miami-Dade, the federal government started an investigation of a low-income apartment building for seniors your company built in Shenandoah. Is that investigation complete?

A: We haven’t heard anything more. When you build affordable housing — which is publicly-subsidized housing — you have a whole other level of inspection aside from the usual inspections, because the federal government wants to make sure there is no abuse of subsidies. But we have been doing this for 40 years without any issues whatsoever. When the government decided to look at this one project — which is a 32-unit project that is so small it barely registers in the realm of projects in our company — we turned over all our records. All our employees were interviewed by outside counsel to make sure nothing inappropriate was done. We are 100 percent sure that nothing happened.

But there is a greater level of scrutiny with affordable housing, as there should be. That’s why those programs should be very competitive. The Liberty Square project was very competitive.

Q: Some analysts believe the cost of housing in Miami was caused by all the foreign buyers, who embraced the 50 percent-down payment model and drove up prices even though they don’t live here.

A: The 50 percent down payment doesn’t bring them to Miami. Miami is what brings them to Miami. How they made their payment has nothing to do with housing affordability. Nothing.

Q: But hasn’t interest from foreign buyers driven up prices?

A: Demand is what drives prices up. Miami is an international city. The cost of housing is set by two simple parameters: What is the price of land and what is the price of the construction of a building?

I could not build a high rise in downtown Miami with parking underneath today and sell it for less than $500 per square foot because I would lose money. That means that the lowest price for an 800-square-foot, one-bedroom condominium is going to be $400,000, which prices out a lot of the local market.

But look at what foreigners have done. They are buying these units for investment purposes and putting them back into the rental market. So millennials and young professionals who can’t afford to pay a 20 percent down can live downtown at a relatively cheaper cost than buying.

I would argue that foreign investors put some pressure on costs and kept the land prices up. But foreign investment in general has been great not just for developers, but for the entirety of Miami and making accessibility of rental units accessible to the middle class.

Jorge Pérez, chairman and CEO of The Related Group, poses with the Botero sculpture that sits outside SLS Lux Brickell, his company’s latest project, a 57-story luxury condo and hotel at 805 S. Miami Avenue. Bryan Cereijo Bryan Cereijo

Q: A group of small business owners in Little Haiti were recently displaced by a new landlord who wants to redevelop the properties. What is your opinion on gentrification?

A: It’s a difficult question because there are pros and cons. I can take the liberal side and tell you what’s bad about evicting minority tenants from a place where they have been there a long time, and I can give you the other side, too. But we live in a capitalist society that has a rule of law. If you’re paying very low rent and you have a short-term lease and somebody comes in and buys that — not just a shop in Little Haiti but anywhere in the U.S. — chances are the landlord is looking to improve the property and maximize income. If we didn’t have that system, we would be a socialist society. Nobody can buy this property, that belongs to the government and we’re going to keep the rents at a certain level.

What happens if you keep the rents at a certain level? Very simple: You create ghettos. You will not improve the property if there is not a return on the improvement of the property.

Q: There’s a lot of this happening around Miami-Dade now. Wynwood, for example, is starting to experience it, too.

A: Gentrification and the process of investing to get higher returns is what has made this country great. It’s very hard to change that system. I go to Wynwood and I see all these incredible galleries that have made that neighborhood so great. But now they are being priced out. So you either become a different gallery and sell at a higher price or you have to go find a new location, like galleries did in New York when they moved to the Meatpacking District. And now the Meatpacking District is unaffordable! So they went to Brooklyn.

That’s the urban process and it does cause hardships. The government should maybe help in easing those hardships. But if government starts interfering with the private sector, that creates a lot of other problems. If a tenant has a shop where he pays $100 a month and the lease comes up and the neighborhood is now charging $400 a month, you can’t expect the landlord not to charge $400 a month. Business people are not in business to provide social services. They’re in business to make money.