Miami to Borrow $243 Million for Troubled Office Building

(Bloomberg) -- Miami has become so pricey for renters that even the county wants to become its own landlord. It’s selling $234 million of municipal debt to do just that.

Florida’s most-populous county plans to use the proceeds of this week’s bond sale to purchase a mostly vacant, half-century old office building for several government departments. The move will allow the county to own its real estate rather than leasing, but some local officials see it as too high of a price for a building that was in financial trouble and sits about 13 miles west of downtown Miami.

“It’s better to own than to rent if you can afford it,” said Jimmy Morales, chief operations officer for the county. “Let’s invest. We’re not going away. It’s not like we’re going to relocate our headquarters.”

Unlike other major cities, Miami’s commercial real estate market is thriving. The city’s office building landscape is settling into a “vibrant” new normal after a post-pandemic frenzy, with near-historic levels of leasing, according to a second-quarter report from Jones Lang LaSalle Inc.  

New and high-quality properties in the area have been luring tenants, but the office building the county is purchasing is older. Built in 1974, it has undergone several renovations, including modernized escalators, a new food hall and fitness center amenities. 

The loans backing it were originated by billionaire Barry Sternlicht’s Starwood Mortgage Capital. That financing has run into trouble after the main tenant vacated the property, plummeting the occupancy level to roughly 20% at the end of 2023 and forcing the loan onto a watchlist last year. A spokesperson who works with Starwood said the company sold the loan in 2016 and no longer holds it. 

Miami-Dade County estimates it can save more than $860 million over 30 years by owning instead of renting. Plus, residents will no longer need to tote their paperwork around to dispersed department offices. A business could file for a building permit, request a fire inspection and appeal a property tax assessment all in one place — the so-called West Dade Government Center. 

After local pushback over the initial $205 million price tag, the county agreed to pay $182 million for the 625,000 square-foot building and 26 acres of land. Other proceeds of the borrowing will pay for renovations and some issuance costs, according to bond documents. 

The office building will “centralize county department services and resources in one of the fastest-growing regions of our county,” and save taxpayer dollars, said Board of County Commissioners Vice Chairman Anthony Rodriguez, who sponsored resolutions to purchase the property and sell the bonds. 

The bonds are backed by county revenue. Officials opted to issue special obligation debt, instead of a general obligation bond, to save time and avoid the hassle of obtaining voter approval, officials said. 

The idea for an office building purchase arose when the county’s Department of Regulatory and Economic Resources was staring down an expiring lease and rent hikes in its current location. 

“We had to do something,” said David Clodfelter, director of the Office of Management and Budget. “The market here right now is a little crazy. The leases have increased dramatically over the past few years.” 

Clodfelter said options were slim as the Internal Services department searched for an eligible property. When the office building at 9250 West Flagler Street hit the market, the county moved ahead. 

“It checked all the boxes for everyone,” Clodfelter said. Mayor Daniella Levine Cava’s administration led efforts to buy the property in December 2023. After residents and local publications scrutinized the price, the mayor’s office deferred the proposal until June and negotiated a $23 million reduction.

Deal Scrutiny

Several officials still argue the county is entering into a bad deal. According to the county’s resolution to purchase the building, tenants at the time of the purchase price agreement occupied less than a quarter of the building’s 467,000 rentable square feet. The eight county departments moving to the building will fill it completely. 

Commissioner René Garcia, whose inland district includes the city of Hialeah, voted against the bond sale on July 2, protesting that the adjusted price was still too high. 

“Just because we’re a government doesn’t mean we should be throwing money out the door,” Garcia said in an interview. “I think the county could’ve gotten a much better deal for the property.” 

The building is located in the Fontainebleau neighborhood west of Miami. It was constructed in the 1970s as the headquarters for Florida Power & Light, the state’s largest power utility. 

Proponents of the sale say the new price is a good deal and lower than two independent appraisals. They also point to 26 acres of land that the county could use for affordable or workforce housing. 

Moody’s rates the bond sale Aa2, the third highest level and the same as the county’s credit grade because of the “breadth of the basket of revenues” securing the bond, according to a report. S&P Global Ratings assigned it an equivalent AA rating. 

--With assistance from Katherine Chiglinsky, Scott Carpenter, John Gittelsohn and Felipe Marques.

(Adds comment from spokesperson for Starwood.)

More stories like this are available on bloomberg.com

©2024 Bloomberg L.P.