An Insider’s Guide to the Miami Branded Condo Game, Barings' Manhattan Musical Chairs, Avison's Damage Control Tour

Inside the Miami Branded Condo Game 

A comely woman looking out onto the water, enjoying a tall drink and a Top Gun sunset 🌆 . Welcome to 99% of Miami condo campaigns. In a city where a luxury waterfront residence is the quintessential token of success, developers try a lot of different things to stand out to buyers, but it’s tricky: besides some variations in price, quality, finishing and location, you’re essentially building commoditized product. 

Enter the era of branded condos, in which a developer ties up with an internationally renowned luxury mark and outsources the tough task of creating an aura for the buyer. “They can start to get a picture of what the brand’s ethos is,” Michael Stern, whose JDS is building the just-announced 67-story Mercedes-Benz Places as well as the supertall 888 Brickell Dolce & Gabbana, told The Promote. “And they know the brand has vetted the developer.”

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Branded Condos (cont.)

It makes sense that Miami is at the epicenter of this trend (Only its spirit animal Dubai is a more luxury brand-obsessed city; the first Benz resi project is being developed by Binghatti there). It was pioneered in the U.S by Gil Dezer (blast of an interview with him here & a fun profile here) at Porsche Design Tower in Sunny Isles Beach, and branded condos are now all over the Miami skyline, with more than 2 dozen in the works.

But how does it all work from a developer’s perspective? I asked around.

It’s usually structured as a brand license deal, with initial 10-20Y terms (extensions possible). Developers cough up a cut of sales – anywhere from 1.5-2.5%. The brand also gets a greater cut of sales above the baseline price per foot (i.e. what comp unbranded product would go for), which is something agreed upon in advance. So let’s say (hypothetical) Jane Doe Tower is estimated to fetch $1,200 a foot, and then Ferrari 🏎️ comes along and buyers end up paying $2,000 foot.

• Ferrari would get 1.5-2% of all sales

• Ferrari would get 5% of that $800/foot premium     

Typical Miami branded-condo deals end up blending in the 3-3.5% range, a developer familiar with the process said. And each brand has different control-freak issues: some might care only about interiors, whereas others are militant about the tower’s facade. Even the way the partnership is referred to in marketing materials (can you say “tower” or “residences”) is hashed out and set in limestone. (Brands typically don’t have sway over the broker chosen to sell units – Stern tapped Ryan Serhant at Mercedes and the Alexander Bros.’ Official at 888 Brickell) 

The partnerships typically require developers to put in a lot of facetime with luxury brand HQs, sometimes even with top leadership at the fashion houses and auto titans - the flights to Europe pile up. It’s an expensive grind, but it can be worth it, and not just for the pricing premium.

These brands “know a lot about lifestyle, luxury, tech, design,” Stern said, declining to comment on his specific partnerships. “It’s about broadening your market and broadening your reach.” If a brand can cut through the noise, it can mean faster sales, which means “you’re paying less for carry, taxes, insurance,” he added. 

It’s hard to gauge just how well the branded-condo experiment is working overall without the full data. Right now, I’ve just got snippets: a source familiar with the JDS projects told me that at the Mercedes-Benz Places ($1.4B projected sellout), the developer is signing contracts blending at $1,600 a foot. JDS landed an $86M construction loan from Maxim in ‘22 for the 2.5M sf project, and was initially going rental before rates went nuts. I’m told the firm has a 9-figure equity investment in the project, which has $100M of foundation work in place.

Meanwhile, at the D&G joint at 888 Brickell ($1.3B sellout, originally slated for a collab w Carbone 🍖 parent Major Food Group), JDS is selling in the low $2Ks a foot), and hundreds of millions of dollars worth of product is already spoken for.

Barings’ Manhattan Musical Chairs

Barings is buying 1370 Sixth for about $160M ($470/ft) from Principal Financial Group’s RE arm. Principal is selling at a hefty loss – Midtown office towers aren’t exactly belles of the skyline at the moment – having bought the tower nearly 20Y ago for $217M ($638/ft). (Both the new deal and the previous one were brokered by Batman & Batman™️ , i.e. Doug Harmon & Adam Spies – then at Eastdil, now at Newmark). Barings had an interesting connection to the property: its parent, MassMutual, was the lender on a $150M refi Principal landed a decade ago – that debt is set to mature in October. 

But even as it landed a discount on one tower, it’s getting ready to take a bath on another: down at 100 Wall Street, Barings is shopping its 29-story tower for $125M-ish, TRD reports, less than half the $270M (a steep $528/foot) it (through a subsidiary) paid Savanna 9Y ago.

Secular Tailwinds, Godless Headaches

Blackstone final boss Steve Schwarzman landed a WSJ profile last week hailing him as “1 of the biggest and most unlikely champions of artificial intelligence.” Schwarzman, per the story, pledged $500M+ to AI education and research, and credits his awareness of the burgeoning field to a bus ride in Beijing during which Alibaba’s Jack Ma evangelized its potential. 

In standard Schwarzman fashion, his name is now all over top educational institutions 🎒 where the field will be studied: he gets a building at MIT ($350M donation) and one at Oxford ($240M). 

Meanwhile, his heir-apparent Jon Gray is steering the Blackstone real estate behemoth into the space: one of the firm’s recent megabets is on data center operator QTS, which Gray told Bloomberg he sees as a “lens into a very important part of the economy that has a lot of momentum. 

“AI will be a powerful force to make lives better,” Gray said.

In 2021, Blackstone acquired QTS in a $10B take-private, and has since splashed big sums on the development of data centers, leveraging its massive land bank. QTS now has a $15B development pipeline and its valuation has leaped to $25B as demand for data center capacity (and by extension, pricing - up from $70-$80/kilowatt to >$100 and even $150) has skyrocketed. 

Per Bloomberg: “At QTS, executives have told colleagues that if they make the case for more cash from Blackstone, they will all but get it."

Data centers, in the firm’s mind, will become the railroads of the new digital economy (DigitalBridge’s Marc Ganzi expressed a similar sentiment in an interview w me in ‘21). And not only will Blackstone own the 🛤️ , its perch could give it an early look at a host of other opportunities – using insights from leasing to bet on the most promising AI startups in the space, for e.g.   

While the company has been touting its “ready to shop” credentials (see “Funds Feeling Fund-y”) , a couple of recent black eyes worth noting

• Dropped its challenge to a RS ruling at Stuy Town that means the Manhattan megacomplex will permanently remain in the RS system (For more on how it won the deal in ‘15, read this banger, and this on its political reckoning)

• Now owes UC $560M, 2x what it did last quarter, as part of an intricate $4.5B deal it made with the university 🏫 system to buffer up BREIT 

Quickies

• Barry’s got a new #2, in Jonathan Pollack, Blackstone’s head of RE credit. Blackstone will not be replacing his position, the company said, instead pointing to its stacked credit team and recent corporate reshuffles that make a replacement unnecessary 🤷 .

• Crow Holdings closed a $3.1B fund, its biggest-ever: 35% of that’s slated for industrial, and 25% for multi (not this year though) - interestingly, zero allocation to office, hotel     

• LeFrak is so sick of how slow NYC Housing Court is that he’s taking it to court ⚖️ - delays have “surreally become normal”

• Pushed-out Silverstein CEO Marty Burger reveals his next act 

• Brooklyn Councilman Chi Ossé is once again taking on 1 of the weirdest aspects of being a New York renter - that you’re on the hook for the broker commission - (check out his 🔥 video here)

Avison’s “Damage Control”

Since news broke last week of Avison Young’s corporate debt default, CEO Mark Rose has been on a damage-control tour, telling Bisnow that “the next report you should be hearing from us is what we're investing in, who we're hiring and who we're buying.” He then went Full Metal Jacket.

When asked about the run of top brokers departing, Rose said some of them left because they were “starving to death and needed to take somebody's check to survive. And that's part of our business.”

“I can't come up with a top producer who has left us as opposed to people who have taken some checks,” he added. 

Meanwhile, BI had more deets on the restructuring, reporting that the Caisse (a major pref and equity investor in AY) gets warrants that allow it to recoup equity if AY’s value bounces back. Distressed-debt investor Arbour Lane Capital is also pumping money into Avison. 

"There's no layoffs, there's no cost cutting," Rose told BI. "We're facing forward with a fully revitalized balance sheet."

Unquotable Quotes

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